<PAGE> 1
As filed with the Securities and Exchange Commission on
December 29, 1997
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. 34 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 36 [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 LLP
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:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2), of Rule 485.
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
-----------------------------------
Title of Securities being registered: Shares of Beneficial Interest
<PAGE> 3
THE PAYDEN & RYGEL INVESTMENT GROUP
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration Statement
- - -------- ---- ----------------------
<S> <C> <C>
Part A: Information Required in Prospectus
1. Cover Page Cover Page
2. Synopsis Funds In Review and Expense
Information
3. Condensed Financial Financial Highlights
Information
4. General Description Investment Objectives
of Registrant and Policies; Dividends,
Distributions and Taxes
5. Management of Management of the
the Fund Funds
5A. Management's Discussion Contained in Registrant's
of Fund Performance annual report
6. Capital Stock and How to Purchase Shares;
Other Securities Dividends, Distributions and
Taxes; Shareholder Services
7. Purchase of Securities How to Purchase Shares;
Being Offered Management of the Funds;
Net Asset Value
8. Redemption or Redemption of Shares
Repurchase
9. Pending Legal Not Applicable
Proceedings
</TABLE>
-i-
<PAGE> 4
Part B: Information Required in
Statement of Additional Information
<TABLE>
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objectives
and Policies and Policies; Fundamental
and Operating Policies
14. Management of the Management of the Group
Registrant
15. Control Persons and Management of the Group
Principal Holders of
Securities
16. Investment Advisory Management of the Group;
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 Group
22. Calculation of Fund Performance
Performance Data
23. Financial Statements Other Information
</TABLE>
-ii-
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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.
-iii-
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PAYDEN & RYGEL
FIXED INCOME FUNDS
Limited Maturity Fund
Short Bond Fund
U.S. Government Fund
Intermediate Bond Fund
Investment Quality Bond Fund
Total Return Fund
High Income Fund
TAX EXEMPT FUNDS
Short Duration Tax Exempt Fund
Tax Exempt Bond Fund
EQUITY FUNDS
Growth & Income Fund
Market Return Fund
GLOBAL FUNDS
Global Short Bond Fund
Global Fixed Income Fund
Global Balanced Fund
European Growth & Income Fund
International Equity Fund
PROSPECTUS
DECEMBER 30, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Funds in Review................................................... 1
Expense Information .............................................. 5
Financial Highlights.............................................. 9
Net Asset Value................................................... 26
Dividends, Distributions and Taxes................................ 26
Investment Objectives and Policies ............................... 29
Investment Practices.............................................. 41
Management of the Funds........................................... 58
Shareholder Services.............................................. 63
Redemption of Shares.............................................. 66
How to Purchase Shares............................................ 67
Appendix A - Description of Ratings............................... 70
Appendix B - MSCI Europe Index.................................... 78
</TABLE>
<PAGE> 8
PAYDEN & RYGEL INVESTMENT GROUP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(800) 5PAYDEN
(213) 625-1900
The Payden & Rygel Investment Group (the "Group") is a professionally managed,
no-load, open-end management investment company. The Group currently consists of
a number of distinct portfolios with separate investment objectives. Information
about sixteen of the portfolios (each a Fund), including the investment
objectives of the Funds, the types of securities in which each Fund may invest,
and applicable investment policies and restrictions, is set forth in this
Prospectus. There can be no assurance that the Funds' investment objectives will
be achieved. Because the market value of each Fund's investments will change,
the net asset value per share of the Funds also will vary.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. Payden & Rygel (the "Adviser") serves
as investment adviser for each of these Funds. Payden & Rygel has been in the
investment advisory business for 14 years and manages assets of over $22
billion.
A Statement of Additional Information, dated December 30, 1997, containing
additional information about each Fund, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. It is
available without charge and may be obtained by writing the Group at 333 South
Grand Avenue, Los Angeles, California 90071 or by telephone at (213) 625-1900,
or (800) 5PAYDEN (800-572-9336).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus should be read and retained for reference to information about
the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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 December 30, 1997.
<PAGE> 9
FUNDS IN REVIEW
This summary is designed to provide a brief overview of each of the Funds,
including their investment objectives. A more detailed discussion of each Fund's
objectives and investment policies may be found under "Investment Objectives and
Policies." There can be no assurance that the Funds' objectives will be
achieved. Complete information on how to purchase, redeem and exchange shares
may be found under "Shareholder Services," "Redemption of Shares" and "How To
Purchase Shares."
FUND DESCRIPTIONS
FIXED INCOME FUNDS
Each Fixed Income Fund invests in debt obligations which pay principal and
interest in U.S. dollars. In addition, for each Fixed Income Fund other than the
High Income and Total Return Funds, all such debt obligations are "investment
grade" at the time of purchase. Investment grade means that each security has
been rated by at least one of the established rating agencies in one of its four
top categories (e.g., AAA, AA, A, or BBB by Standard & Poor's Corporation), or
if unrated, is determined by the Adviser to be of comparable quality. The High
Income Fund invests at least 65% of its total assets in fixed income securities
rated below investment grade and may invest a portion of its assets in
securities which pay principal and interest in foreign currencies. In addition,
the Total Return Fund may invest up to 25% of its assets in fixed income
securities that are below investment grade and may invest a portion of its
assets in securities which pay principal and interest in foreign currencies.
The Limited Maturity Fund seeks to earn a total return that, over time, is
greater than that available from money market funds. Each other Fixed Income
Fund invests to earn a high level of total return, consistent with preservation
of capital. No Fund is constrained as to the final maturity of any single
investment. However, the average maturity of its portfolio is, under normal
market conditions, held to the limits discussed below.
The LIMITED MATURITY FUND is aimed at investors seeking more income than offered
from a money market fund and willing to accept some share-price volatility. The
Fund invests primarily in U.S. Treasuries and government agency securities,
money market securities, investment grade corporate debt and mortgage-backed
securities. Average portfolio maturity generally ranges between four and nine
months.
The SHORT BOND FUND invests primarily in U.S. Treasuries and government agency
securities, money market securities and investment grade corporate debt and
mortgage-backed securities. The Fund maintains a relatively short average
portfolio maturity of no more than three years.
The U.S. GOVERNMENT FUND (formerly the U.S. Treasury Fund) invests primarily in
a portfolio consisting of U.S. Government Obligations.
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The Fund may invest in obligations of any maturity up to five years.
The INTERMEDIATE BOND FUND invests primarily in intermediate-term fixed income
securities of the same types as the Limited Maturity Fund. Most investments
mature within ten years. Average portfolio maturity is generally between three
and six years.
The INVESTMENT QUALITY BOND FUND invests in the same types of securities as the
Limited Maturity Fund, but of any maturity. Average portfolio maturity is
generally less than ten years.
The TOTAL RETURN FUND generally invests in the same types of debt obligations as
the Limited Maturity Fund. However, the Total Return Fund can invest a portion
of its assets in foreign bonds denominated in foreign currencies, and up to 25%
of its total assets in below investment grade debt. Securities below investment
grade, commonly referred to as "high yield bonds" or "junk bonds," are
speculative and subject to greater market fluctuations and risk of loss of
principal and income than higher rated bonds. The Fund is not constrained with
respect to its average maturity.
The HIGH INCOME FUND seeks to provide high current income while providing the
potential for capital appreciation through investment in a professionally
managed, diversified portfolio consisting principally of higher yielding, below
investment grade bonds. Securities below investment grade, commonly known as
"high yield bonds" or "junk bonds," are speculative and subject to greater
market fluctuations and risk of loss of principal and income than higher rated
bonds. The Fund invests at least 65% of its assets in such high yield bonds and
may also invest up to 20% of its total assets in convertible bonds, preferred
stocks, Brady bonds, or bonds of issuers organized or headquartered in "emerging
markets." The average maturity of the portfolio will generally be less than
eight years.
TAX EXEMPT FUNDS
The Short Duration Tax Exempt Fund and the Tax Exempt Bond Fund each invests
primarily in debt obligations which are exempt from federal income tax. Both
Funds invest only in investment grade securities.
The SHORT DURATION TAX EXEMPT FUND is designed for investors seeking tax-exempt
income from short-term debt. The Fund normally maintains an average portfolio
maturity of one to four years.
The TAX EXEMPT BOND FUND invests primarily in intermediate-term tax-exempt
securities. The Fund normally maintains an average portfolio maturity of between
five and ten years.
EQUITY FUNDS
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<PAGE> 11
The GROWTH & INCOME FUND seeks to provide growth of capital and some current
income. The Fund normally invests approximately half of its total assets in the
ten stocks in the Dow Jones Industrial Average with the highest dividend yields.
The remaining assets are invested in securities intended to replicate the total
return of the Standard & Poor's 500 Stock Price Index (the "S&P 500 Index"),
normally Standard & Poor's Depositary Receipts or additional common stocks.
The MARKET RETURN FUND seeks to outperform the S&P 500 Index by investing in a
combination of S&P 500 Index futures contracts and a portfolio of investment
grade fixed income securities. However, the Market Return Fund may also invest
up to 25% of its assets in debt obligations payable in foreign currencies, and
up to 25% of its total assets in below investment grade debt. Securities below
investment grade, commonly referred to as "high yield bonds" or "junk bonds,"
are speculative and subject to greater market fluctuations and risk of loss of
income and principal than higher rated bonds.
GLOBAL FUNDS
The objective of the International Equity Fund is long-term capital
appreciation. The objective of the European Growth & Income Fund is capital
appreciation and some current income. The objective of each other Global Fund is
to realize a high level of total return, consistent with preservation of
capital.
The GLOBAL SHORT BOND FUND and the GLOBAL FIXED INCOME FUND each invests in U.S.
and foreign debt securities that are rated at the time of purchase as investment
grade. In order to hedge foreign currency exposure, the Funds have substantial
investment in foreign currency contracts. The Global Short Bond Fund normally
maintains an average portfolio maturity of one to three years. The Global Fixed
Income Fund normally maintains an average portfolio maturity of no more than ten
years.
The GLOBAL BALANCED FUND invests in common stocks, bonds, and money market
instruments of both domestic and foreign issuers. The proportion of assets
invested in each asset class will vary from time to time based upon the
Adviser's determination of expected returns and risks.
The INTERNATIONAL EQUITY FUND invests in equity securities (common and preferred
stock) of issuers whose corporate headquarters are outside the United States
("foreign equities"). Normally, the Fund's assets are invested in securities of
issuers headquartered in at least five different countries.
The EUROPEAN GROWTH & INCOME FUND normally invests its assets in common stocks
of approximately ten issuers located in each of France, Germany, the Netherlands
and the
3
<PAGE> 12
United Kingdom. In each country, the Fund selects the ten stocks with the
highest dividend yield. These stocks come from among the thirty issuers with the
largest market capitalizations which are included in the country's leading stock
index. The Fund, also known as the "Euro Dogs" Fund, follows investment
objectives and policies that are analogous to the Group's Growth & Income Fund.
INVESTMENT RISKS AND CONSIDERATIONS
Because each Fixed Income Fund, each Tax Exempt Fund, each Global Fund (other
than the International Equity and the European Growth & Income Funds) and the
Market Return Fund invests or may invest principally in debt securities, the
value of its portfolio will generally vary inversely with changes in interest
rates, and each Fund's ability to achieve its investment objective will depend
on the ability of issuers to pay their debt obligations when due.
The Growth & Income, International Equity and European Growth & Income Funds
each invests, and the Global Balanced Fund may invest, principally in equity or
equity-based securities. Although equity securities have a history of long-term
growth in value, their prices fluctuate based on changes in the issuer's
financial condition and prospects, and on overall market and economic
conditions.
The Total Return, Market Return, Global Fixed Income, Global Short Bond, Global
Balanced and High Income Funds each purchases debt obligations that are payable
in foreign currencies. The acquisition of securities issued by foreign
governments and foreign companies and denominated in foreign currencies involves
investment risks that are different in some respects from those incurred by a
fund that invests only in debt obligations of U.S. governmental entities and
domestic companies, including differences in reporting standards; adverse
changes in investment, exchange or tax control regulations; political
instability; changes in exchange rates; greater portfolio volatility; additional
transaction costs; less government regulation of securities markets, brokers and
issuers; possible difficulty in obtaining and enforcing judgments in foreign
courts; and imposition of restrictions on foreign investments.
The High Income Fund invests at least 65% of its assets in below investment
grade securities. These securities are regarded by the rating agencies as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments and generally involve more risk of loss of
principal and income than investment grade securities. In addition, each of the
Total Return and Market Return Funds may invest up to 25% of its total assets in
below investment grade debt.
Each of the International Equity, Global Balanced and High Income Funds may also
invest up to 20% of its assets in securities of issuers organized or
headquartered in "emerging market countries," which may include developing
countries or countries with new or developing markets. Investing in securities
of emerging market countries involves certain risks and
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<PAGE> 13
considerations that are not typically associated with investing in the United
States or other developed countries.
INVESTMENT ADVISER AND SUB-ADVISER
Payden & Rygel serves as Adviser to each Fund. The Adviser has retained Scottish
Widows Investment Management as Sub-adviser to the International Equity and
European Growth & Income Funds and to a portion of the Global Balanced Fund. See
"Management of the Funds."
PURCHASE AND REDEMPTION OF SHARES
Each Fund offers Class R Shares and Class S Shares (previously designated Class
A Shares and Class B Shares, respectively). All classes of shares of each Fund
are offered through Payden & Rygel Distributors with no sales charge for any
class. In general, the minimum initial investment is $5,000, and the minimum
additional investment is $1,000. However, the minimum investment for the Class R
and Class S Shares of the Limited Maturity, Short Bond, Intermediate Bond, Total
Return and Global Short Bond Funds is $100,000. In addition, tax-sheltered
Retirement Plans and the Automated Investment Programs require different minimum
investments. See "Shareholder Services" and "How to Purchase Shares." Class S
Shares are subject to Shareholder Service Plan fees of 0.25% of average daily
net assets. Class R Shares do not participate in the Plan and do not pay these
fees. Shares of each Fund may be exchanged for any class of shares of any other
Fund or portfolio of the Group, or for the other class of shares of the Fund.
Shares of each Fund may be redeemed or exchanged without cost at the net asset
value per share of the Fund next determined after receipt of a request in proper
form. The redemption or exchange price may be more or less than the purchase
price.
EXPENSE INFORMATION
All classes of shares are offered to investors on a no-load basis without any
sales commissions or distribution ("12b-1 plan") charges.
ANNUAL FUND OPERATING EXPENSES
(For Class R Shares of each Fund other than the High Income Fund, as a
percentage of average net assets for the fiscal year ended October 31, 1997. For
Class R Shares of the High Income Fund and Class S Shares of all Funds, as an
estimated percentage of average net assets for the
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fiscal year ending October 31, 1998. Except as otherwise indicated, after
reimbursement of Advisory Fees and Other Expenses.)
<TABLE>
<CAPTION>
CLASS R SHARES CLASS S SHARES
--------------------------------------- -------------------------------------------
OTHER TOTAL FUND OTHER EXPENSES TOTAL FUND
ADVISORY FEES EXPENSES EXPENSES ADVISORY FEES (ESTIMATED)* EXPENSES
------------- -------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
FIXED INCOME FUNDS
Limited Maturity Fund 0.28% 0.02% 0.30% 0.28% 0.27% 0.55%
Short Bond Fund 0.28% 0.12% 0.40% 0.23% 0.37% 0.55%
U.S. Government Fund 0.28% 0.17% 0.45% 0.23% 0.42% 0.60%
Intermediate Bond Fund 0.28% 0.17% 0.45% 0.23% 0.42% 0.65%
Investment Quality Bond Fund** 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
Total Return Fund** 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
High Income Fund 0.35% 0.20% 0.55% 0.35% 0.45% 0.80%
TAX EXEMPT FUNDS
Short Duration Tax Exempt Fund 0.32% 0.13% 0.45% 0.32% 0.38% 0.70%
Tax Exempt Bond Fund 0.32% 0.13% 0.45% 0.32% 0.38% 0.70%
EQUITY FUNDS
Growth & Income Fund** 0.30% 0.24% 0.54% 0.30% 0.55% 0.85%
Market Return Fund** 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
GLOBAL FUNDS
Global Short Bond Fund** 0.30% 0.15% 0.45% 0.30% 0.40% 0.70%
Global Fixed Income Fund** 0.30% 0.19% 0.49% 0.30% 0.44% 0.74%
Global Balanced Fund** 0.50% 0.20% 0.70% 0.50% 0.45% 0.95%
International Equity Fund** 0.60% 0.30% 0.90% 0.60% 0.55% 1.15%
European Growth & Income Fund ** 0.40% 0.29% 0.69% 0.40% 0.55% 0.95%
</TABLE>
* Includes Shareholder Service Plan fee of 0.25%.
** Annualized estimate for the fiscal year ending October 31, 1997.
The Adviser has voluntarily agreed to waive (a) 0.05% of its advisory fee for
each of the Short Bond, U.S. Government, and Intermediate Bond Funds and 0.20%
of its advisory fee for the Growth & Income Fund through October 31, 1998, and
(b) 0.35% of its advisory fee for the High Income Fund through June 30, 1998. In
addition, the Adviser has guaranteed that, for so long as it
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acts as investment adviser to a Fund, the total expenses of the Fund, 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 the percentage listed below of the
Fund's average daily net assets on an annualized basis. In that regard, the
Adviser has voluntarily agreed to lower the expense guarantees for the Limited
Maturity Fund from 0.60% to 0.40% for the Class R shares and 0.85% to 0.65% for
the Class S shares through October 31, 1998. Finally, the Adviser has
voluntarily agreed to temporarily limit each Fund's expense ratio on an
annualized basis through October 31, 1998 (exclusive of interest, taxes,
portfolio transaction expenses, blue sky fees, 12b-1 plan fees [if any such plan
is adopted in the future] and extraordinary expenses) as listed below.
FUND EXPENSE LIMITS
<TABLE>
<CAPTION>
CLASS R SHARES CLASS S SHARES
------------------------------------- -------------------------------------
CURRENT VOLUNTARY CURRENT VOLUNTARY
EXPENSE GUARANTEE EXPENSE LIMIT EXPENSE GUARANTEE EXPENSE LIMIT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
FIXED INCOME FUNDS
Limited Maturity Fund 0.40% 0.30% 0.65% 0.55%
Short Bond Fund 0.60% 0.30% 0.85% 0.55%
U.S. Government Fund 0.60% 0.35% 0.85% 0.60%
Intermediate Bond Fund 0.60% 0.40% 0.85% 0.65%
Investment Quality Bond Fund 0.60% 0.45% 0.85% 0.70%
Total Return Fund 0.60% 0.45% 0.85% 0.70%
High Income Fund 0.75% 0.55% 1.00% 0.80%
TAX EXEMPT FUNDS
Short Duration Tax Exempt Fund 0.60% 0.45% 0.85% 0.70%
Tax Exempt Bond Fund 0.60% 0.50% 0.85% 0.75%
EQUITY FUNDS
Growth & Income Fund 0.80% 0.54% 1.05% 0.85%
Market Return Fund 0.60% 0.45% 0.85% 0.70%
GLOBAL FUNDS
Global Short Bond Fund 0.70% 0.45% 0.95% 0.70%
Global Fixed Income Fund 0.70% 0.95%
Global Balanced Fund 0.85% 0.70% 1.10% 0.95%
International Equity Fund 1.05% 0.90% 1.30% 1.15%
European Growth & Income Fund 0.90% 0.70% 1.15% 0.95%
</TABLE>
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Each Fund will reimburse the Adviser for fees foregone or other expenses paid by
it in any fiscal year pursuant to the expense guarantee or voluntary expense cap
at a later date, without interest, so long as such reimbursement will not cause
the annual expense ratio for the year in which it is made to exceed the amount
of the expense guarantee or voluntary expense cap (whichever is in effect at the
time of reimbursement). No Fund will be required to repay any unreimbursed
amounts to the Adviser upon termination of its investment management contract
with respect to the Fund. Actual expenses for the Class R Shares of the Funds
for the fiscal year ended October 31, 1997, before reimbursement by the Adviser,
were as follows: Limited Maturity Fund, 0.52%; Short Bond Fund, 0.49%; U.S.
Government Fund (formerly the U.S. Treasury Fund), 0.63%; Intermediate Bond
Fund, 0.55%; Investment Quality Bond Fund, 0.53%; Short Duration Tax Exempt
Fund, 0.62%; Tax Exempt Bond Fund, 0.59%; Market Return Fund, 0.96%; Global
Short Bond Fund, 0.53%; Global Fixed Income Fund, 0.49%; Total Return Fund,
0.69%; International Equity Fund, 1.57%; European Growth & Income Fund, 2.48%;
Global Balanced Fund, 1.64%; and Growth & Income Fund, 0.89%. Actual expenses
for Class R Shares and Class S Shares of the High Income Fund for the fiscal
year ending October 31, 1998, before reimbursement by the Adviser, are estimated
to be 1.00% and 1.25%, respectively, of average daily net assets (annualized).
No Class S Shares of any Fund were sold during the fiscal year ended October 31,
1997.
The following table illustrates the expenses a shareholder would pay on a $1,000
investment over various time periods assuming (1) a 5% annual return and (2)
redemption at the end of each time period. As noted above, there are no Fund
redemption fees of any kind.
EXPENSES PER $1,000 INVESTMENT
<TABLE>
<CAPTION>
CLASS R SHARES CLASS S SHARES
---------------------------------------- ----------------------------------------
FIXED INCOME FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------ ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Limited Maturity Fund $3 $11 $17 $ 38 $ 6 $18 $31 $ 71
Short Bond Fund $4 $13 $22 $ 51 $ 7 $21 $37 $ 83
U.S. Government Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
Intermediate Bond Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
Investment Quality Bond Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
Total Return Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Income Fund $6 $18 $ 8 $26
TAX EXEMPT FUNDS
Short Duration Tax Exempt Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
Tax Exempt Bond Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
EQUITY FUNDS
Growth & Income Fund $6 $18 $30 $ 68 $ 9 $27 $47 $106
Market Return Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
GLOBAL FUNDS
Global Short Bond Fund $5 $15 $25 $ 57 $ 7 $23 $40 $ 89
Global Fixed Income Fund $5 $17 $30 $ 67 $10 $31 $53 $118
Global Balanced Fund $7 $22 $39 $ 87 $10 $31 $53 $118
International Equity Fund $9 $29 $50 $112 $12 $37 $64 $141
European Growth & Income Fund $7 $22 $39 $ 87 $10 $31 $53 $118
</TABLE>
The information in the table is provided for purposes of assisting current and
prospective shareholders in understanding the various costs and expenses that an
investor will bear, directly or indirectly. The hypothetical annual return of 5%
is used for illustrative purposes only and should not be interpreted as an
estimate of any Fund's annual returns, as there can be no guarantee of any
Fund's future performance.
FINANCIAL HIGHLIGHTS
The following financial highlights are included to assist shareholders in
evaluating the performance of the Funds since their commencement of operations
through October 31, 1997. The information set forth in these tables for each of
the years in the five year period ending October 31, 1997, has been derived from
financial statements and financial highlights audited by Deloitte & Touche LLP,
independent auditors, whose report thereon was unqualified. The information
should be read in conjunction with the Funds' financial statements and notes
thereto, which appear in the 1997 Annual Report to Shareholders, incorporated by
reference in the Statement of Additional Information. Class S Shares were not
sold during the period, and the High Income Fund was not open during the period.
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PAYDEN & RYGEL
LIMITED MATURITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.06 $ 10.06 $ 10.00 $ 10.00
-------- ------- ------- -------
Income (loss) from investment activities:
Net investment income 0.54 0.53 0.56 0.19
Net realized and unrealized gains (losses) -- -- 0.07 (0.01)
-------- ------- ------- -------
Total from investment activities 0.54 0.53 0.63 0.18
Distributions to shareholders:
From net investment income (0.54) (0.53) (0.57) (0.18)
-------- ------- ------- -------
Total distributions to shareholders (0.54) (0.53) (0.57) (0.18)
Net asset value, end of period $ 10.06 $ 10.06 $ 10.06 $ 10.00
======== ======= ======= =======
Total return 5.46% 5.41% 6.43% 1.84%(b)
Ratios/supplemental data:
Net assets at end of period (000) $152,429 $50,771 $18,414 $14,248
Ratio of expenses to average net assets 0.30% 0.30% 0.33% 0.41%(c)
Ratio of net investment income to average
net assets 5.52% 5.45% 5.59% 4.74%(c)
Ratio of expenses to average net assets prior
to subsidies 0.52% 0.62% 0.83% 2.92%(c)
Ratio of net investment income to average
net assets prior to subsidies 5.30% 5.13% 5.09% 2.23%(c)
Portfolio turnover rate 135% 217% 166% 86%(c)
</TABLE>
(a) The Fund commenced operations on May 1, 1994.
(b) Not annualized
(c) Annualized
10
<PAGE> 19
PAYDEN & RYGEL
SHORT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31 OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.97 $ 10.04 $ 9.68 $ 10.00
------- ------- ------- -------
Income (loss) from investment activities:
Net investment income 0.58 0.54 0.54 0.34
Net realized and unrealized gains (losses) (0.05) (0.06) 0.36 (0.32)
------- ------- ------- -------
Total from investment activities 0.53 0.48 0.90 0.02
Distributions to shareholders:
From net investment income (0.58) (0.54) (0.54) (0.34)
From net realized gains -- (0.01) -- --
------- ------- ------- -------
Total distributions to shareholders (0.58) (0.55) (0.54) (0.34)
Net asset value, end of period $ 9.92 $ 9.97 $ 10.04 $ 9.68
======= ======= ======= =======
Total return 5.52% 4.86% 9.56% 0.21%(b)
Ratios/supplemental data:
Net assets at end of period (000) $94,256 $97,966 $19,157 $ 2,592
Ratio of expenses to average net assets 0.40% 0.40% 0.40% 0.48%(c)
Ratio of net investment income to average
net assets 6.00% 5.67% 5.72% 4.47%(c)
Ratio of expenses to average net assets prior
to subsidies 0.49% 0.57% 1.03% 4.56%(c)
Ratio of net investment income to average
net assets prior to subsidies 5.91% 5.50% 5.09% 0.39%(c)
Portfolio turnover rate 208% 212% 170% 187%(c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
11
<PAGE> 20
PAYDEN & RYGEL
U.S. GOVERNMENT FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(a)
----------- ----------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.54 $ 10.61 $ 10.00
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income 0.60 0.58 0.53
Net realized and unrealized gains (losses) 0.02 (0.04) 0.61
---------- ---------- ----------
Total from investment activities 0.62 0.54 1.14
Distributions to shareholders:
From net investment income (0.60) (0.58) (0.53)
From net realized gains -- (0.03) --
---------- ---------- ----------
Total distributions to shareholders (0.60) (0.61) (0.53)
Net asset value, end of period $ 10.56 $ 10.54 $ 10.61
========== ========== ==========
Total return 6.10% 5.20% 11.61%(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 15,479 $ 22,114 $ 10,894
Ratio of expenses to average net assets 0.45% 0.45% 0.45%(c)
Ratio of net investment income to average net assets 5.49% 5.59% 6.31%(c)
Ratio of expenses to average net assets prior to subsidies 0.63% 0.78% 1.84%(c)
Ratio of net investment income to average net assets prior
to subsidies 5.31% 5.26% 4.92%(c)
Portfolio turnover rate 160% 152% 87%(c)
</TABLE>
(a) The Fund commenced operations on January 1, 1995.
(b) Not annualized
(c) Annualized
12
<PAGE> 21
PAYDEN & RYGEL
INTERMEDIATE BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.60 $ 9.85 $ 9.30 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment activities:
Net investment income 0.56 0.56 0.57 0.35
Net realized and unrealized gains (losses) 0.11 (0.17) 0.55 (0.70)
---------- ---------- ---------- ----------
Total from investment activities 0.67 0.39 1.12 (0.35)
Distributions to shareholders:
From net investment income (0.56) (0.56) (0.57) (0.35)
From net realized gains -- (0.08) -- --
---------- ---------- ---------- ----------
Total distributions to shareholders (0.56) (0.64) (0.57) (0.35)
Net asset value, end of period $ 9.71 $ 9.60 $ 9.85 $ 9.30
========== ========== ========== ==========
Total return 7.26% 4.06% 12.43% (3.52%)(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 80,766 $ 52,767 $ 34,391 $ 14,312
Ratio of expenses to average net assets 0.45% 0.45% 0.45% 0.46%(c)
Ratio of net investment income to average
net assets 5.96% 5.90% 6.10% 5.39%(c)
Ratio of expenses to average net assets
prior to subsidies 0.55% 0.58% 0.68% 2.03%(c)
Ratio of net investment income to average
net assets prior to subsidies 5.86% 5.77% 5.87% 3.82%(c)
Portfolio turnover rate 192% 196% 189% 358%(c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
13
<PAGE> 22
PAYDEN & RYGEL
INVESTMENT QUALITY BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.81 $ 9.96 $ 9.09 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment activities:
Net investment income 0.58 0.63 0.57 0.37
Net realized and unrealized gains (losses) 0.22 (0.17) 0.87 (0.91)
---------- ---------- ---------- ----------
Total from investment activities 0.80 0.46 1.44 (0.54)
Distributions to shareholders:
From net investment income (0.60) (0.61) (0.57) (0.37)
---------- ---------- ---------- ----------
Total distributions to shareholders (0.60) (0.61) (0.57) (0.37)
Net asset value, end of period $ 10.01 $ 9.81 $ 9.96 $ 9.09
========== ========== ========== ==========
Total return 8.44% 4.86% 16.39% (5.49%)(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 94,987 $ 32,304 $ 25,822 $ 3,030
Ratio of expenses to average net assets 0.45% 0.00% 0.45% 0.49%(c)
Ratio of net investment income to average
net assets 6.03% 6.41% 6.20% 5.25%(c)
Ratio of expenses to average net assets
prior to subsidies 0.53% 0.64% 1.11% 4.52%(c)
Ratio of net investment income to average
net assets prior to subsidies 5.95% 5.77% 5.55% 1.22%(c)
Portfolio turnover rate 317% 197% 252% 513%(c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
14
<PAGE> 23
PAYDEN & RYGEL
TOTAL RETURN FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1997(a)
------------
<S> <C>
Net asset value, beginning of period $ 10.00
----------
Income (loss) from investment activities:
Net investment income 0.46
Net realized and unrealized gains (losses) 0.23
----------
Total from investment activities 0.69
Distributions to shareholders:
From net investment income (0.44)
----------
Total distributions to shareholders (0.44)
Net asset value, end of period $ 10.25
==========
Total return 7.10%(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 98,863
Ratio of expenses to average net assets 0.45%(c)
Ratio of net investment income to average net assets 6.21%(c)
Ratio of expenses to average net assets prior to subsidies 0.69%(c)
Ratio of net investment income to average net assets prior
to subsidies 5.97%(c)
Portfolio turnover rate 206%(c)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
15
<PAGE> 24
PAYDEN & RYGEL
SHORT DURATION TAX EXEMPT FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.01 $ 10.08 $ 9.93 $ 10.00
---------- ---------- ---------- ----------
Income (loss) from investment activities:
Net investment income 0.38 0.38 0.42 0.04
Net realized and unrealized gains (losses) 0.07 (0.06) 0.15 (0.07)
---------- ---------- ---------- ----------
Total from investment activities 0.45 0.32 0.57 (0.03)
Distributions to shareholders:
From net investment income (0.38) (0.38) (0.42) (0.04)
From net realized gains -- (0.01) -- --
---------- ---------- ---------- ----------
Total distributions to shareholders (0.38) (0.39) (0.42) (0.04)
Net asset value, end of period $ 10.08 $ 10.01 $ 10.08 $ 9.93
========== ========== ========== ==========
Total return 4.55% 3.28% 5.88% (0.35%)(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 38,176 $ 36,336 $ 16,019 $ 20,150
Ratio of expenses to average net assets 0.45% 0.45% 0.45% 0.45%(c)
Ratio of net investment income to average
net assets 3.75% 3.81% 4.12% 3.20%(c)
Ratio of expenses to average net assets
prior to subsidies 0.62% 0.70% 0.91% 2.87%(c)
Ratio of net investment income to average
net assets prior to subsidies 3.58% 3.56% 3.66% 0.78%(c)
Portfolio turnover rate 57% 35% 80% 0%(c)
</TABLE>
(a) The Fund commenced operations on September 1, 1994.
(b) Not annualized
(c) Annualized
16
<PAGE> 25
PAYDEN & RYGEL
TAX EXEMPT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(a)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.47 $ 9.59 $ 8.90 $ 10.00
----------- ----------- ----------- -----------
Income (loss) from investment activities:
Net investment income 0.44 0.45 0.46 0.33
Net realized and unrealized gains (losses) 0.24 (0.12) 0.69 (1.10)
----------- ----------- ----------- -----------
Total from investment activities 0.68 0.33 1.15 (0.77)
Distributions to shareholders:
From net investment income (0.44) (0.45) (0.46) (0.33)
----------- ----------- ----------- -----------
Total distributions to shareholders (0.44) (0.45) (0.46) (0.33)
Net asset value, end of period $ 9.71 $ 9.47 $ 9.59 $ 8.90
=========== =========== =========== ===========
Total return 7.33% 3.52% 13.25% (7.85%)(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 57,579 $ 49,862 $ 40,052 $ 25,474
Ratio of expenses to average net assets 0.45% 0.45% 0.45% 0.50%(c)
Ratio of net investment income to average
net assets 4.60% 4.73% 4.97% 4.47%(c)
Ratio of expenses to average net assets
prior to subsidies 0.59% 0.61% 0.74% 1.07%(c)
Ratio of net investment income to average
net assets prior to subsidies* 4.46% 4.57% 4.69% 3.90%(c)
Portfolio turnover rate 42% 23% 42% 98%(c)
</TABLE>
(a) The Fund commenced operations on December 21, 1993.
(b) Not annualized
(c) Annualized
17
<PAGE> 26
PAYDEN & RYGEL
GROWTH & INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
1997 (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) 2.74
--------
Total from investment activities 2.91
Distributions to shareholders:
From net investment income (0.14)
--------
Total distributions to shareholders (0.14)
Net asset value, end of period $ 12.77
========
Total return 29.19%
Ratios/supplemental data:
Net assets at end of period (000) $150,944
Ratio of expenses to average net assets 0.54%
Ratio of net investment income to average net assets 1.60%
Ratio of expenses to average net assets prior to subsidies and waivers 0.89%
Ratio of net investment income to average net assets prior
to subsidies and waivers 1.25%
Portfolio turnover rate 2%
Average Commissions $ 0.0300(b)
</TABLE>
(a) The Fund commenced operations on November 1, 1996.
(b) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which commissions
were charged
18
<PAGE> 27
PAYDEN & RYGEL
MARKET RETURN FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 (a)
------------ ------------
<S> <C> <C>
Net asset value, beginning of period $ 10.86 $10.00
------- ------
Income (loss) from investment activities:
Net investment income 0.63 0.50
Net realized and unrealized gains (losses) 2.64 0.86
------- ------
Total from investment activities 3.27 1.36
Distributions to shareholders:
From net investment income (0.63) (0.50)
From net realized gains (0.70) --
------- ------
Total distributions to shareholders (1.33) (0.50)
Net asset value, end of period $ 12.80 $10.86
======= ======
Total return 31.74% 14.06% (b)
Ratios/supplemental data:
Net assets at end of period (000) $20,195 $5,789
Ratio of expenses to average net assets 0.45% 0.00% (c)
Ratio of net investment income to average net assets 5.36% 5.95% (c)
Ratio of expenses to average net assets prior to subsidies 0.96% 4.14% (c)
Ratio of net investment income to average net assets prior
to subsidies 4.85% 1.81% (c)
Portfolio turnover rate 140% 146% (c)
Average Commissions $0.0300(d)
</TABLE>
(a) The Fund commenced operations on December 1, 1995
(b) Not annualized
(c) Annualized
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged.
19
<PAGE> 28
PAYDEN & RYGEL
GLOBAL SHORT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996 (a)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 10.07 $ 10.00
-------- -------
Income (loss) from investment activities:
Net investment income 0.58 0.05
Net realized and unrealized gains (losses) 0.11 0.06
-------- -------
Total from investment activities 0.69 0.11
Distributions to shareholders:
From net investment income (0.59) (0.04)
-------- -------
Total distributions to shareholders (0.59) (0.04)
Net asset value, end of period $ 10.17 $ 10.07
======== =======
Total return 7.02% 1.10% (b)
Ratios/supplemental data:
Net assets at end of period (000) $220,865 $28,913
Ratio of expenses to average net assets 0.45% 0.45% (c)
Ratio of net investment income to average net assets 4.84% 4.86% (c)
Ratio of expenses to average net assets prior to subsidies 0.53% 2.31% (c)
Ratio of net investment income to average net assets prior
to subsidies 4.76% 3.00% (c)
Portfolio turnover rate 214% 0% (c)
</TABLE>
(a) The Fund commenced operations on September 18, 1996.
(b) Not annualized
(c) Annualized
20
<PAGE> 29
PAYDEN & RYGEL
GLOBAL FIXED INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.35 $ 10.32 $ 9.77 $ 10.62
----------- ----------- ----------- -----------
Income(loss) from investment activities:
Net investment income 1.03 0.54 0.89 0.44
Net realized and unrealized gains (losses) (0.16) 0.19 0.53 (0.65)
----------- ----------- ----------- -----------
Total from investment activities 0.87 0.73 1.42 (0.21)
Distributions to shareholders:
From net investment income (1.06) (0.70) (0.87) (0.42)
From net realized gains -- -- -- (0.22)
----------- ----------- ----------- -----------
Total distributions to shareholders (1.06) (0.70) (0.87) (0.64)
Net asset value, end of period $ 10.16 $ 10.35 $ 10.32 $ 9.77
=========== =========== =========== ===========
Total return 8.84% 7.41% 15.10% (2.09%)
Ratios/supplemental data:
Net assets at end of period (000) $ 535,644 $ 651,165 $ 540,041 $ 430,210
Ratio of expenses to average net assets 0.49% 0.53% 0.50% 0.55%
Ratio of net investment income to average
net assets 5.69% 5.67% 8.94% 4.24%
Ratio of expenses to average net assets
prior to subsidies 0.49% 0.53% 0.50% 0.55%
Ratio of net investment income to average
net assets prior to subsidies 5.69% 5.67% 8.94% 4.24%
Portfolio turnover rate 289% 176% 227% 348%
</TABLE>
(b) Not annualized
(c) Annualized
21
<PAGE> 30
PAYDEN & RYGEL
GLOBAL FIXED INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1993 1992 (a)
----------- -----------
<S> <C> <C>
Net asset value, beginning of period $ 9.96 $ 10.00
----------- -----------
Income (loss) from investment activities:
Net investment income 0.46 0.05
Net realized and unrealized gains (losses) 0.69 (0.02)
----------- -----------
Total from investment activities 1.15 0.03
Distributions to shareholders:
From net investment income (0.46) (0.05)
In excess of net investment income (0.02)
From net realized gains (0.03)
----------- -----------
Total distributions to shareholders (0.49) (0.07)
Net asset value, end of period $ 10.62 $ 9.96
=========== ===========
Total return 11.88% 0.31% (b)
Ratios/supplemental data:
Net assets at end of period (000) $ 296,958 $ 20,097
Ratio of expenses to average net assets 0.70% 0.70% (c)
Ratio of net investment income to average net assets 4.22% 4.62% (c)
Ratio of expenses to average net assets prior to subsidies 0.68% 2.29% (c)
Ratio of net investment income to average net assets prior
to subsidies 4.24% 3.03% (c)
Portfolio turnover rate 253% 54% (c)
</TABLE>
(a) The Fund commenced operations on September 1, 1992.
(b) Not annualized
(c) Annualized
22
<PAGE> 31
PAYDEN & RYGEL
EUROPEAN GROWTH & INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1997 (a)
------------
<S> <C>
Net asset value, beginning of period $ 10.00
------------
Income (loss) from investment activities:
Net investment income (0.04)
Net realized and unrealized gains (losses) 0.23
------------
Total from investment activities 0.19
Distributions to shareholders:
From net investment income
From net realized gains
In excess of net realized gains
Total distributions to shareholders 0.00
Net asset value, end of period $ 10.19
============
Total return 1.90%
Ratios/supplemental data:
Net assets at end of period (000) $ 13,608
Ratio of expenses to average net assets 0.69%(c)
Ratio of net investment income to average net assets 1.72%(c)
Ratio of expenses to average net assets prior to subsidies and waivers
2.48%(c) Ratio of net investment income to average net assets prior
to subsidies and waivers (0.07%)(c)
Portfolio turnover rate 9.00%(c)
Average Commissions $ 0.0354(d)
</TABLE>
(a) The Fund commenced operations on April 1, 1995.
(b) Not annualized
(c) Annualized
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged.
23
<PAGE> 32
PAYDEN & RYGEL
GLOBAL BALANCED FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1997 (a)
------------
<S> <C>
Net asset value, beginning of period $ 10.00
------------
Income (loss) from investment activities:
Net investment income 0.05
Net realized and unrealized gains (losses) 0.90
------------
Total from investment activities 0.95
Distributions to shareholders:
From net investment income (0.05)
From net realized gains (0.11)
------------
Total distributions to shareholders (0.16)
Net asset value, end of period $ 10.79
============
Total return 9.49%(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 10,312
Ratio of expenses to average net assets 0.70%(c)
Ratio of net investment income to average net assets 3.32%(c)
Ratio of expenses to average net assets prior to subsidies 1.64%(c)
Ratio of net investment income to average net assets prior
to subsidies 2.38%(c)
Portfolio turnover rate 211%(c)
Average Commissions $ 0.0353(d)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged.
24
<PAGE> 33
PAYDEN & RYGEL
INTERNATIONAL EQUITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1997 (a)
------------
<S> <C>
Net asset value, beginning of period $ 10.00
------------
Income (loss) from investment activities:
Net investment income (0.28)
Net realized and unrealized gains (losses) 1.04
------------
Total from investment activities 0.76
Distributions to shareholders:
From net investment income (0.01)
------------
Total distributions to shareholders (0.01)
Net asset value, end of period $ 10.75
============
Total return 7.59%(b)
Ratios/supplemental data:
Net assets at end of period (000) $ 14,403
Ratio of expenses to average net assets 0.90%(c)
Ratio of net investment income to average net assets 0.92%(c)
Ratio of expenses to average net assets prior to subsidies 1.57%(c)
Ratio of net investment income to average net assets prior
to subsidies 0.25%(c)
Portfolio turnover rate 66%(c)
Average Commissions $ 0.0253(d)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of shares purchased and sold for which
commissions were charged.
25
<PAGE> 34
NET ASSET VALUE
For each class of shares, the net asset value per share of each Fund is
determined as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time) by dividing the difference between the value
of assets and liabilities of the class by the number of shares of that class
outstanding. The net asset value per share of each class will vary due to
differences in expenses charged to each class and will generally be lower for
Class S Shares than for Class R Shares.
Foreign equity securities are valued based upon the last sale price on the
foreign exchange or market on which they are principally traded as of the close
of the appropriate exchange or, if there have been no sales during the day, at
the last bid prices. Equity securities listed or traded on any domestic (U.S.)
securities exchange are valued at the last sale price or, if there have been no
sales during the day, at the last bid prices. Securities traded only on the
over-the-counter market are valued at the latest bid prices.
Domestic and foreign fixed income 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 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. Swaps, caps and floors are valued on the
basis of information provided by the institution with which the Fund entered
into the transaction. Non-U.S. dollar securities are translated into U.S.
dollars using the spot exchange rate at the close of the London market.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends are generally declared and distributed to shareholders monthly for all
Funds, except for the International Equity, European Growth & Income, Global
Balanced, High Income and Growth & Income Funds which declare and distribute
dividends quarterly. Class S dividends will normally be lower than Class R
dividends. Any net realized capital gains from the sale of portfolio securities
will be distributed no less frequently than once yearly. Dividend and capital
gain distributions of each Fund will be paid in the form of additional shares of
the Fund at the net asset value on the ex-dividend date unless the shareholder
elects to have them paid in cash by completing an appropriate request form.
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Each Fund has elected and intends to qualify annually to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, each Fund generally is not
subject to federal income tax on its investment company taxable income (which
includes interest and net short-term capital gains in excess of any net
long-term capital losses) and net capital gain (net long-term capital gains in
excess of the sum of net short-term capital losses and unexpired capital loss
carryovers), if any, that it distributes to shareholders, provided it
distributes each taxable year at least 90% of its investment company taxable
income, including any net interest income excludable from gross income under
section 103(a) of the Code. Each Fund intends to distribute to its shareholders,
at least annually, substantially all such amounts.
Each of the Short Duration Tax Exempt and Tax Exempt Bond Funds anticipates that
substantially all dividends paid by it will be exempt from federal income taxes;
a portion of the dividends may be a tax preference item for purposes of the
alternative minimum tax. Dividends paid by the other Funds, and distributions
paid by all Funds from long-term capital gains, are taxable. Capital gains
distributions are made when a Fund realizes net capital gains on sales of
portfolio securities during the year. Any short-term capital gains or any
taxable interest income will be distributed as a taxable ordinary dividend
distribution. For the Short Duration Tax Exempt and Tax Exempt Bond Funds,
realized capital gains or any taxable interest income is not expected to be a
significant or predictable part of investment return. Sale of any Fund's shares
is a taxable event and may result in a capital gain or loss.
Investment income received from sources within foreign countries may be subject
to foreign income taxes. The U.S. has entered into tax treaties with many
foreign countries which entitle certain investors to a reduced rate of tax or to
certain exemptions from tax. The Funds will operate so as to qualify for such
reduced tax rates or tax exemptions whenever practicable. The Funds may qualify
for and make an election permitted under section 853 of the Code so that
shareholders will be able to claim a credit or deduction on their Federal income
tax returns for, and will be required to treat as part of the amounts
distributed to them, their pro rata portion of the income taxes paid by the
Funds to foreign countries (which taxes relate primarily to investment income).
The shareholders of the Funds may claim a credit by reason of the Funds'
election subject to certain limitations imposed by section 904 of the Code.
However, no deduction for foreign taxes may be claimed under the Code by
individual shareholders who do not elect to itemize deductions on their Federal
income tax returns, although such a shareholder may claim a credit for foreign
taxes and in any event will be treated as having taxable income in the amount of
the shareholder's pro rata share of foreign taxes paid by the Funds. Although
the Group intends to meet the requirements of the Code to "pass through" such
taxes, there can be no assurance that the Funds will be able to do so.
Prior to purchasing shares of a Fund, an investor should carefully consider the
impact of the dividends or capital gains distributions which are expected to be
or have been announced. Any dividends or distributions paid shortly after a
purchase by an investor will have the effect
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<PAGE> 36
of reducing the per share net asset value of the investor's shares by the per
share amount of the dividends or distributions.
Distributions may be subject to additional state and local taxes, depending on
each shareholder's particular situation. Shareholders should consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Fund. For further discussion of these matters, please see the
Statement of Additional Information.
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
nineteen series of shares, including the sixteen series of shares which are sold
through this prospectus. Each of these sixteen series of shares has two classes,
Class R and Class S. The Board of Trustees may establish additional series or
classes of shares in the future. As of December 15, 1997, the following persons
held of record more than 25% of the outstanding shares of the following classes
of shares of the Group: Payden & Rygel Intermediate Bond Fund, Class R - Bert
Bell NFL Retirement Plan (46%); Payden & Rygel U.S. Government Fund, Class R -
CH Foundation (31%) and L. Horvitz (52%); Payden & Rygel Market Return Fund,
Class R - Wasserman Foundation (32%); Payden & Rygel Short Bond Fund, Class R -
Michigan Conference of Teamsters Welfare Fund (29%); Payden & Rygel Global
Balanced fund, Class R - Lon V. Smith Foundation (41%) and Scottish Widows Fund
and Life Assurance Society (25%);.
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
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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.
INVESTMENT OBJECTIVES AND POLICIES
FIXED INCOME FUNDS
The Payden & Rygel Fixed Income Funds are designed to seek income and capital
gains where appropriate. The Funds which invest in intermediate-term and
long-term securities will generally provide capital gain opportunities during
periods of falling interest rates.
No Fixed Income Fund is constrained as to the maximum maturity of its individual
portfolio securities, and the dollar-weighted average maturity of each Fund's
portfolio will be adjusted as market conditions warrant, given the investment
outlook of the Adviser. However, the average maturity objectives of many of the
Funds will act to limit the amount of longer term investments in their
portfolios. Average maturity objectives for each Fund are discussed below.
Certain debt securities such as, but not limited to, mortgage-related
securities, collateralized mortgage obligations (CMOs), asset-backed securities
and securitized loan receivables, are expected to be repaid prior to their
stated maturity dates. As a result, the effective maturity of these securities
is expected to be shorter than their stated maturity. For purposes of
calculation of weighted average maturity, the effective maturity of such
securities will be used.
A Fund's dollar-weighted average portfolio maturity ("average maturity") is used
as a measure of the potential price movement of the Fund. Dollar-weighting is
used because it provides a more accurate indication than a non-weighted average.
For example, assume a Fund holds two Treasury securities, with 99% invested in a
10-year note and 1% invested in a 30-day bill. The mathematical average maturity
is close to five years, but the dollar-weighted average maturity is close to ten
years. When the Adviser forecasts a positive environment for bonds, the Funds'
average portfolio maturity will generally be longer than when the Adviser is
forecasting a negative environment for bonds.
Yields on short-term, intermediate-term, and long-term debt obligations depend
on a variety of factors, including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Debt obligations with longer maturities tend to produce
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt obligations usually vary depending upon
available yields. An increase in interest rates will generally reduce the value
of such portfolio investments, and a decline in interest rates will generally
increase the value of such portfolio investments. The ability of a Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of the debt securities in which the Fund invests to meet their
obligations for the payment of interest and principal when due.
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The LIMITED MATURITY FUND seeks to earn a total return that, over time, is
greater than that available from money market funds. The Fund invests in debt
obligations of the U.S. Treasury, U.S. government agencies, foreign and domestic
public corporations and mortgage-backed securities. Under normal conditions, the
average portfolio maturity of the Limited Maturity Fund will range from four to
nine months with a maximum average maturity of one year.
The SHORT BOND FUND seeks to realize a high level of total return consistent
with preservation of capital. It invests in the same types of debt obligations
as the Limited Maturity Fund. However, the Fund has a maximum portfolio average
maturity of three years. Under normal market conditions, at least 65% of the net
assets of the Fund will be invested in securities with more than one year to
maturity.
The U.S. GOVERNMENT FUND (formerly the "U.S. Treasury Fund") seeks to realize a
high level of total return consistent with preservation of capital. It primarily
invests in a portfolio consisting of short to intermediate maturity U.S.
Government Obligations, which are defined as U.S. Treasury bonds, notes and
bills and other bonds and obligations issued or guaranteed by the United States
Government, by government-sponsored enterprises, or by Federal agencies, such as
the Government National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Federal National Mortgage Association. Under normal market
conditions, the Fund will invest at least 65% of its net assets in U.S.
Government Obligations. U.S. Government Obligations have a low default risk,
because they are issued or guaranteed as to principal and interest by the United
State Government, its agencies or instrumentalities. With respect to U.S.
Government Obligations supported only by the credit of the issuing agency, there
is no guarantee that the United States Government will provide support to such
agencies. The Fund may invest in obligations of any maturity up to five years.
For securities which have put dates, reset dates or which trade based on their
average maturity, the put date, reset date or average maturity will be used
instead of the final maturity date for maturity guideline purposes.
The INTERMEDIATE BOND FUND seeks to realize a high level of total return
consistent with preservation of capital. It invests in the same types of debt
obligations as the Limited Maturity Fund, with an average portfolio maturity,
under normal market conditions, from three to six years. Under normal market
conditions, at least 65% of the net assets of the Fund will be invested in
securities with more than one year to maturity.
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The INVESTMENT QUALITY BOND FUND (formerly the "Opportunity Fund") seeks to
realize a high level of total return consistent with preservation of capital. It
invests in the same types of debt obligations as the Limited Maturity Fund, but
its average maturity is not constrained. Under normal market conditions, at
least 65% of the net assets of the Fund will be invested in securities with more
than one year to maturity. Average portfolio maturity is generally less than ten
years.
The TOTAL RETURN FUND seeks to realize a high level of total return consistent
with preservation of capital. It invests in fixed income securities which, in
the Adviser's view, have attractive yields and potential capital gains. The
Adviser actively manages the maturity and duration structure of the portfolio in
anticipation of long term trends in interest rates and inflation. Under normal
market conditions, the portfolio will have exposure to a wide variety of fixed
income securities in all market sectors. Some foreign fixed income securities
offer attractive returns and may be denominated in currencies which appear
relatively weak or are potentially volatile compared to the U.S. dollar. The
Total Return Fund will, when deemed appropriate by the Adviser, hedge this
currency exposure in order to protect the Fund's share price. Like the
Investment Quality Bond Fund, the Total Return Fund is not constrained with
respect to its average portfolio maturity.
Investments of the Total Return Fund will consist of (1) debt obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities; (2)
debt obligations issued or guaranteed by a foreign sovereign government or one
of its agencies, authorities, instrumentalities, or political subdivisions,
including foreign states, provinces or municipalities; (3) debt obligations
issued or guaranteed by supranational organizations such as the World Bank,
Asian Development Bank, European Investment Bank and European Economic
Community; (4) debt obligations of U.S. and foreign banks and bank holding
companies; (5) debt securities and commercial paper issued by U.S. and foreign
companies, including commercial paper indexed to specific foreign currency
exchange rates; (6) U.S. and foreign collateralized mortgage obligations and
asset-backed bonds; (7) non-voting, preferred stock in a corporation which pays
a fixed or variable stream of dividends; (8) convertible bonds or shares of
convertible preferred stock which may be exchanged for a fixed number of shares
of common stock at the purchaser's option; and (9) Brady Bonds and other
emerging market debt.
In addition, at any time, the Total Return Fund may invest up to 25% of its
total assets in debt rated below investment grade by an established rating
agency or, if unrated, determined by the Adviser to be of comparable quality.
The Fund will not hold any debt obligation rated below B by Standard & Poor's
Corporation ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's"),
or a comparable rating by another established rating agency, or, if unrated,
determined by the Adviser to be of comparable quality. Securities rated B by
Standard & Poor's have greater vulnerability to default than higher-rated
securities, but currently have the capacity to meet interest payments and
principal repayments; however, adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. Further information regarding investment ratings is in the appendix.
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The High Income Fund seeks to provide high current income while providing for
the potential for capital appreciation through investment in a professionally
managed, diversified portfolio consisting principally of higher yielding, below
investment grade bonds, commonly known as "high yield bonds" or "junk bonds."
Under normal market conditions and as a fundamental policy, the Fund will invest
at least 65% of its total assets in high yield bonds. The Fund will emphasize
investments in securities that the Adviser considers to be at the lower-risk end
of the high yield bond spectrum. These represent securities issued by companies
considered by the Adviser to have stable to improving business prospects. The
Fund also expects to purchase securities issued by companies considered by the
Adviser to be in the growth stage of development and to have reasonable
prospects for improved operating results and debt ratings. Such issuers
generally have shorter operating histories and lower revenues and entail greater
risk than issuers of investment grade securities. Finally, the Fund will make
investments in securities of selected companies that have undergone leveraged
buyouts or recapitalizations.
The Fund may invest up to 20% of its total assets, measured at the time of
purchase, in Eurodollar securities. These are fixed income securities of a U.S.
or foreign issuer that are issued in U.S. dollars outside the United States. The
Fund may also invest up to 20% of its total assets, measured at the time of
purchase, in convertible debt securities, in convertible and non-convertible
preferred stocks, in Brady bonds, or in bonds of issuers organized or
headquartered in "emerging markets." The Fund will not invest more than 10% of
the value of its total assets, measured at the time of purchase, in non-dollar
denominated foreign securities. The Fund will not purchase common stocks or
warrants or options to acquire common stocks, except when attached to or
included in a unit with fixed income securities that otherwise would be
attractive to the Fund, or upon conversion of a convertible security or exercise
of a warrant or option. Common stock obtained by the Fund upon any such
conversion or exercise may be retained in the Fund's portfolio to permit orderly
disposition.
The higher yields sought by the Fund are generally obtainable from investing in
securities rated below investment grade by recognized rating services. The Fund
invests principally in fixed income securities rated Ba1 or lower by Moody's or
BB+ or lower by Standard & Poor's, but as a matter of operating policy, the Fund
will not purchase securities rated both below B3 by Moody's and below B- by
Standard & Poor's. Securities rated B- by Standard & Poor's have greater
vulnerability to default than higher-rated securities, but currently have the
capacity to meet interest payments and principal repayments; however, adverse
business, financial, or economic conditions will likely impair the issuer's
capacity or willingness to pay interest and repay principal. The Fund may invest
in unrated securities if the Adviser determines that the credit characteristics
of the issuers of such securities or the protection afforded by the terms of the
securities limit the risk to the Fund to a level comparable to that of rated
securities in which the Fund may invest. The Fund is not required to dispose of
debt securities whose credit quality declines at some point after the security
is purchased However, no more than 25% of the Portfolio's assets will be
invested at any time in securities rated less than CCC by Standard & Poor's or
Caa by Moody's or, if unrated, determined by the
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Adviser to be of comparable. Securities rated CCC by Standard & Poor's are
currently vulnerable to nonpayment, and are dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial
commitments on the security. In the event of adverse business, financial, or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the security. The Fund will not invest in securities of
bankrupt companies. Further information regarding investment ratings is in
Appendix A.
The Fund's approach emphasizes consistent and high current income rather than
the possibly greater but more uncertain profits which could be earned through
short-term trading or through attempting to anticipate events such as the rescue
of ailing or bankrupt companies. The Fund attempts to reduce the risks involved
in investment in lower rated securities through diversification of its portfolio
and by analysis of each issuer, of each issuer's ability to make timely payments
of principal and interest, and of broad economic trends and corporate
developments. Average portfolio maturity is generally less than eight years.
TAX EXEMPT FUNDS
The SHORT DURATION TAX EXEMPT FUND seeks to earn federal tax-free income by
investing in debt obligations that are exempt from federal income tax. It
invests in short-term and medium-term debt securities that are exempt from
federal income tax. Under normal market conditions, it maintains an average
portfolio maturity of one to four years.
The Fund intends to achieve its objective by investing primarily in debt
obligations issued by state and local governments, territories, and possessions
of the U.S., regional government authorities, and their agencies and
instrumentalities, which, in the opinion of bond counsel to the issuer at the
time of original issuance, provide interest income that is exempt from U.S.
federal income taxes. Under normal circumstances, as a fundamental policy which
cannot be changed without shareholder approval, at least 80% of the Fund's net
assets will be invested in tax exempt municipal debt obligations.
Certain of the municipal debt obligations may pay interest which is exempt from
federal income taxes but is a preference item for purposes of computing the
federal alternative minimum tax. When a regulated investment company receives
such interest, a proportionate share of any exempt-interest dividend paid by the
investment company may be treated as a preference item to shareholders. The Fund
may invest up to 20% of its total assets in such municipal debt obligations if
the Adviser determines that their purchase is consistent with the Fund's
investment objective.
The Fund may, from time to time, invest in securities that are not exempt from
federal income tax. This will be done for temporary defensive purposes, and will
not exceed 20% of the value of the Fund's net assets. Taxable debt securities
will consist of obligations of the U.S. government and its agencies and
instrumentalities, money market funds, bank obligations and repurchase
obligations.
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The TAX EXEMPT BOND FUND seeks to earn federal tax-free income by investing in
debt obligations that are exempt from federal income tax. It invests in the same
types of debt obligations as the Short Duration Tax Exempt Fund. Although, the
Fund is not constrained as to its average portfolio maturity, it is normally
maintained between five and ten years.
EQUITY FUNDS
The GROWTH & INCOME FUND seeks to provide growth of capital and some current
income. Under normal market conditions, the Fund invests at least 45% of its
total assets in equity securities, such as common and preferred stocks and
securities which are convertible into common stocks, and the balance of its
total assets in equity-based derivative instruments, such as Standard & Poor's
Depositary Receipts ("SPDRs"), stock index futures contracts, options on stocks
and stock indexes, and equity swap contracts. The portion of the Fund's total
assets invested in equity securities will vary from time to time, depending upon
the Adviser's assessment of the available equity-based derivative investments.
Under normal market conditions, the Fund invests approximately 50% of its total
assets in common stocks known as the "dogs of the Dow" as described below (the
"Dogs of the Dow Portfolio"). During each month, the common stocks purchased by
the Fund for the Dogs of the Dow Portfolio are comprised of the ten common
stocks included in the Dow Jones Industrial Average(1) which had the highest
dividend rates (as a percentage of their market price) as of the end of the
preceding month. Under normal market conditions, the Fund holds for
approximately eighteen months all common stocks purchased for the Dogs of the
Dow Portfolio during a month, including common stocks that may no longer be
among the dogs of the Dow, except to the extent that stocks must be sold to
satisfy redemption requests or to rebalance the Fund as described below.
Each month, the Adviser rebalances a portion of the Fund's investments. Stocks
in the Dogs of the Dow Portfolio which were purchased approximately eighteen
months earlier and which are no longer among the dogs of the Dow will be sold.
Additional stocks in the Dogs of the Dow Portfolio may be sold and reinvested in
other assets (or a portion of the remaining assets of the Fund may be sold and
reinvested in dogs of the Dow) so that, under normal market conditions after the
entire rebalancing process is completed, approximately 50% of the rebalanced
Fund assets consists of the Dogs of the Dow Portfolio (approximately 5% per
common stock). The balance of the Fund's assets are invested primarily in SPDRs
or a substantial number of additional common stocks that the Adviser believes
would closely replicate the performance of the S&P 500 Index.
- - ----------
1 "Dow Jones Industrial Average" is a trademark of Dow Jones & Company, Inc.
("Dow Jones"). Neither the Fund nor the Adviser is affiliated with, nor is the
Fund sponsored by, Dow Jones. Dow Jones has not participated in any way in the
creation of the Fund or in the selection of the stocks included in the Fund, nor
has Dow Jones reviewed or approved any information included in this Prospectus.
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Although the Growth & Income Fund's return will vary principally with changes in
the equity market, the Fund is not an index fund, and changes in the Fund's net
asset value per share will not precisely track changes in the general market.
The Fund earns income through investments in dividend paying stocks.
The MARKET RETURN 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, which is not a sponsor
of or in any way affiliated with the Fund, chooses the 500 stocks included in
the S&P 500 Index based on market value and industry diversification. These 500
stocks comprise approximately 75% of the total market capitalization within the
publicly traded U.S. equity markets.
The Market Return 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 Market Return Fund will comprise at least 80% of its total
assets. The fixed income portion of the Market Return Fund is generally 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 Market Return Fund will be actively traded in the
United States as of the purchase date. However, up to 25% of the Fund's total
assets may be invested in debt obligations that are payable in foreign currency.
The average portfolio maturity of the fixed income portion of the Market Return
Fund's portfolio will be no more than five years. The average portfolio maturity
of the fixed income portion is adjusted according to the Adviser's outlook on
interest rates.
Generally, the debt securities held by the Market Return 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) 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. However, the Market Return Fund may invest up to 25% of its total assets
in debt rated below investment grade by an established rating agency or, if
unrated, determined by the Adviser to be of comparable quality. The Fund will
not hold any debt obligation rated below B by Standard & Poor's or Moody's, or a
comparable rating by another established rating agency, or, if unrated,
determined by the Adviser to be of comparable quality. Securities rated below B
by Standard & Poor's have greater vulnerability to default than higher-rated
securities, but currently have the capacity to meet interest payments and
principal repayments; however, adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. Further information regarding investment ratings is in Appendix A.
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The Adviser believes that investment in stock index futures and equity swap
contracts, when combined with a fixed income portfolio, will permit the Market
Return 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. Index futures
contracts are priced so that sophisticated traders should be neutral as to
whether to employ a strategy of purchasing the stocks which comprise the index
or purchasing the futures contracts. Accordingly, because of the manner in which
S&P 500 Index futures contracts are priced, the Fund will theoretically
outperform the S&P 500 Index if its fixed income assets earn a total return that
is better than money market rates and the expenses of the Fund. There can be no
assurance that the Market Return Fund will be successful in earning such a total
return on its fixed income investments.
From time to time, the Market Return Fund may reduce its exposure to
equity-based investments and instead may purchase shares of equity mutual funds
which aim to track the S&P 500 Index, SPDRs, 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 Market Return Fund's assets allocated to fixed income securities
would be reduced.
Futures index contracts, which will generally be the majority of the Market
Return 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 Market Return Fund to invest the balance of its assets,
initially about 95% of the Fund's net assets, in other assets. The Market Return
Fund is required to maintain a segregated account with its Fund Custodian in an
amount which, when added to the amount held as initial margin, equals the
aggregate amount of the Fund's obligations under its long futures contract
positions. 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.
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.
Historically, short-term 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 Market Return Fund would
outperform the S&P 500 Index. However, the market value of the fixed income
securities will fluctuate in price as interest rates vary each
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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.
However, unlike most equity funds, in which much of an investor's return will
typically come from long-term capital gains, most of an investor's return
expected to be earned by the Market Return Fund will be income 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 Market Return
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.
Because of their investment policies, the Market Return and Growth & Income
Funds may or may not be suitable or appropriate for all investors. The Funds are
not money market funds and are not appropriate for those whose primary objective
is stability of principal. The value of the portfolio securities of the Market
Return and Growth & Income Funds will fluctuate based upon market conditions.
GLOBAL FUNDS
The Payden & Rygel Global Funds offer two fixed income options, as well as
international equity and balanced options. Investments are primarily focused on
securities from countries rated as investment grade by at least one of the
rating agencies.
The GLOBAL FIXED INCOME FUND seeks to realize a high level of total return
consistent with preservation of capital. It invests primarily in U.S. and
foreign government notes and bonds and U.S. and foreign corporate debt
securities. The Fund also has substantial investment in foreign currency
contracts in order to hedge foreign currency exposure. Under normal market
conditions, as a fundamental policy which cannot be changed without shareholder
approval, at least 65% of the Global Fixed Income Fund's total assets are
invested in debt securities of issuers organized or headquartered in at least
three countries, one of which may be the United States. The Fund may invest in
securities of issuers in the United States, Canada, Australia, New Zealand, the
countries of Western Europe and Japan. Under normal circumstances, its average
portfolio maturity will not exceed ten years. Under normal circumstances, the
Fund invests primarily in debt securities that are considered high quality at
the time of purchase (e.g., AAA or AA by Standard & Poor's) by at least one of
the established rating agencies. In addition, if the rating of bonds of any
country issuing or regulating securities or currencies in which a Fund has made
an investment is lowered, so that
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two or more established rating agencies categorize the investment below AA, the
Fund will discontinue making investments in that country and liquidate any
current holdings as soon as the Adviser determines it is in the best interest of
the Fund to do so.
Investments of the Fund consist of: (1) debt obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities; (2) debt obligations
issued or guaranteed by a foreign sovereign government or one of its agencies,
authorities, instrumentalities or political subdivisions, including foreign
states, provinces or municipalities; (3) debt obligations issued or guaranteed
by supranational organizations such as the World Bank, Asian Development Bank,
European Investment Bank and European Economic Community; (4) debt obligations
of U.S. and foreign banks and bank holding companies; (5) debt securities and
commercial paper issued by U.S. and foreign companies, including commercial
paper indexed to specific foreign currency exchange rates; and (6) U.S. and
foreign collateralized mortgage obligations and asset-backed bonds.
The GLOBAL SHORT BOND FUND seeks to realize a high level of total return
consistent with preservation of capital. It invests in the same types of debt
obligations as the Global Fixed Income Fund, with an average portfolio maturity,
under normal market conditions, of no more than three years.
The EUROPEAN GROWTH & INCOME FUND seeks to provide capital appreciation and some
current income. The Fund's investment objectives and policies are analogous to
the Growth & Income Fund, and the Fund is often referred to as the "Euro Dogs"
Fund.
Under normal market conditions, the Fund invests its assets in common stocks of
approximately forty issuers organized or headquartered in France, Germany, the
Netherlands and the United Kingdom, which have the largest market capitalization
among countries in the MSCI Europe Index.(2)
- - ----------
2 See Appendix B for a disclosure concerning the use of the name "MSCI Europe
Index."
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During each month, the Fund purchases the common stocks of the issuers which had
the highest dividend rates (as a percentage of their market price) at the end of
the preceding month of common stocks of the thirty issuers with the largest
market capitalizations included in each such country's leading stock index. For
example, the Fund may invest in the ten highest yielding German stocks among the
thirty largest stocks included in the DAX Index. Under normal market conditions,
the Fund holds for approximately eighteen months all stocks purchased during a
month, including stocks that may no longer be among those with the highest
dividend rates of the largest thirty stocks in the country's index, except to
the extent that stocks must be sold to satisfy redemption requests or to
rebalance the Fund as described below.
Each month, the Sub-adviser rebalances the Fund's investments. Stocks of issuers
in each such country which were purchased approximately eighteen months earlier
and which are no longer among those with the highest dividend rates of the
largest thirty stocks in the country's index are sold. Additional stocks may be
sold and reinvested in other assets so that, under normal market conditions
after the entire rebalancing process is completed, the Fund holds approximately
2.5% of its assets in each stock. In addition, the Fund invests from time to
time in World Equity Benchmark Shares ("WEBS"), which are described in greater
detail under "Investment Practices," in order to invest small amounts of money,
such as miscellaneous daily cash flows, until the Fund has fully invested in the
portfolio of forty stocks.
Although the Fund's return will vary with changes in each country's equity
market, the Fund is not an index fund, and changes in the Fund's net asset value
per share will not precisely track changes in the general market. The Fund earns
income through dividend paying stocks.
The INTERNATIONAL EQUITY FUND seeks to earn long-term capital appreciation. It
invests in equity securities (common and preferred stock) of issuers organized
or headquartered outside the United States ("foreign equities"). Under normal
market conditions, the International Equity Fund's assets are invested in
securities of issuers in at least five different countries.
Under normal circumstances, the Fund invests primarily in the universe of
countries that are included in the MSCI World Index, which include Canada,
Australia, New Zealand and countries in Europe and the Far East. The Adviser and
Sub-adviser believe that this restriction will reduce many of the political risk
factors associated with investment in foreign equities. However, the Fund may
invest up to 20% of its assets in issuers organized or headquartered in the
universe of countries that are not in the MSCI World Index. These countries are
sometimes referred to as emerging markets.
In seeking to achieve the Fund's investment objective, the Sub-adviser seeks to
invest in companies that it believes are well managed as evidenced by the
following:
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HIGH QUALITY AND RESPONSIVE MANAGEMENT which delivers consistent sales and
earnings growth year-in and year-out regardless of the business environment.
LOW RISK FINANCIAL STRUCTURE including a debt/equity ratio appropriate to
the industry, predictable income streams, top quality working capital
management, and responsible reporting guidelines.
SIGNIFICANT LONG-TERM POTENTIAL FOR VOLUME OR MARGIN GROWTH as well as
strong operational cash flow, maintainable earnings per share profile, and
positive trend return on capital and/or equity.
ACKNOWLEDGED BUSINESS STRENGTH as measured by market dominance, advantageous
positioning in the macro/industry cycle, and a strong record of innovation.
GREATER THAN AVERAGE DEGREE OF CONTROL OVER PRICING, thereby maintaining
profitability in adverse times and maximizing profitability during high
demand periods.
The Fund's portfolio normally is comprised of 50-75 stocks. There are no
constraints on the market capitalization of the issuers in which the Fund may
invest. Stocks are purchased for the long-term and turnover tends to be
relatively low.
The GLOBAL BALANCED FUND seeks to earn long-term capital appreciation. It
allocates its assets among a common stock portfolio, a bond portfolio, and money
market instruments, in proportions which reflect the Adviser's judgment of the
anticipated returns and risks of each asset class. The Fund maintains at least
25% of the value of its assets in fixed income senior securities. In addition,
the Fund may invest up to 20% of the value of its assets in securities of
issuers organized or headquartered in emerging markets, which may include
developing countries or countries with new or developing capital markets. Other
than the foregoing, there are no limitations on the amount of the Fund's assets
which may be allocated to any of the three asset classes (stocks, bonds and
money market instruments).
In estimating the relative attractiveness of each asset class, the Adviser takes
into account various factors. Once expected return and volatility (risk)
estimates are developed for each asset class, the Adviser attempts to identify
apparent imbalances in the relative pricing of common stocks, bonds and money
market instruments compared to risks, using a computer model. The Global
Balanced Fund's allocation among the three asset classes is then adjusted to
take advantage of these perceived imbalances.
The money market and bond allocations are invested in both dollar and non-dollar
denominated debt securities. Dollar-denominated securities have the same
investment parameters as the Investment Quality Bond Fund. Non-dollar debt
securities follow the investment guidelines of the Global Fixed Income Fund.
Neither allocation is restricted as to the final maturity of a specific
investment. However, the money market allocation generally has an average
maturity of less than one year. The equity
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allocation may invest in companies headquartered in both the United States and
foreign countries. At least 65% of the equity allocation is invested in issuers
located in three or more foreign countries.
The Global Balanced Fund may also purchase and sell futures or options contracts
on stock indexes, foreign currencies and bonds.
Depending on the Adviser's allocation of the Global Balanced Fund's assets among
stocks, bonds and money market instruments, investors in the Fund may be exposed
to the market risk of various combinations of common stocks and bonds, as well
as to the risks associated with specific securities. Stock market risk is the
possibility that stock prices in general will decline over short or even
extended periods. Bond market risk is the potential for fluctuations in the
market value of bonds. Bond prices generally vary inversely with changes in the
level of interest rates. When interest rates rise, the prices of bonds fall;
conversely, when interest rates fall, bond prices rise. Because the allocation
strategy of the Adviser may, at certain times, result in a portfolio with a
primary emphasis on common stocks, the Global Balanced Fund may from time to
time exhibit a level of volatility which is more consistent with a common stock
portfolio than a balanced portfolio. However, under normal circumstances, the
Adviser expects the volatility of the Global Balanced Fund's total return to be
less than that of a common stock portfolio.
Investors should be aware that the investment results of the Fund depend not
only on the Adviser's and Sub-adviser's selection of specific portfolio
securities, but also upon the Adviser's ability to anticipate correctly the
relative performance and risk of stocks, bonds and money market instruments. The
Fund's investment results would underperform other global balanced funds, for
example, if only a small portion of the Fund's assets were allocated to stocks
during a significant stock market advance, or if a major portion of its assets
were allocated to stocks during a market decline. Similarly, the Fund's
performance could deteriorate if the Fund were substantially invested in bonds
at a time when interest rates increased.
INVESTMENT PRACTICES
The Adviser and Sub-adviser utilize various investment techniques in managing
each Fund's portfolio, including the following:
U.S. TREASURY AND GOVERNMENT AGENCY OBLIGATIONS. Each Fund may invest in
obligations issued by the U.S. Treasury and in obligations issued or guaranteed
by U.S. Government sponsored enterprises and federal agencies. These securities
include Treasury bills, which mature in one year or less, Treasury notes and
bonds that mature in 2 to 30 years, and agency issues, which may have maturities
from one day to 40 years. Securities are generally not callable and normally
have interest rates that are fixed for the life of the security.
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MONEY MARKET FUNDS. To maintain liquidity, each Fund may invest in unaffiliated
money market funds. Under normal circumstances, a money market investment made
by either of the Short Duration Tax Exempt or Tax Exempt Bond Funds will be in
federal tax-free mutual funds. No money market fund investment by any Fund will
be in excess of 3% of the total assets of the money market fund. None of the
Funds anticipates investing more than 15% of its net assets in money market
funds. An investment in a money market mutual fund by a Fund will involve
payment by the Fund of its pro rata share of advisory and administrative fees
charged by such money market fund.
MONEY MARKET OBLIGATIONS. Each Fund may invest in U.S. dollar denominated bank
certificates of deposit, bankers acceptances, commercial paper and other
short-term debt obligations of U.S. and foreign issuers, including U.S.
Government and agency obligations. All money market obligations are considered
high quality, meaning that the security is 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, is determined by the Adviser to be of comparable quality.
CORPORATE DEBT SECURITIES. Each Fund, other than the U.S. Government 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 or Sub-adviser. Such obligations may have interest rates which are
fixed, variable or floating. Each Fund may also purchase long-term debt
obligations that have been coupled with an option allowing the Fund at specified
intervals to tender (or "put") such debt obligations to the issuer and receive
an agreed upon amount, usually face value plus accrued interest.
Credit ratings evaluate the safety of principal and interest payments of
securities, not their market value. The rating of an issuer is also heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. As credit rating agencies may fail to timely change
credit ratings of securities to reflect subsequent events, the Adviser will also
monitor issuers of such securities.
HIGH YIELD BONDS. The High Income Fund invests at least 65% of its total assets
in debt rated below investment grade or, if unrated, determined to be of
comparable quality by the Adviser, and at any time, each of the Total Return and
Market Return Funds may also invest up to 25% of its total assets in debt rated
below investment grade or, if unrated, determined to be of comparable quality by
the Adviser. Lower quality debt securities, commonly referred to as "high yield
bonds" or "junk bonds" are considered to be speculative and involve a greater
risk of default or price changes due to changes in the issuer's creditworthiness
than higher rated securities. High yield securities are generally subject to
greater credit risk than higher-
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rated securities because the issuers are more vulnerable to economic downturns,
higher interest rates or adverse issuer-specific developments. In addition, the
prices of high yield securities are generally subject to greater market risk and
therefore react more sharply to changes in interest rates. Their value and
liquidity may also be diminished by adverse publicity and investor perceptions.
Also, legislative proposals limiting the tax benefits to the issuers or holders
of taxable high yield securities or requiring federally insured savings and loan
institutions to reduce their holdings of taxable high yield securities have had
and may continue to have an adverse effect on the market value of these
securities.
Because high yield securities are frequently traded only in markets where the
number of potential purchasers and sellers, if any, is limited, the ability of a
Fund to sell these securities at their fair value either to meet redemption
requests or to respond to changes in the financial markets may be limited. In
such an event, such securities could be regarded as illiquid for the purposes of
the limitation on the purchase of illiquid securities. Thinly traded high yield
securities may be more difficult to value accurately for the purpose of
determining a Fund's net asset value. Also, because the market for certain high
yield securities is relatively new, that market may be particularly sensitive to
an economic downturn or a general increase in interest rates.
MORTGAGE-BACKED SECURITIES. Each of the Funds, other than the European Growth &
Income, Growth & Income and International Equity Funds, may invest in
obligations issued to provide financing for U.S. residential housing mortgages.
Each of the Total Return, Global Fixed Income, Global Short Bond, Global
Balanced and High Income Funds may also invest in foreign mortgage-related
securities. Payments made on the underlying mortgages and passed through to a
Fund will represent both regularly scheduled principal and interest payments as
well as prepayments of principal. Investing in such obligations involves special
risks as a result of prepayments (which may require the Fund to reinvest the
proceeds at a lower rate), the illiquidity of certain of such securities and the
possible default by insurers or guarantors. Each of the Tax Exempt Funds invest
in municipal debt obligations issued to provide financing for residential
housing mortgages to targeted groups.
ASSET-BACKED RECEIVABLES. With the exception of the U.S. Government, Growth &
Income, European Growth & Income and International Equity Funds, each Fund may
invest in asset-backed receivables, which represent undivided fractional
interests in a trust with assets consisting of a pool of domestic loans such as
motor vehicle retail installment sales contracts or credit card receivables.
Payments are typically made monthly, consisting of both principal and interest
payments. Asset-backed securities may be prepaid prior to maturity, and hence
the actual life of the security cannot be accurately predicted. During periods
of falling interest rates, prepayments may accelerate, which would require a
Fund to reinvest the proceeds at a lower interest rate. Although generally rated
AAA, it is possible that the securities could become illiquid or experience
losses if guarantors or insurers default.
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REPURCHASE AGREEMENTS. For the purpose of maintaining liquidity or realizing
additional income, each Fund may enter into repurchase agreements (agreements to
purchase U.S. Treasury notes and bills, subject to the seller's agreement to
repurchase them at a specified time and price) with well-established registered
securities dealers or banks. Repurchase agreements are the economic equivalent
of loans by a Fund. In the event of a bankruptcy or default of any such dealer
or bank, a Fund could experience costs and delays in liquidating the underlying
securities which are held as collateral, and the Fund might incur a loss if the
value of the collateral held declines during this period.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into reverse
repurchase agreements (agreements to sell portfolio securities, subject to such
Fund's agreement to repurchase them at a specified time and price) with
well-established registered dealers and banks. A Fund covers its obligations
under a reverse repurchase agreement by maintaining a segregated account
comprised of cash, U.S. Government securities or high-grade debt obligations,
maturing no later than the expiration of the agreement, in an amount (marked to
market daily) equal to its obligations under the agreement. Reverse repurchase
agreements are the economic equivalent of borrowings by a Fund.
VARIABLE AND FLOATING RATE SECURITIES. Each Fund may invest in variable and
floating rate securities of government and corporate issuers. The terms of such
obligations provide that interest rates are adjusted periodically based upon
some appropriate interest rate adjustment index, e.g., the Federal Funds rate.
The adjustment intervals may be regular, and range from daily to annually, or
may be based on an event such as a change in the prime rate. Accordingly,
although such securities provide some protection against changes in interest
rates, depending on the terms of the instrument there may be some interval
between changes in such rates and adjustment of the rate paid by the issuer. Any
such instruments acquired by a Fund are rated "high quality" at the time of
purchase by at least one of the established rating agencies or, if not rated,
are determined at the time of purchase to be of comparable quality by the
Adviser or Sub-Adviser.
CONVERTIBLE SECURITIES AND WARRANTS. Each of the Total Return, Growth & Income,
European Growth & Income, Global Balanced, High Income and International Equity
Funds may invest in convertible securities and warrants. Convertible securities,
such as convertible preferred stocks and debentures, may be exchanged for or
converted into a predetermined number of shares of the issuer's common stock at
the option of the holder during a specified time period. Convertible securities
generally pay interest or dividends and provide for participation in the
appreciation of the underlying common stock. Convertible securities generally
provide higher yields than the underlying equity securities, but generally offer
lower yields than non-convertible securities of similar quality. The value of a
convertible security is a function of a variety of factors, including its yield
in comparison with comparable non-convertible securities, its value if converted
into the underlying common stock, and the credit standing of the issuer.
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Warrants give the holder the right to purchase a specified number of shares of
the underlying stock at any time at a fixed price, but do not pay a fixed
dividend. Investment in warrants involve certain risks, including the possible
lack of a liquid market for resale, potential price fluctuations as a result of
speculation or other factors, and the failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which the
warrant can be prudently exercised (in which event the warrant may expire
without being exercised, resulting in a loss of the Fund's entire investment in
the warrant). As a matter of operating policy, a Fund will not invest more than
5% of its total assets in warrants.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Limited Maturity, Short Bond,
Intermediate Bond, Investment Quality Bond, Total Return, High Income and Global
Balanced Funds and each of the Equity Funds may invest in foreign government or
supranational obligations rated at least investment grade 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.
Each of the Global Fixed Income, Global Short Bond, Global Balanced, Total
Return, Market Return and High Income Funds may invest in securities payable in
a foreign currency. With the exception of the Total Return, High Income and
Market Return Funds, each of these Funds is restricted to investment in non-U.S.
dollar obligations rated at least investment grade at the time of purchase by at
least one of the rating agencies.
TAX-EXEMPT OBLIGATIONS. Each of the Short Duration Tax Exempt and Tax Exempt
Bond Funds may purchase certain tax-exempt obligations listed below:
GENERAL OBLIGATION NOTES AND BONDS. General obligation notes and bonds are
secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest.
REVENUE NOTES AND BONDS. These obligations are payable only from the
revenues derived from a particular facility or, in some cases, from the
proceeds of a special excise tax. Revenue notes and bonds are issued to
finance a wide variety of capital projects including electric, gas, water
and sewer systems; highways, bridges and tunnels; and colleges and
universities.
PUT BONDS. Both Funds may invest in tax-exempt securities (including
securities with variable interest rates) which may be redeemed or sold back
("put") to the issuer of the security or a third party prior to stated
maturity ("put bonds"). Such securities will normally trade as if maturity
is the earlier put date, even though stated maturity is longer. For both
Funds, maturity for put bonds is deemed to be the date on which the put
becomes exercisable.
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PRIVATE ACTIVITY AND INDUSTRIAL DEVELOPMENT BONDS. Both Funds may invest in
private activity and industrial development bonds, which are obligations
issued by or on behalf of public authorities to raise money to finance
various privately owned or operated facilities for business and
manufacturing, housing, sports and pollution control. These bonds are also
used to finance public facilities, such as airports, mass transit systems,
ports, parking or sewage or solid waste disposal facilities. The payment of
the principal and interest on such bonds is generally dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for
such payment.
MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION. Both Funds
may invest in lease obligations issued by state or local government
authorities to acquire land and a wide variety of equipment and facilities.
These obligations typically are not fully backed by the municipality's
credit, and their interest may become taxable if the lease is assigned. If
funds are not appropriated for the following year's lease payments, a Fund's
only recourse may be to the leased property securing payment, and
disposition of the property might prove difficult. In addition, as these
securities represent a relatively new type of financing, certain lease
obligations may be considered to be illiquid securities. Certificates of
participation are issued by a particular municipality or municipal authority
to evidence a proportionate interest in base rental or lease payments
relating to a specific project to be made by the municipality or authority.
TAX EXEMPT ZERO COUPON SECURITIES. Both Funds may invest in zero coupon
securities, which are debt securities issued or sold at a discount from
their face value. These securities do not entitle the holder to interest
payments prior to maturity or the specified redemption date, but instead are
redeemed at their face value upon maturity. The discount from face value is
amortized over the life of the security, and such amortization will
constitute the income earned on the security for accounting and tax
purposes. Even though income on such securities is accrued on a current
basis, a Fund does not receive such income currently in cash and may have to
sell other portfolio securities to obtain cash needed to make income
distributions. The price volatility of a zero coupon security is greater
than an interest-paying note of identical maturity.
EQUITY SECURITIES. Each of the Equity Funds and each of the Global Balanced,
European Growth & Income and International Equity Funds may invest in equity
securities, including common and preferred stocks, convertible securities and
warrants. Common stocks, the most familiar type of equity securities, represent
an equity (ownership) interest in a corporation.
Each of the Market Return and Growth & Income Funds may purchase shares of
equity index mutual funds, which own the stocks included in the S&P 500 Index,
and are intended to closely track the Index. Although such index mutual funds
generally have substantial assets and low operating expenses, investment in such
a fund by a Fund will involve a
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duplication of expenses, as it will require payment by the Fund of its pro rata
share of advisory and administrative fees charged by the index mutual fund.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in the issuer's financial condition and
prospects and on overall market and economic conditions. In addition, small
companies and new companies often have limited product lines, markets or
financial resources, and may be dependent upon one person, or a few key persons,
for management. The securities of such companies may be subject to more volatile
market movements than securities of larger, more established companies, both
because the securities typically are traded in lower volume and because the
issuers typically are more subject to changes in earnings and prospects.
PREFERRED STOCK. Each of the Equity Funds and each of the Global Balanced,
European Growth & Income, High Income and International Equity Funds may invest
in cumulative and non-cumulative preferred stock. Preferred stock, unlike common
stock, offers a stated dividend rate payable from a corporation's earnings, and
also generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation. As a
general rule, the market value of preferred stocks with fixed dividend rates and
no conversion rights varies inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. The market price of
convertible preferred stocks generally reflects an element of conversion value.
In addition, in the absence of credit deterioration, adjustable rate preferred
stocks tend to have more stable market values than fixed rate preferred stocks.
All preferred stocks are subject to the same types of credit risks of the issuer
as are corporate bonds of the issuer.
STANDARD & POOR'S DEPOSITARY RECEIPTS. Under normal market conditions, up to 50%
of the total assets of the Growth & Income Fund may be invested in a combination
of SPDRs and equity index mutual funds. However, under the Investment Company
Act of 1940, the Group and its affiliated persons, including investors holding
5% or more of the outstanding shares of the Fund and other clients of the
Adviser, may not hold in the aggregate more than 3% of the outstanding SPDRs.
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. SPDRs are subject to the risks of
an investment in a broadly based portfolio of common stocks, including the risk
of declines in the general level of stock prices. They are also subject to the
risks of trading halts due to market conditions or other reasons that, in the
view of the American Stock Exchange, make trading in SPDRs inadvisable.
SPDR shares trade on the American Stock Exchange at approximately one-tenth the
value of the S&P 500 Index. SPDRs are relatively liquid with an average daily
volume during November, 1997 of 4.9 million shares per day. Because SPDRs
exactly replicate the S&P 500 Index, any price movement away from the value of
the underlying stocks is generally quickly eliminated by professional traders.
Thus, the Adviser believes that the movement of SPDR share prices should closely
track the movement of the S&P 500 Index.
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The administrator of the SPDR program, the American Stock Exchange, receives a
fee to cover its costs of about 0.19% per year. This fee is deducted from the
dividends paid to SPDR investors. Investors in Growth & Income Fund shares will
incur not only the operational costs of the Fund, but will also incur the
expenses deducted by the administrator of the SPDR program.
DELAYED DELIVERY TRANSACTIONS. Each Fund may purchase securities on a
when-issued or delayed delivery basis and sell securities on a delayed delivery
basis. These transactions involve a commitment by a Fund to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. No interest will be
earned by a Fund on such purchases until the securities are delivered; however,
the market value of the securities may change prior to delivery. Neither the
Global Fixed Income Fund, Global Short Bond Fund nor the International Equity
Fund will invest more than 25% of its total assets in when-issued and delayed
delivery transactions.
RESERVES. Each Fund may establish and maintain reserves when the Adviser or
Sub-adviser determines that such reserves would be desirable for temporary
defensive purposes (for example, during periods of substantial volatility in
interest rates) or to enable it to take advantage of buying opportunities. A
Fund's reserves may be invested in domestic and foreign money market
instruments, including government obligations, commercial paper and short-term
corporate debt issues meeting the quality standards described above; money
market funds, certificates of deposit and bankers' acceptances of banking
institutions described in the Statement of Additional Information; and
repurchase agreements. Although there is no limit on the percentage of a Fund's
assets which may be maintained in such reserves, under normal circumstances no
more than 10% of its total assets is expected to be maintained in such reserves.
ILLIQUID SECURITIES. Some debt obligations can be illiquid, meaning that they
may not be sold in the ordinary course of business within seven days at
approximately the price at which they are valued. A Fund will not invest more
than 15% of its net assets in illiquid securities. In accordance with guidelines
established by the Board, the Adviser or Sub-adviser will determine the
liquidity of each investment using various factors such as (1) the frequency of
trades and quotations, (2) the number of dealers and prospective purchasers in
the marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features) and (5) the likelihood of
continued marketability and credit quality of the issuer.
OPTIONS AND FUTURES CONTRACTS. Each Fund may purchase and sell covered put and
call options on securities and securities indexes, interest rate, foreign
currency and index futures contracts (agreements to take or make delivery of a
specified quantity of financial instruments at a specified price and date), and
put and call options on such futures contracts. Such options and futures
contracts are derivative instruments which may be traded on U.S. or foreign
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<PAGE> 57
exchanges or with broker/dealers which maintain markets for such investments.
Each Fund may also employ combinations of put and call options, including
without limitation, straddles, spreads, collars, and strangles. Further
information regarding these techniques may be found in the Statement of
Additional Information. These techniques are used to hedge against changes in
interest rates, foreign currency exchange rates or securities prices in order to
establish more definitely the effective return on securities or currencies held
or intended to be acquired by a Fund, to reduce the volatility of the currency
exposure associated with investment in non-U.S. securities, or as an efficient
means of adjusting exposure to the bond and currency markets and not for
speculation. In addition to the hedging transactions referred to above, each of
the Funds may enter into options and futures transactions to enhance potential
gain in circumstances where hedging is not involved.
An equity index, such as the S&P 500 Index, is a statistical measure designed to
reflect specified facets of a particular financial or securities market.
An index futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the difference between the
value of the index at the close of the last trading day of the contract and the
price at which the index contract was originally written.
An interest rate or currency futures contract provides for the delivery by one
party and the purchase by another party of a specified quantity of a financial
instrument or currency at a specified future date and price. Although the value
of a futures contract may be a function of the value of certain specified
securities or currencies, no physical delivery of these securities or currencies
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 following chart summarizes the types of futures and options transactions in
which the Funds may engage:
<TABLE>
<CAPTION>
TYPES OF CONTRACTS
--------------------------------------
OTHER
INTEREST SECURITY STOCK
RATE INDICES INDEX CURRENCY SECURITIES
-------- -------- ----- -------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income Funds Yes Yes No No Yes
(except Total Return and
and High Income Funds)
</TABLE>
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<PAGE> 58
<TABLE>
<S> <C> <C> <C> <C> <C>
Tax Exempt Funds Yes Yes No No Yes
Total Return and High Income Funds Yes Yes No Yes Yes
Market Return Fund Yes Yes Yes Yes Yes
Growth & Income Fund No Yes Yes No Yes
Global Fixed Income and Global Short Bond Yes Yes No Yes Yes
Funds
Global Balanced Fund Yes Yes Yes Yes Yes
International Equity Fund No Yes Yes Yes Yes
European Growth & Income Fund No Yes Yes Yes Yes
</TABLE>
INTEREST RATE, INDEX AND CURRENCY SWAPS. Each Fund, other than the Growth &
Income, European Growth & Income and International Equity Funds, may enter into
interest rate, index and currency swap transactions and purchase or sell caps
and floors. An interest rate, index or currency swap is a derivative instrument
which involves an agreement between a Fund and another party to exchange
payments calculated as if they were interest on a fictitious ("notional")
principal amount (e.g., an exchange of floating rate payments by one party for
fixed rate payments by the other). A cap or floor is a derivative instrument
which entitles the purchaser, in exchange for a premium, to receive payments of
interest on a notional principal amount from the seller of the cap or floor, to
the extent that a specified reference rate or reference index exceeds or falls
below a predetermined level.
A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
streams. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Group's
Custodian. If a Fund enters into a swap on other than a net basis, or sells caps
or floors, the Fund maintains a segregated account in the full amount accrued on
a daily basis of the Fund's obligations with respect to the transaction. Such
segregated accounts are maintained in accordance with applicable regulations of
the Securities and Exchange Commission.
EQUITY SWAP CONTRACTS. Each of the Equity Funds, and each of the European Growth
& Income and the Global Balanced Funds may enter into equity swap transactions.
An equity swap is a derivative instrument which involves an agreement between a
Fund and another party to exchange payments calculated as if they were interest
on a fictitious ("notional") principal amount. The Fund will typically pay a
floating rate of interest, such as the three-month London Interbank Offered
Rate, and receive the total return, i.e., price change plus dividends, of a
specified equity index, such as the S&P 500 Index. If the total return on the
equity index is negative for the contract period, the Fund will pay its
counterparty the amount of the loss in the value of the notional amount plus
interest at the floating rate. From time to time, the Fund may wish to cancel an
equity swap contract in
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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. None of the Funds will use reverse swap contracts to
short the equity market.
A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net 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 liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Fund'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.
DEPOSITORY RECEIPTS. Each of the Equity Funds and each of the Global Balanced,
European Growth & Income and International Equity Funds may invest in foreign
issuers through sponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs"). Generally,
an ADR is a dollar-denominated security issued by a U.S. bank or trust company
which represents, and may be converted into, the underlying security that is
issued by a foreign company. Generally, an EDR represents a similar securities
arrangement but is issued by a European bank, while GDRs are issued by a
depository. ADRs, EDRs and GDRs may be denominated in a currency different from
the underlying securities into which they may be converted. Typically, ADRs, in
registered form, are designed for issuance in U.S. securities markets and EDRs,
in bearer form, are designed for issuance in European securities markets.
ADRs may be sponsored by the foreign issuer or may be unsponsored. Unsponsored
ADRs are organized independently and without the cooperation of the foreign
issuer of the underlying securities; as a result, available information
regarding the issuer may not be as current as for sponsored ADRs, and the prices
of unsponsored ADRs may be more volatile than if they were sponsored by the
issuers of the underlying securities.
COUNTRY FUNDS. Subject to the provisions of the Investment Company Act of 1940,
each of the Global Balanced, European Growth & Income and International Equity
Funds may invest in the shares of investment companies that invest in specified
foreign markets. Several foreign governments permit investments by non-residents
in their markets only through participation in certain investment companies
specifically organized to participate in such markets. Each of the Global
Balanced, European Growth & Income and International Equity Funds may also
invest a portion of its assets in unit trusts and country funds that invest in
foreign markets that are smaller than those in which the Fund would ordinarily
invest directly. Investments in such pooled vehicles should enhance the
geographical diversification of the portfolio's
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<PAGE> 60
assets, thereby reducing the risks associated with investing in certain smaller
foreign markets. Investments by each of the Global Balanced, European Growth &
Income and International Equity Funds in such vehicles should also provide
increased liquidity and lower transaction costs for the Fund than are normally
associated with direct investment in such markets. However, an investment in a
country fund by a Fund will involve payment by the Fund of its pro rata share of
advisory and administrative fees charged by such country fund. At the present
time, each of the Global Balanced, European Growth & Income and International
Equity Funds intends to limit its investments in these vehicles, together with
its investments in other investment companies, to no more than 10% of its total
assets.
The European Growth & Income Fund will invest from time to time in WEBS, World
Equity Benchmark Shares, which are issued in a number of country-specific Index
Series by an investment company. The investment objective of each of the Index
Series is to seek to provide investment results that correspond generally to the
price and yield performance of publicly traded securities in the aggregate in
particular markets, as represented by a particular foreign equity series index
compiled by Morgan Stanley Capital International. The Fund will invest in WEBS
with respect to France, Germany, the Netherlands and the United Kingdom.
FOREIGN CURRENCY TRANSACTIONS. Each of the Total Return, High Income and Market
Return Funds and each of the Global Funds normally conduct their foreign
currency exchange transactions either on a spot (cash) basis at the spot rate
prevailing in the foreign currencies or on a forward basis. Under normal
circumstances, the Adviser expects that each of these Funds will enter into
forward currency contracts (contracts to purchase or sell a specified currency
at a specified future date and price). None of these Funds will generally enter
into a forward contract with a term of greater than one year. Although forward
contracts are used primarily to protect the Fund from adverse currency
movements, they may also be used to increase exposure to a currency, and involve
the risk that anticipated currency movements will not be accurately predicted
and a Fund's total return will be adversely affected as a result. Open positions
in forward contracts are covered by the segregation with the Group's Custodian
of cash, U.S. Government securities or other debt obligations and are
marked-to-market daily.
TEMPORARY DEFENSIVE MEASURES. During times when the Adviser believes that a
temporary defensive posture is warranted, each Fund may hold part or all of its
assets in cash, U.S. Government and Government agency securities, money market
obligations, short-term corporate debt securities and money market funds. When
the assets of a Fund are so invested, the Fund may not be achieving its
investment objectives.
ADDITIONAL RISK FACTORS
DIVERSIFICATION. As the Adviser may from time to time invest a large percentage
of each Fund's assets in securities of a limited number of issuers, each Fund,
except the International Equity and High Income Funds, has been classified as
"non-diversified". As provided in the
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<PAGE> 61
Investment Company Act of 1940, a diversified fund has, with respect to at least
75% of its total assets, no more than 5% of its total assets invested in the
securities of one issuer, plus cash, Government securities, and securities of
other investment companies. Accordingly, each Fund may be more susceptible to
risks associated with a single economic, political or regulatory occurrence than
a diversified investment company. However, each Fund intends to qualify as a
"regulated investment company" under the Internal Revenue Code, and therefore
will be subject to diversification limits requiring that, as of the close of
each fiscal quarter, (i) no more than 25% of its total assets may be invested in
the securities of a single issuer (other than U.S. Government securities), and
(ii) with respect to 50% of its total assets, no more than 5% of such assets may
be invested in the securities of a single issuer (other than U.S. Government
securities) or invested in more than 10% of the outstanding voting securities of
a single issuer.
SWAPS. No Fund enters into any swap, cap or floor transaction unless the
unsecured senior debt or the claims paying ability of the other party to the
transaction is rated at least "A" at the time of purchase by at least one of the
established rating agencies. The swap market has grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and agents utilizing standard swap documentation, and the Adviser has
determined that the swap market has become relatively liquid. Swap transactions
do not involve the delivery of securities or other underlying assets or
principal, and the risk of loss with respect to such transactions is limited to
the net amount of payments that a Fund is contractually obligated to make or
receive. Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less liquid
than swaps. A Fund will not enter into a swap transaction at any time that the
aggregate amount of its net obligations under such transactions exceeds 15% of
its total assets. The aggregate purchase price of caps and floors held by a Fund
may not exceed 5% of its total assets at the time of purchase, and they are
considered by the Fund to be illiquid assets; it may sell caps and floors
without limitation other than the segregated account requirement described
above.
The use of swaps, caps and floors is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Adviser's forecast of market
values, interest rates, currency rates of exchange and other applicable factors
is incorrect, the investment performance of a Fund will diminish compared with
the performance that could have been achieved if these investment techniques
were not used. Moreover, even if the Adviser's forecasts are correct, a Fund's
swap position may correlate imperfectly with an asset or liability being hedged.
In addition, in the event of a default by the other party to the transaction, a
Fund might incur a loss.
DEBT OBLIGATIONS. Each of the Funds, other than the Growth & Income, European
Growth & Income and International Equity Funds, invests, or may invest,
primarily in debt obligations. Because of its investment policies, each such
Fund may or may not be suitable or appropriate for all investors. These Funds
are not money market funds and are not
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<PAGE> 62
appropriate for those whose primary objective is stability of principal. The
value of the portfolio securities of each such Fund will fluctuate based upon
market conditions.
In general and except as noted below under "Below Investment Grade Debt
Obligations," all debt securities held by a Fund are rated "investment grade" at
the time of purchase by at least one of the established rating agencies (e.g.,
AAA, AA, A or BBB by Standard & Poor's) 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.
BELOW INVESTMENT GRADE DEBT OBLIGATIONS. The High Income Fund will invest at
least 65% of its total assets in below investment grade debt obligations, or in
unrated securities determined by the Adviser to be of comparable quality. In
addition, each of the Total Return and Market Return Funds may invest up to 25%
of its assets in debt obligations rated below investment grade, or, if unrated,
securities determined by the Adviser to be of comparable quality. Lower quality
debt securities are often considered to be speculative and involve a greater
risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
investment grade securities and may decline significantly in periods of general
economic difficulty. Further information regarding investment ratings is in the
appendix.
FOREIGN INVESTMENTS. Each of the Funds, other than the U.S. Government, Short
Duration Tax Exempt and Tax Exempt Bond Funds, may invest in securities of
foreign issuers, and each of the Global Funds invests principally in such
securities. In addition, each of the Total Return, High Income and Market Return
Funds and each of the Global Funds may invest in securities that are denominated
in foreign currencies. Investments in foreign bond and equity securities present
opportunities for both increased benefits and risks as compared to investments
in the U.S. securities market.
Securities markets in different countries may offer enhanced diversification of
investors' portfolios because of differences in economic, financial, political
and social factors. Each of the Global Funds allows an investor to diversify its
portfolio by investing in various companies and economies outside of the U.S.,
thereby taking advantage of these differences. However, investing in securities
of foreign issuers involves certain risks and considerations not typically
associated with investing in securities of U.S. issuers. These risks may include
less publicly available information and less governmental regulation and
supervision of foreign stock exchanges, brokers and issuers. Foreign issuers are
not usually subject to uniform accounting, auditing and financial reporting
standards, practices and requirements. Securities of foreign issuers are subject
to the possibility of expropriation, nationalization, confiscatory taxation,
adverse changes in investment or exchange control regulation, political
instability and restrictions in the flow of international capital. Securities of
some foreign issuers are less liquid and their prices more volatile than the
securities of U.S. companies. In addition, the time period for settlement of
transactions in foreign securities may be longer than domestic
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securities. It may also be more difficult to obtain and enforce judgments
against foreign entities.
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.
Changes in foreign exchange rates will affect the value of the securities held
in certain of the Global Funds either beneficially or adversely. Fluctuations in
foreign currency exchange rates will also affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, distributed to shareholders. Some foreign
fixed income markets offering attractive returns may be denominated in
currencies which appear relatively weak or are potentially volatile compared to
the U.S. dollar. Each of the Global Fixed Income, Global Short Bond, Total
Return, Market Return, Global Balanced and High Income Funds will, when deemed
appropriate by the Adviser, hedge this currency exposure in order to protect the
Fund's share price.
Each of the International Equity, European Growth & Income, High Income and
Global Balanced Funds are expected to incur operating expenses which are higher
than those of mutual funds investing exclusively in U.S. equity securities,
since expenses such as brokerage commissions and custodial fees related to
foreign investments are usually higher than those associated with investments in
U.S. securities. In addition, dividends and interest from foreign securities may
be subject to foreign withholding taxes. See "Dividends, Distributions and
Taxes."
If the U.S. government were to impose any restrictions, through taxation or
other means, on foreign investments by U.S. investors such as those to be made
through each of the Global Funds, the Board of Trustees will promptly review the
policies of each of these Funds to determine whether significant changes in the
portfolio of the particular Fund is appropriate.
The Adviser undertakes several measures in seeking to preserve investors'
principal in each of the Global Fixed Income, Global Short Bond and Global
Balanced Funds. First, the debt securities or currencies in which each Fund
invests are issued by or under the regulation of countries the bonds of which
are rated at the time of purchase as investment grade by Moody's or Standard &
Poor's. If the rating of bonds of any country issuing or regulating securities
or currencies in which any such Fund has made an investment falls below such
level, the Fund will discontinue making investments in that country and
liquidate any current holdings as soon as the Adviser determines it is in the
best interest of the Funds to do so.
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Second, the Adviser actively manages the maturity of the portfolios of each of
the Global Short Bond, Global Fixed Income and Global Balanced Funds in response
to expected interest rate movements. When anticipating a decline in interest
rates, the Adviser attempts to lengthen the portfolios' maturities to capitalize
on the expected appreciation of such securities. When interest rates are
expected to rise, each Fund seeks to shorten its maturity to protect against the
expected capital depreciation.
Finally, the Adviser employs a variety of investment techniques to control the
exposure of each of the Global Fixed Income, Global Short Bond, Total Return,
Market Return, Global Balanced and High Income Funds to foreign currency
exchange risks. An increase in value of a foreign currency relative to the U.S.
dollar (the "weakening" of the dollar) increases the U.S. dollar value of
securities denominated in that foreign currency. Conversely, a decline in the
value of a foreign currency relative to the U.S. dollar (the "strengthening" of
the dollar) causes a decline in the U.S. dollar value of these securities. The
Adviser seeks to use combinations of forward foreign currency contracts, foreign
currency futures contracts and options on futures contracts, options on foreign
currencies, and currency swap agreements to offset the impacts of such
movements. Each of the Global Fixed Income, Total Return, Market Return, High
Income and Global Short Bond Funds will generally hedge a greater proportion of
its foreign currency exchange risk than the Global Balanced Fund. These
investment techniques involve certain risks described under "Investment
Practices" above.
EMERGING MARKETS. Each of the International Equity, Global Balanced, High Income
and Total Return Funds may invest a portion of its assets in securities of
issuers organized or headquartered in emerging markets, which may include
developing countries or countries with new or developing capital markets. The
considerations noted above under "Foreign Investments" are generally intensified
for these investments. These countries may have relatively unstable governments,
economies based on only a few industries, and securities markets that trade a
small number of securities, thereby making it difficult to conduct such
transactions. Brokerage commissions, custodial services and other similar
investment costs are generally more expensive than in the United States. In
addition, securities of issuers located in these countries tend to have volatile
prices and may offer significant potential for loss as well as gain.
BRADY BONDS. Each of the High Income and Total Return Funds may invest a portion
of its assets in Brady bonds. Brady bonds are bonds issued as a result of a
restructuring of a country's debt obligations to commercial banks under the
"Brady plan." Brady bonds have been issued by the governments of Argentina,
Costa Rica, Mexico, Nigeria, Uruguay, Venezuela, Brazil and the Philippines, as
well as other emerging market countries. Most Brady bonds are currently rated
below BBB by S&P or Baa by Moody's. While the Adviser is not aware of the
occurrence of any payment defaults on Brady bonds, investors should recognize
that these debt securities have been issued only recently and, accordingly, do
not have a long payment history. Brady bonds may be collateralized or
uncollateralized, are
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issued in various currencies (primarily the U.S. dollar) and are actively traded
in the secondary market for Latin American debt.
OPTIONS AND FUTURES CONTRACTS. Transactions in securities options, futures
contracts and options on futures contracts involve a variety of risks, including
the inability to close out a position because of the lack of a liquid market
and, in the case of futures transactions, lack of correlation between price
movements in the hedging vehicle and the portfolio assets being hedged. To the
extent that a Fund enters into futures contracts, options on futures contracts
or options on foreign currencies, in each case other than for bona fide hedging
purposes (as defined by the Commodity Futures Trading Commission), the aggregate
initial margin and premiums required to establish those positions (excluding the
amount by which options are "in-the-money") will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into. Each
Fund covers its obligations with respect to such futures contracts and options
by maintaining assets sufficient (together with its margin deposits) to meet
such obligations; depending on the nature of the contract or option, this cover
is in the form of liquid assets, put or call options, the underlying instruments
which are the subject of the contract or option, or a long or short position in
the contract which is the subject of an option. Options and futures transactions
can be highly volatile and could result in reduction of a Fund's total return,
and a Fund's attempt to use such instruments for hedging purposes may not be
successful. The aggregate market value of a Fund's portfolio securities and
foreign currencies covering put options on securities and currencies written by
the Fund will not exceed 50% of its net assets.
OTHER INVESTMENT POLICIES
Each Fund's investment program and policies are subject to further restrictions
and risks which are described in the Statement of Additional Information. Each
Fund's investment objective is fundamental and, therefore, may not be changed
without obtaining shareholder approval. A Fund's other investment policies and
practices may be changed without shareholder approval unless otherwise specified
as fundamental policies.
FUNDAMENTAL INVESTMENT POLICIES. As a matter of fundamental policy, a Fund will
not (1) purchase a security of any issuer if, as a result, with respect to 50%
of the Fund's total assets, more than 10% of the outstanding voting securities
of the issuer would be held by the Fund (other than obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities); (2)
borrow money except for temporary, extraordinary or emergency purposes or for
the clearance of transactions in amounts not exceeding 30% of its total assets
valued at market (For this purpose, reverse repurchase agreements and delayed
delivery transactions covered by segregated accounts as described above are not
considered to be borrowings.); or (3) in any manner transfer as collateral for
indebtedness any security of the Fund except in connection with permissible
borrowings. In addition, each of the Growth & Income and Market Return Funds
will not purchase any security which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the
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securities of any one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no limitation with
respect to U.S. Government obligations and repurchase obligations secured by
such obligations, (b) wholly owned finance companies will be considered to be in
the industries of their parents, (c) SPDRs will be divided according to the
industries of their underlying common stocks, and (d) utilities will be divided
according to their services (for example, gas, gas transmission, electric and
telephone will each be considered a separate industry). Each foreign government
and supranational organization is considered to be an industry.
OTHER INVESTMENT POLICIES. As a matter of operating policy, a Fund will not (1)
purchase a security of any one issuer if, as a result, (a) more than 15% of the
value of its net assets would be invested in illiquid securities, including
repurchase agreements which do not provide for payment within seven days or
other securities which are not readily marketable; or (b) with respect to each
of the Fixed Income Funds (other than the High Income Fund), Global Short Bond
and Global Fixed Income Funds, more than 5% of the value of the Fund's total
assets would be invested in the securities of unseasoned issuers which at the
time of purchase have been in operation for less than three years, including
predecessors and unconditional guarantors; or (2) purchase additional securities
when borrowings exceed 5% of the Fund's total assets. In addition, each of the
Limited Maturity, Short Bond, Intermediate Bond, Investment Quality Bond and
Total Return Funds, each of the Tax Exempt Funds and each of the Global Funds
will not purchase any security which would cause 25% or more of the value of the
Fund's total assets at the time of purchase to be invested in the securities of
any one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to U.S.
Government obligations and repurchase obligations secured by such obligations,
(b) wholly owned finance companies will be considered to be in the industries of
their parents, and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and telephone will each be
considered a separate industry). Each foreign government and supranational
organization is considered to be an industry.
PORTFOLIO TURNOVER. Securities may be sold without regard to the length of time
held. The portfolio turnover of each Fund may be higher than that of other
mutual funds with less aggressive trading strategies, which would, in turn,
increase each Fund's transaction costs. No Fund can accurately predict its
future annual portfolio turnover rate; however, although it could vary
substantially, it will generally not exceed (a) 300% for each of the Global
Short Bond, Global Fixed Income and Global Balanced Funds, (b) 100% for each of
the Tax Exempt Funds and for each of the Growth & Income, European Growth &
Income and International Equity Funds, and (c) 200% for each of the other Funds.
To the extent that short-term trading results in the realization of short-term
capital gains, shareholders will be taxed on such gains at ordinary income tax
rates.
MANAGEMENT OF THE FUNDS
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The business of the Group is managed under the direction of its Board of
Trustees, which establishes the Group's policies and supervises and reviews the
management of the Funds. Information about the Trustees and the Group's
executive officers may be found in the Statement of Additional Information.
INVESTMENT ADVISER
Payden & Rygel serves as investment adviser to the Funds pursuant to an
investment management contract with the Group. The Adviser is an investment
counseling firm founded in 1983, and currently has over $22 billion of assets
under management. Payden & Rygel's address is 333 South Grand Avenue, Los
Angeles, California 90071. It is registered as an investment adviser with the
Securities and Exchange Commission and as a commodity trading adviser with the
Commodity Futures Trading Commission.
The Adviser manages the investment and reinvestment of the assets of the Funds
and reviews, supervises and administers all investments. Several teams, each
responsible for a group of Funds, are responsible for the day-to-day management
of the Funds within the broad investment parameters established by the Adviser's
Global Investment Policy Committee. These teams are supervised by the Executive
Committee of the Global Investment Policy Committee, comprised of John Isaacson,
Scott King and Christopher Orndorff.
John Isaacson is an Executive Vice President and the Chief Investment Officer of
Payden & Rygel. He joined the Company in 1988 and has 25 years of experience in
the investment business. Scott King is an Executive Vice President and the Head
of Trading at Payden & Rygel. He was one of the original members of the Company
when it was founded in 1983 and has over 17 years of investment experience.
Christopher Orndorff is a Vice President and head of Global Asset Allocation at
Payden & Rygel. He joined the company in 1990 and has 13 years of experience in
the investment business. Mr. Isaacson, Mr. King and Mr. Orndorff are responsible
for defining the broad investment parameters of the Funds, including the types
of strategies to be employed and the range of securities acceptable for
investment.
Each of the teams analyzes investment opportunities and strategies, and makes
portfolio management decisions (subject to prior review of significant decisions
by the Global Investment Policy Committee) and applies them to portfolios. The
strategy teams and the Funds for which they are responsible are the Tax Exempt
Group (Short Duration Tax Exempt Fund and Tax Exempt Bond Fund); the Global
Group (Global Fixed Income Fund and Global Short Bond Fund); the Short Maturity
Group (Limited Maturity Fund, Short Bond Fund, U.S. Government Fund, Market
Return Fund, and Intermediate Bond Fund); the Bond Strategy Group (Investment
Quality Bond Fund, High Income Fund and Total Return Fund); and the Equity
Strategy Group (Growth & Income Fund, European Growth & Income Fund,
International Equity Fund and Global Balanced Fund).
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The Adviser receives a monthly fee from each Fund at the following annual rates:
the Limited Maturity, Short Bond, U.S. Government, Intermediate Bond, Investment
Quality Bond, Total Return and Market Return Funds, 0.28% for the first $1
billion of each Fund's average daily net assets and 0.25% of each Fund's net
assets above $1 billion; the Short Duration Tax Exempt and Tax Exempt Bond
Funds, 0.32% for the first $500 million of each Fund's average daily net assets,
0.28% for the next $500 million and 0.25% of average daily net assets above $1
billion; the Global Short Bond and Global Fixed Income Funds, 0.30% of the first
$2 billion of each Fund's average daily net assets, and 0.25% of average daily
net assets above $2 billion; the International Equity Fund, 0.60% of the first
$1 billion of average daily net assets of the portfolio and 0.45% thereafter;
the Global Balanced Fund, 0.50% of the first $1 billion of average daily net
assets of the portfolio and 0.40% thereafter; the Growth & Income Fund, 0.50%
for the first $2 billion of the Fund's average daily net assets and 0.30% of the
Fund's net assets above $2 billion; the European Growth & Income Fund, 0.50% of
the first $2 billion of average daily net assets of the portfolio, and 0.40%
thereafter; and the High Income Fund, 0.35% of average daily net assets.
For the fiscal year which ended October 31, 1997, the Adviser earned a fee from
each Fund as follows: Limited Maturity, Short Bond, U.S. Government,
Intermediate Bond, Investment Quality Bond and Market Return Funds, 0.28%; Short
Duration Tax Exempt and Tax Exempt Funds, 0.32%; Global Short Bond Fund and
Global Fixed Income Funds, 0.30%; Growth & Income Fund, 0.30%; Global Balanced
Fund, 0.50%; European Growth & Income Fund, 0.40%; and International Equity
Fund, 0.60%. The High Income Fund was not open during this period.
THE SUB-ADVISER
For the International Equity, European Growth & Income and Global Balanced
Funds, the Adviser has entered into sub-advisory agreements with Scottish Widows
Investment Management ("Scottish Widows"), appointing the latter as
sub-investment manager and delegating to Scottish Widows the day-to-day
management responsibilities for the International Equity and European Growth &
Income Funds and a portion of the Global Balanced Fund. The Adviser continuously
monitors and evaluates the performance of Scottish Widows.
Scottish Widows, located at 15 Dalkeith Road, Edinburgh, Scotland, United
Kingdom EH16 5BU, is a wholly owned subsidiary of Scottish Widows' Fund and Life
Assurance Society ("Scottish Widows Group"), a mutual company chartered in 1815.
Scottish Widows Group has assets under management of over $39 billion as of
December 31, 1996. Scottish Widows has been managing UK equities since the early
1900's, U.S. equities since the 1950's, Japan and Southeast Asia equities since
the 1960's and its experience in continental European equities dates back to the
mid-1970's. Investment decisions are made by an account management team headed
by Kenneth A. Anderson. Mr. Anderson joined Scottish Widows in 1988 and has
managed a variety of international equity portfolios. He was appointed an
Investment Director of the firm in 1995.
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The Adviser pays the Sub-adviser a monthly sub-advisory fee for the
International Equity Fund and Global Balanced Fund at an annual rate equal to
0.40% of the first $1 billion of average daily net assets of the portfolio and
0.30% of average daily net assets above $1 billion. In the case of the Global
Balanced Fund, fees are based on the average daily net assets allocated to the
Sub-adviser by the Adviser. The Adviser pays the Sub-adviser a monthly advisory
fee for the European Growth & Income Fund at an annual rate equal to 50% of the
advisory fee earned and received by the Adviser. It is important to note that
the sub-investment management fee does not represent a separate or additional
charge or assessment against the Funds.
For the fiscal year ended October 31, 1997, the Sub-adviser earned a fee from
each Fund as follows: International Equity Fund, 0.40%; Global Balanced Fund,
0.25%; and European Growth & Income Fund, 0.20%.
ADMINISTRATOR AND TRANSFER AGENT
Treasury Plus, Inc., a wholly owned subsidiary of the Adviser, serves as the
Administrator to the Funds pursuant to a management and administration contract
with the Group. The Administrator's address is 333 South Grand Avenue, Los
Angeles, California 90071. The Administrator provides administrative services to
each Fund, including administrative and clerical functions, certain shareholder
servicing functions and supervision of the services rendered to each Fund by
other persons.
Investors Fiduciary Trust Company ("IFTC"), a Missouri trust company located at
801 Pennsylvania, Kansas City, Missouri, 64105, provides accounting, dividend
disbursing and transfer agency services to each 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.
IFTC receives fees for fund accounting services and dividend disbursing and
transfer agency services. Certain out-of-pocket expenses are also reimbursed at
actual cost.
Advisory and administrative fees generally will be charged to each class of
shares based upon the assets of that class. Expenses attributable to a single
class of shares will be charged to that class.
DISTRIBUTOR
Shares of the Funds are distributed through Payden & Rygel Distributors, a
wholly owned subsidiary of Payden & Rygel located at the same address. The
Distributor is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc.
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SHAREHOLDER SERVICE PLAN
The Board of Trustees has adopted a Shareholder Service Plan with respect to
Class S shares of the Funds and of the other portfolios of the Group. Under the
Plan, the Class S shares of the Funds pay the Distributor an annual fee of up to
0.25% of the average daily net assets of the Funds attributable to the Class S
shares for services provided by the Distributor, broker-dealers and other
service organizations to the beneficial owners of Class S shares. Such support
services include establishing and maintaining accounts and records relating to
clients; assisting clients in processing purchase, exchange and redemption
requests and account designations; preparing tax reports and forms; forwarding
shareholder communications from the Funds; and responding to client inquiries
concerning their investments.
Services provided under the Shareholder Service Plan are not primarily intended
to result in the sale or distribution of Class S Shares of the Funds. The Plan
is a "compensation" plan, which means that the fees paid to the broker-dealers
and other service organizations for services rendered are payable even if the
amounts paid exceed their actual expenses. If in any month the Distributor is
due more fees for shareholder services than are immediately payable because of
the expense limitations under the Plan, the unpaid amount is carried forward
from month to month while the Plan is in effect until such time when it may be
paid. However, no carried forward amount will be payable beyond the fiscal year
in which the amount was incurred, and no interest, carrying or other finance
charge is borne by the Class S Shares with respect to any amount carried
forward.
PERFORMANCE INFORMATION
The Funds may, from time to time, include the yield and total return for shares
in advertisements or reports to shareholders or prospective investors. Yield and
total return are calculated separately for Class R and Class S Shares. Yield
will be quoted using the SEC definition, which is the annualized net investment
income per share during a particular 30-day (or one month) period. Quotations of
average annual total return will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in a Fund over specified
periods.
OFFERING
Copies of the Group's 1997 Annual Report to Shareholders are available without
charge by writing or calling the Group at the address and phone number listed in
the front of this prospectus.
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
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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.
SHAREHOLDER SERVICES
TAX-SHELTERED RETIREMENT PLANS
The Funds accept purchases of shares by tax-sheltered retirement plans such as
IRAs, rollover IRAs, Keogh or corporate profit sharing plans, Simplified
Employee Pension plans, 403(b) and 401(k) plans. Please call a Fund
Representative to receive a retirement package which includes a special
application for tax-sheltered accounts. The Group does not provide fiduciary
administration or custody for such plans. The Group currently waives the
Fiduciary Administration Fees charged by IFTC associated with such plans.
EXCHANGE PRIVILEGE
The Group currently consists of nineteen investment portfolios with varying
investment objectives or policies, and other investment portfolios may be
created. Shares of a Fund may be exchanged for any class of shares of any of the
other investment portfolios of the Group. Exchanges are made on the basis of the
net asset values of the portfolios involved. The minimum amount for any exchange
is $1,000.
Because an exchange is considered a redemption and purchase of shares, the
shareholder may realize a gain or loss for federal income tax purposes. Before
making an exchange into another investment portfolio, a shareholder should
obtain and review a current prospectus of the investment portfolio into which
the shareholder wishes to transfer. When exchanging shares into another
investment portfolio, shareholders should be aware that, among other significant
differences, the portfolios may have different dividend payment dates, minimum
initial investments and minimum additional investments.
Exchanges will be effected upon receipt of written instructions signed by all
account owners. In addition, shareholders who complete the telephone privilege
authorization portion of the Account Registration Form may effect exchanges from
a Fund into another class of the Fund or an identically registered account in
one of the other available portfolios by a telephone call to the Distributor at
(213) 625-1900 or (800) 5PAYDEN (800-572-9336). Finally, shareholders may
participate in the Automatic Exchange Plan to automatically redeem a fixed
amount from one Fund for investment in another Fund on a regular basis. See
"Automated Investment Programs."
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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
All shareholders may exchange or redeem shares by telephone if they have elected
this option on the Account Registration Form. If a shareholder calls before 1:00
p.m. (Pacific Time), the exchange or redemption will be at the net asset value
determined that day; if a shareholder calls after 1:00 p.m. (Pacific Time), the
exchange or redemption will be at the net asset value determined on the next
business day. 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 Group
reserves the right to refuse a telephone, telegraph or wire communication
exchange or redemption request if it believes that the person making the request
is not authorized by the investor to make the request. 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.
CHECKWRITING CAPABILITY
Checkwriting is available for investors of the Limited Maturity and Short
Duration Tax Exempt Funds only. To obtain checks, call a Fund Representative for
a signature card. Complete and return it to the Fund. To pay the check, shares
are redeemed from the Fund account at the net asset value per share computed on
the day the check is presented to the Fund for payment. It is important to note
that the Limited Maturity Fund is not a money market fund and its net asset
value per share will vary daily. An investor may incur a taxable capital gain or
loss on the shares redeemed each time a check is paid. A transaction fee of
$2.00 per check will be charged to the account if the investor has total assets
with the Group of less than $25,000.
Checks received by the Fund are credited to the account on the day received. A
fee of $20.00 may be imposed on the account if a check is returned because it
fails to meet the Fund's checkwriting criteria or if there are insufficient
funds in the account. The Fund reserves the
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right to modify or terminate the checkwriting privilege upon 30 days prior
written notice to shareholders.
AUTOMATED INVESTMENT PROGRAMS
All shareholders may take advantage of two programs which permit automated
investments in the Group's Funds.
ELECTRONIC INVESTMENT PLAN. If authorized by the shareholder, additional
investments in any Fund may be made using the Automated Clearing House System
("ACH") which transfers money directly from the shareholder's bank account to
the Fund for investment. Initial investments in any Fund may not be made through
ACH.
The ACH is an electronic money transfer system that is used throughout the
United States. It is easy, convenient, inexpensive and avoids the potential of
theft of checks from the postal system. It is used by many employers to pay
salaries and is also used by the United States Government to send social
security payments directly into retiree accounts.
Two investment options may be chosen. First, the shareholder may elect to make
investments on a set schedule either monthly or quarterly. Under this option,
the shareholder's financial institution will deduct an amount authorized by the
shareholder which will normally by credited to the Fund on the 15th day of the
month (or next business day if the 15th is a holiday or on a weekend). The
shareholder's bank account will typically be debited the prior business day,
although this varies with each financial institution. The minimum initial
investment, which may be made by check or wire, is $2,500, with additional
investments by ACH of no less than $250.
Under the second option, the shareholder may also elect to authorize ACH
transfers via telephone request. Money will be withdrawn from the shareholder's
account only when authorized by the shareholder. There will be no set schedule
of withdrawals from the shareholder's account. Additionally, the investor may
vary the amount of the investment. Under this option, the minimum initial
investment is $5,000, with additional investments by ACH no less than $1,000.
Due to operational considerations, for telephonic requests received prior to
12:30 p.m. (Pacific Time), the investment will be at the net asset value
determined on the next business day. For telephonic requests received after
12:30 p.m. (Pacific Time), the investment will be at the net asset value
determined on the second business day following receipt of the call.
Please note the following guidelines:
- - - The shareholder's financial institution must be a member of the Automated
Clearing House System.
- - - The shareholder must complete and return an Automated Investment Program
form along with a voided check or deposit slip at least 15 days prior to the
initial transaction.
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- - - An account with the Group must be established before the Electronic
Investment Plan goes into effect.
- - - The Electronic Investment Plan will automatically terminate if all shares
are redeemed, or if the shareholder's financial institution rejects the
transfer for any reason, e.g., insufficient funds.
- - - Termination must be in writing and will become effective the month following
receipt.
AUTOMATIC EXCHANGE PLAN. Shareholders may participate in the Automatic Exchange
Plan to automatically redeem a fixed amount from one Fund for investment in
another portfolio of the Group on a regular basis. The shareholder elects this
option by completing an Automated Investment Programs form to determine the
periodic schedule (monthly or quarterly) and exchange amount (minimum amount of
$1,000) and to identify the portfolio of the Group in which the investment is to
be made. The automatic transfer is effected on the 15th day (or the next
business day if the 15th is a holiday or on a weekend) of the month.
SHAREHOLDER INQUIRIES
Shareholders with inquires concerning any of the Funds or other portfolios of
the Group may call the Group at (213) 625-1900, or (800) 5PAYDEN, or write to
Payden & Rygel Investment Group, 333 South Grand Avenue, Los Angeles, CA 90071.
REDEMPTION OF SHARES
Each Fund will redeem its shares at the net asset value next determined
following receipt of the request in proper form. Redemptions may be made in
writing, by calling the Distributor at (800) 5PAYDEN, by telegraph or by other
wire communication. No charge is made for redemptions. Shares redeemed may be
worth more or less than the purchase price of the shares, depending on the
market value of the investment securities held by the Funds at the time of
redemption.
Redemption requests in writing or by telegraph or other wire communications
should be directed to the Group at 333 South Grand Avenue, Attn.: Fund
Distributor, Los Angeles, California 90071. Payment for redemption of recently
purchased shares will be delayed until the Fund is advised that the purchase
check has been honored, which may take up to 15 days after receipt of the check.
If the proceeds of a written request are to be paid to a person other than the
record owner of the shares or are to be sent to an address other than the
address of record, the signature on the request must be guaranteed by a
commercial bank, a trust company or another eligible guarantor institution. A
signature guarantee may be rejected if it is believed to be not genuine or if
there is any reason to believe that the transaction is improper. Payment of the
redemption price will ordinarily be wired to the shareholder's bank or mailed to
the shareholder address of record one business day after receipt of the request.
A $10.00 fee may be charged for any wire transfer, and payment by mail may take
up to seven days. Telephone redemptions may be difficult to implement during
periods
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of drastic economic or market changes, which may result in an unusually high
volume of telephone calls.
A Fund may suspend the right of redemption or postpone the payment date at times
when the New York Stock Exchange is closed or during certain other periods as
permitted under the federal securities laws.
HOW TO PURCHASE SHARES
Shares of the Funds may be purchased at net asset value without a sales charge.
The minimum investment levels per Fund are as set forth below. An account may
only be opened by completing an application and mailing it to the appropriate
address below under "Initial Investment." Shares cannot be purchased until a
properly completed application is received by the Group. If you wish to open a
tax-sheltered retirement plan (such as an IRA), special application forms must
be completed. Please be sure to ask for an IRA information kit. Transaction fees
may be charged for the purchase and/or sale of shares through a broker.
INITIAL INVESTMENT
BY CHECK - ALL FUNDS
- - - Complete Application
- - - Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318
BY FEDERAL FUNDS WIRE
- - - Complete application and mail to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318
- - - Wire Funds as follows when application has been processed:
The Boston Safe Deposit and Trust Company
ABA 011001234
A/C #115762
Mutual Funds #6630
Credit to (name of Payden & Rygel Fund here)
For Account of (insert your account name here)
Please call the Group, at (213) 625-1900 or (800) 5PAYDEN, to advise of any
purchases by wire.
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Shares of the Funds are purchased at the net asset value per share for each
class next determined after receipt by the Distributor of an order to purchase
shares in proper form. Purchase orders will be accepted only on days on which
the Funds and the Custodian are open for business, as defined below. The minimum
investment amount may be waived from time to time by the Distributor.
All Funds are "open for business" on each day the New York Stock Exchange is
open for trading, which excludes the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
MINIMUM INVESTMENTS
With the exception of the Limited Maturity, Short Bond, Intermediate Bond, Total
Return and Global Short Bond Funds, the minimum initial and additional
investments per Fund, for either Class R Shares or Class S Shares, for each type
of account are as follows:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
ACCOUNT TYPE INVESTMENT INVESTMENT
------------ ---------- ----------
<S> <C> <C>
Regular $5,000 $1,000
Tax-Sheltered $2,000 $1,000
Electronic Investment Plan:
Set schedule $2,500 $250
No set schedule $5,000 $1,000
</TABLE>
For either Class R Shares or Class S Shares of each of the Limited Maturity,
Short Bond, Intermediate Bond, Total Return and Global Short Bond Funds, the
minimum investment is $100,000.3
ADDITIONAL INVESTMENTS
Additional investments may be made at any time at net asset value by check, by
ACH, or by calling the Distributor and wiring federal funds to the Custodian as
described above.
OTHER PURCHASE INFORMATION
Purchases of each Fund's shares will be made in full and fractional shares.
Certificates for shares will not be issued. The Group reserves the right, in its
sole discretion, to suspend the offering of shares of any Fund or to reject
purchase orders when, in the judgment of its management, such suspension or
rejection is in the best interest of the Fund; and to redeem
- - ----------
3 The minimum investment level is waived for a current investor whose
investment in any one of these five Funds is less than $100,000. However, should
the investor wish to make an additional investment in the Fund, the additional
investment must be in an amount that will permit the investor to meet the
$100,000 minimum investment level.
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shares if information provided in the client application proves to be incorrect
in any material manner.
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APPENDIX A
DESCRIPTION OF RATINGS
The following summarizes the descriptions for some of the ratings referred
to in the Prospectus and Statement of Additional Information. The descriptions
for the ratings for municipal securities and commercial paper may be found in
Appendix A to the 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.
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 edged." 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 which are 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 be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well..
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this asset class.
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B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
short-comings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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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.
The obligor's capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal) is extremely strong.
AA: Bonds rated AA differ from the highest-rated obligations only in a small
degree. The obligor's capacity to meet its financial commitment on the
obligation (i.e., pay interest and repay principal) is very strong.
A: Bonds rated A are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation (i.e., pay interest and repay principal) is still
strong.
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BBB: Bonds rated BBB exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation (i.e., pay interest and repay principal).
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal).
B: Bonds rated B are more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation (i.e., pay interest and repay principal). Adverse business,
financial, or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
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.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
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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.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist in the obligor satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
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C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D"
categories.
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 Thompson Bank Watch's
opinion of the vulnerability of the company to adverse developments,
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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.
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APPENDIX B
MSCI EUROPE INDEX
The Group and Morgan Stanley & Co. Incorporated ("Morgan Stanley") have entered
into a non-exclusive license agreement providing for the license to the Group,
in exchange for a fee, of the right to use the MSCI Europe Index in connection
with the Payden & Rygel European Growth & Income Fund. The license agreement
between the Group and Morgan Stanley provides the following language shall be
set forth in the Prospectus:
"The Payden & Rygel European Growth & Income Fund (the "Fund") is not
sponsored, endorsed, sold or promoted by Morgan Stanley. Morgan Stanley makes no
representation or warranty, express or implied, to the owners of the Fund or any
member of the public regarding the advisability of investing in funds generally
or in the Fund particularly or the ability of the MSCI Europe Index to track
general stock market performance. Morgan Stanley is the licensor of certain
trademarks, service marks and trade names of Morgan Stanley and of the MSCI
Europe Index which is determined, composed and calculated by Morgan Stanley
without regard to the issue of the Fund or the Fund. Morgan Stanley has no
obligation to take the needs of the issuer of the Fund or the owners of the Fund
into consideration in determining, composing or calculating the MSCI Europe
Index. Morgan Stanley is not responsible for and has not participated in the
determination or the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the Fund
is redeemable for cash. Morgan Stanley has no obligation or liability to owners
of the Fund in connection with the administration, marketing or trading of the
Fund.
ALTHOUGH MORGAN STANLEY SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE
IN THE CALCULATION OF THE MSCI EUROPE INDEX FROM SOURCES WHICH MORGAN STANLEY
CONSIDERS RELIABLE, NEITHER MORGAN STANLEY NOR ANY OTHER SUCH PARTY GUARANTEES
THE ACCURACY AND/OR THE COMPLETENESS OF THE MSCI EUROPE INDEX OR ANY DATE
INCLUDED THEREIN. NEITHER MORGAN STANLEY NOR ANY OTHER SUCH PARTY MAKES ANY
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE,
LICENSEE'S CUSTOMERS AND COUNTERPARTIES, OWNERS OF THE FUND, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE MSCI EUROPE INDEX OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. NEITHER
MORGAN STANLEY NOR ANY OTHER SUCH PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTIES,
AND MORGAN STANLEY HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE MSCI EUROPE INDEX OF ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL
MORGAN STANLEY OR ANY OTHER SUCH PARTY HAVE ANY LIABILITY FOR ANY DIRECT,
INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER DAMAGES (INCLUDING LOST
PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES."
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INVESTMENT ADVISER
Payden & Rygel
333 South Grand Avenue
Los Angeles, California 90071
SUB-ADVISER
Scottish Widows Investment Management Limited
15 Dalkeith Road
Edinburgh, Scotland
United Kingdom EH16 5BU
ADMINISTRATOR
Treasury Plus, Inc.
333 South Grand Avenue
Los Angeles, California 90071
DISTRIBUTOR
Payden & Rygel Distributors
333 South Grand Avenue
Los Angeles, California 90071
CUSTODIAN
The Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02109
TRANSFER AGENT
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402
COUNSEL
Paul, Hastings, Janofsky and Walker LLP
555 South Flower Street
Los Angeles, California 90071
December 30, 1997
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PAYDEN & RYGEL INVESTMENT GROUP
PAYDEN & RYGEL LIMITED MATURITY FUND
PAYDEN & RYGEL SHORT BOND FUND
PAYDEN & RYGEL U.S. GOVERNMENT FUND
PAYDEN & RYGEL INTERMEDIATE BOND FUND
PAYDEN & RYGEL INVESTMENT QUALITY BOND FUND
PAYDEN & RYGEL TOTAL RETURN FUND
PAYDEN & RYGEL HIGH INCOME FUND
PAYDEN & RYGEL SHORT DURATION TAX EXEMPT FUND
PAYDEN & RYGEL TAX EXEMPT BOND FUND
PAYDEN & RYGEL GROWTH & INCOME FUND
PAYDEN & RYGEL MARKET RETURN FUND
PAYDEN & RYGEL GLOBAL SHORT BOND FUND
PAYDEN & RYGEL GLOBAL FIXED INCOME FUND
PAYDEN & RYGEL GLOBAL BALANCED FUND
PAYDEN & RYGEL EUROPEAN GROWTH & INCOME FUND
PAYDEN & RYGEL INTERNATIONAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 30, 1997
The Payden & Rygel Limited Maturity Fund ("Limited Maturity Fund"), Payden &
Rygel Short Bond Fund ("Short Bond Fund"), Payden & Rygel U.S. Government Fund
("Government Fund") (formerly the Payden & Rygel U.S. Treasury Fund), Payden &
Rygel Intermediate Bond Fund ("Intermediate Fund"), Payden & Rygel Investment
Quality Bond Fund ("Investment Quality Bond Fund"), Payden & Rygel Total Return
Fund ("Total Return Fund"), Payden & Rygel High Income Fund ("High Income
Fund"), Payden & Rygel Short Duration Tax Exempt Fund ("Short Duration Fund"),
Payden & Rygel Tax Exempt Bond Fund ("Tax Exempt Bond Fund"), Payden & Rygel
Growth & Income Fund ("Growth & Income Fund"), Payden & Rygel Market Return Fund
("Market Return Fund"), Payden & Rygel Global Short Bond Fund ("Global Short
Bond Fund"), Payden & Rygel Global Fixed Income Fund ("Global Fixed Income
Fund"), Payden & Rygel Global Balanced Fund ("Global Balanced Fund"), Payden &
Rygel European Growth & Income Fund ("European Growth & Income Fund") and Payden
& Rygel International Equity Fund ("International Equity Fund") are series
("Funds") 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 Funds dated December 30, 1997, 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 (telephone 213/625-1900 or 800/572-9336).
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TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES............................................ 3
FUNDAMENTAL AND OPERATING POLICIES............................................ 28
PORTFOLIO TRANSACTIONS........................................................ 30
VALUATION OF PORTFOLIO SECURITIES............................................. 32
FUND PERFORMANCE.............................................................. 32
TAXATION...................................................................... 35
MANAGEMENT OF THE GROUP....................................................... 40
PURCHASES AND REDEMPTIONS..................................................... 47
OTHER INFORMATION............................................................. 48
APPENDIX A - DESCRIPTION OF RATINGS........................................... 54
</TABLE>
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INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of the Funds are
described in the Prospectus. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
EQUITY SECURITIES
PREFERRED STOCKS
Preferred stock, unlike common stock, offers a stated dividend rate payable from
a corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Dividends on some preferred stock may be
"cumulative," requiring all or a portion of prior unpaid dividends to be paid.
Preferred stock also generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases. The rights of
preferred stocks on the distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
AMERICAN DEPOSITORY RECEIPTS
American Depository Receipt ("ADRs") may be listed on a national securities
exchange or may trade in the over-the-counter market. ADR prices are denominated
in United States dollars; the underlying security may be denominated in a
foreign currency, and may be subject to foreign government taxes which would
reduce the yield on such securities.
CONVERTIBLE SECURITIES
A convertible security is a fixed income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its
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investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion table.
Like other debt securities, the market value of convertible debt securities
tends to vary inversely with the level of interest rates. The value of the
security declines as interest rates increase and increases as interest rates
decline. Although under normal market conditions longer term securities have
greater yields than do shorter term securities of similar quality, they are
subject to greater price fluctuations. Fluctuations in the value of the Fund's
investments will be reflected in its net asset value per share. A convertible
security may be subject to redemption at the option of the issuer at a price
established in the instrument governing the convertible security. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
FIXED INCOME SECURITIES
Securities in which the Funds may invest include but are not limited to those
described below.
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations are debt securities issued by the U.S. Treasury. They
are direct obligations of the U.S. Government and differ mainly in the lengths
of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Agency securities are issued or guaranteed by U.S. Government
sponsored enterprises and federal agencies. These include securities issued by
the Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Bank, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury, and others only by the credit of the instrumentality, which may
include the right of the issuer to borrow from the Treasury.
FOREIGN GOVERNMENT OBLIGATIONS
Foreign government obligations are debt securities issued or guaranteed by a
supranational organization or a foreign sovereign government or one of its
agencies, authorities, instrumentalities or political subdivisions, including a
foreign state, province or municipality.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, bankers' acceptances, and
other debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction.
The Funds will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, the bank
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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 rate of return or return of principal on some
debt obligations may be linked or indexed to the level of exchange rates between
the U.S. dollar and a foreign currency or currencies.
The Adviser will undertake several measures in seeking to preserve investors'
principal:
- First, in general, the debt securities in which the Funds invest
will be considered "investment-grade"(e.g., rated AAA, AA, A or
BBB by Standard & Poor's Corporation) by at least one of the
established rating agencies, or if not rated, will be determined
to be of comparable quality by the Adviser. However, the High
Income Fund will invest at least 65% of its total assets in debt
securities rated below investment grade by one of the established
rating agencies, or if not rated, determined to be of comparable
quality by the Adviser, and each of the Total Return and Market
Return Funds may invest up to 25% of its total debt assets in
such below investment grade debt. For all Fixed Income Funds
except the High Income Fund, if the rating of a debt security in
which a Fund has made an investment falls below the investment
grade level, or below the B level for the Total Return and Market
Return Funds), 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. As a matter of operating policy, the High Income Fund will
not purchase securities rated both below B3 by Moody's Investor
Services, Inc. and below B- by Standard & Poor's Corporation.
While the High Income Fund is not required to dispose of debt
securities whose credit quality declines at some point after the
security is purchased, no more than 25% of the Fund's assets will
be invested at any time in securities rated less than CCC by
Standard & Poor's or Caa by Moody's or, if unrated, of comparable
quality in the opinion of the Adviser. The High Income Fund will
not invest in securities of bankrupt companies. Except for the
High, Income, Total Return and Market Return Funds, no Fund will
hold more than 5% of its net assets in obligations rated below
investment grade, and no such obligation will be rated below BB.
- Second, the Adviser will actively manage the maturity of the
Funds' portfolios in response to expected interest rate
movements. When anticipating a decline in interest rates, the
Adviser will attempt to lengthen the portfolios' maturity to
capitalize on the expected appreciation of such securities. When
interest rates are expected to rise, the Funds will seek to
shorten their portfolios' maturities to protect against the
expected capital depreciation.
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- Finally, the Adviser may use interest rate and bond index futures
and options on futures contracts, options on securities, and
interest rate swaps to effect a change in the Funds' exposure to
interest rate changes. These investment techniques involve
certain risks described below.
There is, of course, no guarantee these investment strategies will accomplish
the Funds' objectives.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in pools of mortgage loans made to
U.S. residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Funds may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities. Under normal
circumstances, all debt securities held by each Fund (with the exception of the
Total Return, High Income and Market Return Funds) will be rated "investment
grade", at the time of purchase, by at least one of the established rating
agencies (e.g. AAA, AA, A or BAA by Standard & Poor's Corporation) or, if
unrated, will be determined to be of comparable quality by the Adviser. The
Growth & Income, European Growth & Income and International Equity Funds do not
invest in these 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
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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. A Fund will not purchase mortgage-related securities
which in the Adviser's opinion are illiquid if, as a result, more than 15% of
the value of the Fund's total assets will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond, interest
and prepaid principal is paid, in most cases, semi-annually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual 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
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of underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes receive principal only after the earlier classes have been retired.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities of U.S. or foreign issuers that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property. These other mortgage-related securities may be equity or debt
securities issued by governmental agencies or instrumentalities or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities.
ASSET BACKED RECEIVABLES
The Funds, with the exception of the U.S. Government, Growth & Income, European
Growth & Income and International Equity Funds, may purchase asset-backed
securities including, but not limited to, Certificates for Automobile
Receivables ("CARS(sm)") and credit card receivable securities. CARS(sm)
represent undivided fractional interests in a trust with assets consisting of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing these contracts. In addition to the general risks
pertaining to all asset-backed securities, CARS(sm) are subject to the risks of
delayed payments or losses if the full amounts due on underlying sales contracts
are not realized by the trust due to unanticipated legal or administrative costs
of enforcing the contracts, or due to depreciation, damage or loss of the
vehicles securing the contracts. Credit card receivable securities are backed by
receivables from revolving credit card accounts. Since balances on revolving
credit card accounts are generally paid down more rapidly than CARS(sm), issuers
often lengthen the maturity of these securities by providing for a fixed period
during which interest payments are passed through and principal payments are
used to fund the transfer of additional receivables to the underlying pool. The
failure of the underlying receivables to generate principal payments may
therefore shorten the maturity of these securities. In addition, unlike most
other asset-backed securities, credit card receivable securities are backed by
obligations that are not secured by interests in personal or real property.
FLOATING RATE AND VARIABLE RATE DEMAND NOTES
The Funds may purchase floating rate and variable rate demand notes and bonds.
These securities may have a stated maturity in excess of one year, but permit a
holder to demand payment of principal plus accrued interest upon a specified
number of days notice. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The issuer has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal of the obligation plus accrued interest upon a specific
number of days notice to the holders. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank's prime rate,
and is reset whenever such rate is adjusted. The interest rate on a variable
rate demand note is reset at specified intervals at a market rate.
Each Fund will limit its purchase of securities that bear floating rates and
variable rates of interest to those meeting the rating quality standards set
forth in the Prospectus. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying creditor or of the bank, as the case may be, must, as determined
by the Adviser under the supervision of the Board of Trustees, also be
equivalent to the quality standards set forth
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above. In addition, the Adviser monitors the earning power, cash flow and other
liquidity ratios of the issuers of such obligations, as well as the
creditworthiness of the institution responsible for paying the principal amount
of the obligations under the demand feature.
OBLIGATIONS WITH PUTS ATTACHED
Each Fund may purchase long-term fixed rate debt obligations that have been
coupled with an option granted by a third party financial institution allowing
the Fund at specified intervals to tender (or "put") such debt obligations to
the institution and receive the face value. These third party puts are available
in many different forms, and may be represented by custodial receipts or trust
certificates and may be combined with other features such as interest rate
swaps. The financial institution granting the option does not provide credit
enhancement. If there is a default on, or significant downgrading of, the bond
or a loss of its tax-exempt status, the put option will terminate automatically.
The risk to the Fund will then be that of holding a long-term bond.
These investments may require that a Fund pay a tender fee or other fee for the
features provided. In addition, the Fund may acquire "stand-by commitments" from
banks or broker dealers with respect to the securities held in its portfolios.
Under a stand-by commitment, a bank or broker/dealer agrees to purchase at the
Fund's option a specific security at a specific price on a specific date. The
Fund may pay for a stand-by commitment either separately, in cash, or in the
form of a higher price paid for the security. The Fund will acquire stand-by
commitments solely to facilitate portfolio liquidity. The Growth & Income and
International Equity Funds do not invest in these securities.
REPURCHASE AGREEMENTS
For the purpose of maintaining liquidity, each Fund may enter into repurchase
agreements (agreements to purchase U.S. Treasury notes and bills, subject to the
seller's agreement to repurchase them at a specified time and price) with
well-established registered securities dealers or banks. Repurchase agreements
are the economic equivalent of loans by a Fund. In the event of a bankruptcy or
default of any registered dealer or bank, a Fund could experience costs and
delays in liquidating the underlying securities which are held as collateral,
and a Fund might incur a loss if the value of the collateral declines during
this period.
DELAYED DELIVERY TRANSACTIONS
When delayed delivery purchases are outstanding, a Fund will set aside and
maintain until the settlement date in a segregated account cash, U.S. Government
securities or high grade debt obligations in an amount sufficient to meet the
purchase price. When purchasing a security on a delayed delivery basis, a Fund
assumes the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value, but does not accrue income on the security
until delivery. When a Fund sells a security on a delayed delivery basis, it
does not participate in future gains or losses with respect to the security. If
the other party to a delayed delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity or
could suffer a loss. A Fund will not invest more than 25% of its total assets in
when-issued and delayed delivery transactions.
REVERSE REPURCHASE AGREEMENTS
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Each Fund covers its obligations under a reverse repurchase agreement by
maintaining a segregated account comprised of cash, U.S. Government securities
or high-grade debt obligations, maturing no later than the expiration of the
agreement, in an amount (marked-to-market daily) equal to its obligations under
the agreement. Reverse repurchase agreements are the economic equivalent of
borrowing by a Fund, and are entered into by a Fund to enable it to avoid
selling securities to meet redemption requests during market conditions deemed
unfavorable by the Adviser.
ILLIQUID SECURITIES
No Fund may invest more than 15% of the value of its net assets in securities
that at the time of purchase have legal or contractual restrictions on resale or
are otherwise illiquid. The Adviser will monitor the amount of illiquid
securities in each Fund's portfolio, to ensure compliance with the Fund's
investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and the Fund might
be unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemption
requests within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Board of Trustees may determine that such securities are not illiquid
securities notwithstanding their legal or contractual restrictions on resale. In
all other cases, however, securities subject to restrictions on resale will be
deemed illiquid.
FOREIGN INVESTMENTS
Except as noted below, the countries in which each of the Global Funds and the
Market Return, High Income and Total Return Funds will seek investments
primarily include those listed below. A Fund may elect not to invest in all the
countries listed, and it may also invest in other countries when such
investments are consistent with the Fund's investment objective and policies. As
indicated in the Prospectus, the International Equity Fund does not invest in
U.S. securities, and the European Growth & Income Fund invests only in
securities of issuers located in France, Germany, the Netherlands and the United
Kingdom.
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<TABLE>
<CAPTION>
Pacific Basin Western Europe North America
- - ------------- -------------- -------------
<S> <C> <C>
Australia Austria Canada
Japan Belgium United States
New Zealand Denmark
Finland
France
Germany
Ireland
Italy
Netherlands
Norway
Spain
Sweden
Switzerland
United Kingdom
</TABLE>
FOREIGN MORTGAGE-RELATED SECURITIES
Foreign mortgage-related securities are interests in pools of mortgage loans
made to residential home buyers domiciled in a foreign country. These include
mortgage loans made by trust and mortgage loan companies, credit unions,
chartered banks, and others. Pools of mortgage loans are assembled as securities
for sale to investors by various governmental, government-related, and private
organizations (e.g., Canada Mortgage and Housing Corporation and First
Australian National Mortgage Acceptance Corporation Limited). The mechanics of
these mortgage-related securities are generally the same as those issued in the
United States. However, foreign mortgage markets may differ materially from the
U.S. mortgage market with respect to matters such as the sizes of loan pools,
pre-payment experience, and maturities of loans.
MUNICIPAL SECURITIES
Each of the Short Duration and Tax Exempt Bond Funds invest primarily in a
non-diversified portfolio of debt obligations issued by state and local
governments, territories and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities which provide interest
income that, in the opinion of bond counsel to the issuer at the time of
original issuance, is exempt from federal income taxes ("municipal securities").
Municipal securities include both notes (which have maturities of less than one
year) and bonds (which have maturities of one year or more) that bear fixed or
variable rates of interest. Under normal market conditions, as a fundamental
policy which cannot be changed without shareholder approval, at least 80% of the
Fund's assets will be invested in municipal debt securities.
In general, "municipal securities" debt obligations are issued to obtain funds
for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.
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The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water, and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.
Both Funds may purchase insured municipal debt in which scheduled payments of
interest and principal are guaranteed by a private, non-governmental or
governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the value of the shares of a Fund.
The Adviser will undertake several measures in seeking to preserve investors'
principal:
- First, the debt securities in which a Fund invests will be
considered "investment-grade"(e.g., rated AAA, AA, A or BBB by
Standard & Poor's Corporation) at the time of purchase by at
least one of the following rating agencies: Fitch Investor
Services, Moody's Investor Services, Inc. or Standard & Poor's
Corporation, or if not rated, will be determined to be of
comparable quality by the Adviser. If the rating of a municipal
debt security in which the Fund has made an investment falls
below the investment grade level, the Fund will discontinue
making investments in that issuer and liquidate any current
holdings as soon as the Adviser determines it is in the best
interest of the Fund to do so. In no event will a Fund hold more
than 5% of its net assets in obligations rated below investment
grade. No such obligation will be rated below BB.
- Second, the Adviser will actively manage the maturity of a Fund's
portfolio in response to expected interest rate movements. When
anticipating a decline in interest rates, the Adviser will
attempt to lengthen the portfolio's maturity to capitalize on the
expected appreciation of such securities. When interest rates are
expected to rise, both Funds will seek to shorten their
maturities to protect against the expected capital depreciation.
- Finally, the Adviser may use interest rate and municipal bond
index futures and options on futures contracts, options on
securities, and interest rate swaps to effect a change in a
Fund's exposure to interest rate changes. These investment
techniques involve certain risks described below.
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There is, of course, no guarantee these investment strategies will accomplish a
Fund's objective. See Appendix A for further information regarding the ratings
referred to above.
Securities of issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures of referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore, as
a result of legislation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.
Certain of the municipal securities in which the Funds may invest, and certain
of the risks of such investments, are described below.
MORAL OBLIGATION SECURITIES
Municipal securities may include "moral obligation" securities which are usually
issued by special purpose public authorities. If the issuer of moral obligation
bonds cannot fulfill its financial responsibilities from current revenues, it
may draw upon a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.
ZERO COUPON SECURITIES
Both Funds may invest in zero coupon securities which are debt securities issued
or sold at a discount from their face value. These securities do not entitle the
holder to interest payments prior to maturity or a specified redemption date,
when they are redeemed at face value. Zero coupon securities may also take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves, and receipts and certificates representing
interests in such stripped obligations and coupons. The market prices of zero
coupon securities tend to be more sensitive to interest rate changes, and are
more volatile, than interest bearing securities of like maturity. The discount
from face value is amortized over the life of the security and such amortization
will constitute the income earned on the security for accounting and tax
purposes. Even though income is accrued on a current basis, a Fund does not
receive the income currently in cash. Therefore, a Fund may have to sell other
portfolio investments to obtain cash needed to make income distributions.
MORTGAGE BACKED SECURITIES
Both Funds may invest in municipal debt obligations issued to provide financing
for residential housing mortgages to targeted groups. Payments made on the
underlying mortgages and passed through to a Fund will represent both regularly
scheduled principal and interest payments. A Fund may also receive additional
principal payments representing prepayments of the underlying mortgages.
Investing in such municipal debt obligations involves special risks and
considerations, including the inability to predict accurately the maturity of a
Fund's investments as a result of prepayments of the underlying mortgages (which
may require the Fund to reinvest principal at lower yields than would otherwise
have been realized), the illiquidity of certain of such securities, and the
possible default by insurers or guarantors supporting the timely payment of
interest and principal.
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MUNICIPAL LEASE OBLIGATIONS
Both Funds may invest in lease obligations or installment purchase contract
obligations of municipal authorities or entities ("municipal lease
obligations"). Although lease obligations do not constitute general obligations
of the municipality for which its taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payments due under the lease obligation. A Fund may also purchase
"certificates of participation", which are securities issued by a particular
municipality or municipal authority to evidence a proportionate interest in base
rental or lease payments relating to a specific project to be made by the
municipality, agency or authority.
However, certain lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in any year unless money is appropriated for such purpose for
such year. Although "non-appropriation" lease obligations are secured by the
leased property, disposition of the property in the event of default and
foreclosure might prove difficult. In addition, these securities represent a
relatively new type of financing, and certain lease obligations may therefore be
considered to be illiquid securities.
Both Funds will attempt to minimize the special risks inherent in municipal
lease obligations and certificates of participation by purchasing only lease
obligations which meet the following criteria: (1) rated A or better by at least
one national recognized securities rating organization; (2) secured by payments
from a governmental lessee which has actively traded debt obligations; (3)
determined by the Adviser to be critical to the lessee's ability to deliver
essential services; and (4) contain legal features which the Adviser deems
appropriate, such as covenants to make lease payments without the right of
offset or counterclaim, requirements for insurance policies, and adequate debt
service reserve funds.
SHORT-TERM OBLIGATIONS
Both Funds may invest in short-term municipal obligations. These securities
include the following:
TAX ANTICIPATION NOTES are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program. They also are usually general obligations of the issuer.
BOND ANTICIPATION NOTES normally are issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal National Mortgage Association or the
Government National Mortgage Association.
SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are short-term (365 days
or less)
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promissory notes issued by municipalities to supplement their cash flow.
FLOATING RATE AND VARIABLE RATE DEMAND NOTES
Both Funds may purchase floating rate and variable rate demand notes and bonds.
These securities may have a stated maturity in excess of one year, but permit a
holder to demand payment of principal plus accrued interest upon a specified
number of days notice. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The issuer has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal of the obligation plus accrued interest upon a specific
number of days notice to the holders. The interest rate of a floating rate
instrument may be based on a known lending rate, such as a bank's prime rate,
and is reset whenever such rate is adjusted. The interest rate on a variable
rate demand note is reset at specified intervals at a market rate.
Each Fund will limit its purchase of municipal securities that bear floating
rates and variable rates of interest to those meeting the rating quality
standards set forth in the Prospectus. Frequently, such obligations are secured
by letters of credit or other credit support arrangements provided by banks. The
quality of the underlying creditor or of the bank, as the case may be, must, as
determined by the Adviser under the supervision of the Board of Trustees, also
be equivalent to the quality standards set forth above. In addition, the Adviser
monitors the earning power, cash flow and other liquidity ratios of the issuers
of such obligations, as well as the creditworthiness of the institution
responsible for paying the principal amount of the obligations under the demand
feature.
Both Funds may also invest in municipal securities in the form of "participation
interests" in variable rate tax-exempt demand obligations held by a financial
institution, usually a commercial bank. Municipal participation interests
provide the purchaser with an undivided interest in one or more underlying
municipal securities and the right to demand payment from the institution upon a
specified number of days' notice (no more than seven) of the unpaid principal
balance plus accrued interest. In addition, the municipal participation
interests are typically enhanced by an irrevocable letter of credit or guarantee
from such institution. Since a Fund has an undivided interest in the obligation,
it participates equally with the institution with the exception that the
institution normally retains a fee out of the interest paid for servicing,
providing the letter of credit or guarantee, and issuing the repurchase
commitment.
OBLIGATIONS WITH PUTS ATTACHED
Both Funds may purchase long-term fixed rate municipal debt obligations that
have been coupled with an option granted by a third party financial institution
allowing the Fund at specified intervals to tender (or "put") such debt
obligations to the institution and receive the face value. These third party
puts are available in many different forms, and may be represented by custodial
receipts or trust certificates and may be combined with other features such as
interest rate swaps. The financial institution granting the option does not
provide credit enhancement. If there is a default on, or significant downgrading
of, the bond or a loss of its tax-exempt status, the put option will terminate
automatically. The risk to the Fund will then be that of holding a long-term
bond.
These investments may require that a Fund pay a tender fee or other fee for the
features provided. In addition, a Fund may acquire "stand-by commitments" from
banks or broker dealers with respect to the municipal securities held in its
portfolios. Under a stand-by commitment, a bank or broker/dealer
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<PAGE> 103
agrees to purchase at a Fund's option a specific municipal security at a
specific price on a specific date. A Fund may pay for a stand-by commitment
either separately, in cash, or in the form of a higher price paid for the
security. A Fund will acquire stand-by commitments solely to facilitate
portfolio liquidity.
OPTIONS AND FUTURES CONTRACTS
The Funds may purchase and sell ("write") both put options and call options on
securities, securities indices and (in the case of each of the Total Return,
High Income and Market Return Funds and each of the Global Funds) foreign
currencies, enter into interest rate and index futures contracts and (in the
case of each of the Total Return, High Income and Market Return Funds and each
of the Global Funds), foreign currency futures contracts, and purchase and sell
options on such futures contracts ("futures options"). If other types of
options, futures contracts, or futures options are traded in the future, a Fund
may also use those instruments, provided the Board of Trustees determines that
their use is consistent with the Fund's investment objectives, and their use is
consistent with restrictions applicable to options and futures contracts
currently eligible for use by that Fund.
OPTIONS ON SECURITIES OR INDICES
A Fund may purchase and write options on securities and indices. An index is a
statistical measure designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators such as the Merrill Lynch 1 to 3 year
Global Government Bond Index, the JP Morgan Global Government Bond Index, and
the Lehman Brothers Government/Corporate Index.
An option on a security (or an index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (in the case of "American Style"
options) or at the expiration of the option (in the case of "European Style"
options). The writer of a call or put option on a security is obligated upon
exercise of the option to deliver the underlying security upon payment of the
exercise price or to pay the exercise price upon delivery of the underlying
security, as the case may be. The writer of an option on an index is obligated
upon exercise of the option to pay the difference between the cash value of the
index and the exercise price multiplied by a specified multiplier for the index
option.
A Fund will write call options and put options only if they are "covered." In
the case of a call option on a security, the option is covered if the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount are
placed in a segregated account with the Group's Custodian) upon conversion or
exchange of other securities held by the Fund. A call option on an index is
covered if the Fund maintains with its Custodian cash or cash equivalents equal
to the contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written, and the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written, provided the
difference is maintained by the Fund in cash or cash equivalents in a segregated
account with its Custodian. A put option on a security or an index is covered if
the Fund maintains cash or cash equivalents equal to the exercise price in a
segregated account with its Custodian. A put option is
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<PAGE> 104
also covered if the Fund holds a put on the same security or index as the put
written, and the exercise price of the put held is (i) equal to or greater than
the exercise price of the put written, or (ii) less than the exercise price of
the put written, provided the difference is maintained by the Fund in cash or
cash equivalents in a segregated account with its Custodian.
If an option written by a Fund expires unexercised, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by a Fund expires unexercised, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (i.e., of the
type, traded on the same exchange, with respect to the same underlying security
or index, and with the same exercise price and expiration date). A Fund will
realize a capital gain from a closing purchase transaction if the cost of the
closing option is less than the premium received from writing the option; if it
is more, the Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Fund will realize a capital gain; if it is less, the Fund will realize a
capital loss. The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset of the
Fund. The premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is marked to market
daily and is valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available, at the mean
between the last bid and asked prices.
FOREIGN CURRENCY OPTIONS
Each of the Total Return, High Income and Market Return Funds and each of the
Global Funds may buy or sell put and call options on foreign currencies. A put
or call option on a foreign currency gives the purchaser of the option the right
to sell or purchase a foreign currency at the exercise price until the option
expires. Each Fund will use foreign currency options separately or in
combination to control currency volatility. Among the strategies employed to
control currency volatility is an option collar. An option collar involves the
purchase of a put option and the simultaneous sale of a call option on the same
currency with the same expiration date but with different exercise (or "strike")
prices. Generally, the put option will have an out-of-the-money strike price,
while the call option will have either an at-the-money strike price or an
in-the-money strike price. Currency options traded on U.S. or other exchanges
may be subject to position limits which may limit the ability of a Fund to
reduce foreign currency risk using such options.
COMBINATIONS OF OPTIONS
As indicated in the Prospectus, each of the Funds may employ certain
combinations of put and call options. A "straddle" involves the purchase of a
put and call option on the same security with the same exercise prices and
expiration dates. A "strangle" involves the purchase of a put option and a call
option on the same security with the same expiration dates but different
exercise prices. A "collar" involves the purchase of a put option and the sale
of a call option on the same security with the same
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<PAGE> 105
expiration dates but different exercise prices. A "spread" involves the sale of
a put option and the purchase of a call option on the same security with the
same or different expiration dates and different exercise prices.
RISKS ASSOCIATED WITH OPTIONS
Several risks are associated with transactions in options on securities, indices
and currencies. For example, significant differences between the securities and
options markets could result in an imperfect correlation between those markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the Options Clearing Corporation to handle current
trading volume; or (vi) a decision by an exchange to discontinue the trading of
options or a particular class or series of options (in which event the secondary
market on that exchange or in that class or series of options could cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms). If a Fund
were unable to close out an option that it had purchased on a security, it would
have to exercise the option in order to realize any profit. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on a security, currency or index written by a Fund is
covered by an option on the same security, currency or index purchased by the
Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of the Fund's securities during
the period the option was outstanding.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds may use interest rate, foreign currency or index futures contracts, as
specified in the Prospectus. An interest rate or foreign currency contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or foreign currency at a specified
price and time. A futures contract on an index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.
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A public market exists in futures contracts covering several indices as well as
a number of financial instruments and foreign currencies, including U.S.
Treasury bonds, U.S. Treasury notes, GNMA Certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit,
Eurodollar certificates of deposit, the Australian dollar, the Canadian dollar,
the British pound, the German mark, the Japanese yen, the Swiss franc and
certain multi-national currencies such as the European Currency Unit ("ECU").
Other futures contracts are likely to be developed and traded in the future. The
Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
The Funds may also purchase and write call and put options on futures contracts.
Futures options possess many of the same characteristics as options on
securities and indices. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
As long as required by regulatory authorities the Funds will use futures
contracts and futures options for hedging purposes and not for speculation and
will comply with applicable regulations of the Commodity Futures Trading
Corporation which limit trading of futures contracts (See "Limitations on the
Use of Futures and Options"). For example, a Fund might use futures contracts to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities which
the Fund intends to purchase. A Fund's hedging activities may include sales of
futures contracts as an offset against the effect of expected increases in
interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce a Fund's exposure to interest rate fluctuations, a Fund may be
able to hedge its exposure more effectively and at a lower cost by using futures
contracts and futures options.
When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on their initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the futures commission merchant of the amount
one would owe the other if the futures contract expired. In computing daily net
asset value, the Funds will mark to market their open futures positions.
Each Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of
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the option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, a Fund realizes a capital loss. Conversely, if an offsetting sale price is
more than the original purchase price, a Fund realizes a capital gains; if it is
less, a Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS
A Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its Custodian (and
mark to market on a daily basis) cash, U.S. Government securities, or other
liquid securities that, when added to the amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract. Alternatively, a Fund may "cover" its position by purchasing a put
option on the same futures contract with a strike price as high or higher than
the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its Custodian (and
mark to market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, a Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's Custodian).
When selling a call option on a futures contract, a Fund will maintain with its
custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other liquid securities that, when added to the amounts deposited
with a futures commission merchant as margin, equal the total market value of
the futures contract underlying the call option. Alternatively, a Fund may cover
its position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other liquid securities that equal the purchase price of the
futures contract, less any margin on deposit. Alternatively, a Fund may cover
the position either by entering into a short position in the same futures
contract, or by owning a
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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,"
each Fund is limited in its futures trading activities to: (1) positions which
constitute "bona fide hedging" positions within the meaning and intent of
applicable CFTC rules, and (2) other positions for the establishment of which
the aggregate initial margin and premiums (less the amount by which such options
are "in-the-money") do not exceed 5% of the Fund's net assets (after taking into
account unrealized gains and unrealized losses on any contracts it has entered
into).
The requirements for qualification as a regulated investment company also may
limit the extent to which the Funds may enter into futures, futures options or
forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS
There are several risks associated with the use of futures contracts and futures
options as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the Fund securities being hedged. In addition, there
are significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses, because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or a futures option position, in which
event the Fund would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures
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contracts or options, the Fund could experience delays and losses in liquidating
open positions purchased or sold through the broker, and incur a loss of all or
part of its margin deposits with the broker.
DEALER OPTIONS
The Funds may engage in transactions involving dealer options on securities,
currencies or indices as well as exchange-traded options. Certain risks are
specific to dealer options. While a Fund would look to a clearing corporation to
exercise exchange-traded options, if a Fund were to purchase a dealer option it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, a Fund may generally be able to realize the value
of a dealer option it has purchased only by exercising or reselling the option
to the dealer who issued it. Similarly, when a Fund writes a dealer option, the
Fund may generally be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to whom the Fund
originally wrote the option. While the Funds will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. Unless a Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the other party, the Funds may be
unable to liquidate a dealer option. With respect to options written by a Fund,
the inability to enter into a closing transaction may result in material losses
to the Fund. For example, since a Fund must maintain a secured position with
respect to any call option on security it writes, the Fund may not sell the
assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that many purchased dealer options
and the assets used to secure written dealer options are illiquid securities. A
Fund may treat the cover used for these written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Funds will treat certain dealer options as subject to the
Funds' limitation on illiquid securities. If the SEC changes its position on the
liquidity of dealer options on securities, currencies or indices, the Funds will
change their treatment of such instruments accordingly.
INTEREST RATE AND CURRENCY SWAPS
INTEREST RATE AND INDEX SWAPS
As indicated in the Prospectus, an interest rate swap is a contract between two
entities ("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to
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the other counterparty, which in turn makes fixed rate payments to the first
counterparty. Interest payments are determined by applying the respective
interest rates to an agreed upon amount, referred to as the "notional principal
amount." In most such transactions, the floating rate payments are tied to the
London Interbank Offered Rate, which is the offered rate for short-term
eurodollar deposits between major international banks. The same process applies
when dealing with an index swap. The buyer of the swap pays on a floating rate
basis and receives a fixed rate payment, based on the total return of the
particular reference index.
CROSS-CURRENCY SWAPS
A cross-currency swap is a contract between two counterparties to exchange
interest and principal payments in different currencies. A cross-currency swap
normally has an exchange of principal at maturity (the final exchange); an
exchange of principal at the start of the swap (the initial exchange) is
optional. An initial exchange of notional principal amounts at the spot exchange
rate serves the same function as a spot transaction in the foreign exchange
market (for an immediate exchange of foreign exchange risk). An exchange at
maturity of notional principal amounts at the spot exchange rate serves the same
function as a forward transaction in the foreign exchange market (for a future
transfer of foreign exchange risk). The currency swap market convention is to
use the spot rate rather than the forward rate for the exchange at maturity. The
economic difference is realized through the coupon exchanges over the life of
the swap. In contrast to single currency interest rate swaps, cross-currency
swaps involve both interest rate risk and foreign exchange risk.
SWAP OPTIONS
Each of the Global Funds and the Total Return Fund may invest in swap options. A
swap option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment to
enter into a swap that starts at some future date with specified rates. A swap
option may be structured European-style (exercisable on the pre specified date)
or American-style (exercisable during a designated period). The right pursuant
to a swap option must be exercised by the right holder. The buyer of the right
to pay fixed pursuant to a swap option is said to own a put. The buyer of the
right to receive fixed pursuant to a swap option is said to own a call.
CAPS AND FLOORS
Each of the Global Funds and the Total Return Fund may also invest in interest
rate caps and floors. An interest rate cap is a right to receive periodic cash
payments over the life of the cap equal to the difference between any higher
actual level of interest rates in the future and a specified strike (or "cap")
level. The cap buyer purchases protection for a floating rate move above the
strike. An interest rate floor is the right to receive periodic cash payments
over the life of the floor equal to the difference between any lower actual
level of interest rates in the future and a specified strike (or "floor") level.
The floor buyer purchases protection for a floating rate move below the strike.
The strikes are typically based on the three-month LIBOR (although other indices
are available) and are measured quarterly. Rights arising pursuant to both caps
and floors are exercised automatically if the strike is in the money. Caps and
floors eliminate the risk that the buyer fails to exercise an in-the-money
option.
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RISKS ASSOCIATED WITH SWAPS
The risks associated with interest rate and currency swaps and interest rate
caps and floors are similar to those described above with respect to dealer
options. In connection with such transactions, a Fund relies on the other party
to the transaction to perform its obligations pursuant to the underlying
agreement. If there were a default by the other party to the transaction, the
Fund would have contractual remedies pursuant to the agreement, but could incur
delays in obtaining the expected benefit of the transaction or loss of such
benefit. In the event of insolvency of the other party, the Fund might be unable
to obtain its expected benefit. In addition, while each Fund will seek to enter
into such transactions only with parties which are capable of entering into
closing transactions with the Fund, there can be no assurance that a Fund will
be able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter into
other transactions at a time when doing so might be advantageous.
FOREIGN CURRENCY TRANSACTIONS
Precise matching of the amount of forward currency contracts and the value of
securities denominated in such currencies of each of the Total Return, High
Income and Market Return Funds and each of the Global Funds will not generally
be possible, since the future value of such securities in foreign currencies
will change as a consequence of market movements in the value of those
securities between the date the forward contract is entered into and the date it
matures. Prediction of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Under certain circumstances, a Fund may commit a substantial
portion of its assets to the consummation of these contracts. No Fund will enter
into such forward contracts or maintain a net exposure to such contracts where
the consummation of the contracts would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall diversification
strategies. However, the Adviser believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of a Fund will be served by doing so.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
It may be necessary for a Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If a Fund retains a portfolio security and engages in an off-setting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
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foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of a foreign currency
and the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
Each Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, each Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Use of forward currency
contracts to hedge against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result from an increase in the value of that currency.
Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may lend securities
with a value of up to 33% of its total assets to broker-dealers, institutional
investors or other persons. Each loan will be secured by collateral which is
maintained at no less than 100% of the value of the securities loaned by
"marking to market" daily. A Fund will have the right to call each loan and
obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within a longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. Loans will only be made to persons deemed by
the Adviser to be of good standing in accordance with standards approved by the
Board of Trustees and will not be made unless, in the judgment of the Adviser,
the consideration to be earned from such loans would justify the risk.
BORROWING
Each Fund may borrow for temporary, extraordinary or emergency purposes, or for
the clearance of transactions. The Investment Company Act of 1940 (the "1940
Act") requires each Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, a Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. To avoid the potential leveraging
effects of a Fund's borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Funds also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a
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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.
CURRENCY FLUCTUATIONS
To the extent that a Fund invests in securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Such changes will also affect the Fund's
income. The value of a Fund's assets may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
MARKET CHARACTERISTICS
The Group expects that most foreign securities in which the Funds invest will be
purchased in over-the-counter markets or on bond exchanges located in the
countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign bond
markets may be more volatile than those in the United States. While growing in
volume, they usually have substantially less volume than U.S. markets, and the
Funds' portfolio securities may be less liquid and more volatile than U.S.
Government securities. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may include
delays beyond periods customary in the United States.
Transactions in options on securities, futures contracts and futures options may
not be regulated as effectively on foreign exchanges as similar transactions in
the United States, and may not involve clearing mechanisms and related
guarantees. The value of such positions also could be adversely affected by the
imposition of different exercise terms and procedures and margin requirements
than in the United States. Foreign security trading practices, including those
involving securities settlement
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where Fund assets may be released prior to payment, may expose a Fund to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
The value of the Funds' portfolio positions may also be adversely impacted by
delays in the Funds' ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.
LEGAL AND REGULATORY MATTERS
Certain foreign countries may have less supervision of securities markets,
brokers and issuers of securities, and less financial information available to
issuers, than is available in the United States.
TAXES
The interest payable on certain of a Fund's foreign portfolio securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to the Fund's shareholders. A shareholder otherwise
subject to United States federal income taxes may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his proportionate share of such foreign taxes paid by a Fund.
The Funds intend to sell such bonds prior to the interest payment date in order
to avoid withholding.
COSTS
The expense ratios of Funds investing in foreign securities (before
reimbursement by the Adviser pursuant to the expense limitation described in the
Prospectus under "Management of the Funds -- Expense Guarantee") are likely to
be higher than those of investment companies investing in domestic securities,
since the cost of maintaining the custody of foreign securities is higher.
EMERGING MARKETS INVESTMENTS
Investments by the Funds in securities issued by the governments of emerging or
developing countries, and of companies within those countries, involve greater
risks than other foreign investments. Investments in emerging or developing
markets involve exposure to economic and legal structures that are generally
less diverse and mature (and in some cases the absence of developed legal
structures governing private and foreign investments and private property), and
to political systems which can be expected to have less stability, than those of
more developed countries. The risks of investment in such countries may include
matters such as relatively unstable governments, higher degrees of government
involvement in the economy, the absence until recently of capital market
structures or market-oriented economies, economies based on only a few
industries, securities markets which trade only a small number of securities,
restrictions on foreign investment in stocks, and significant foreign currency
devaluations and fluctuations.
Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in a Fund being forced to purchase securities at a
substantially higher priced than the current market, or to sell securities at
much lower prices than the current market.
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AVERAGE MATURITY AND DURATION CALCULATIONS
AVERAGE MATURITY
The portfolio average maturity of each Fund will be computed by weighting the
maturity of each security in the Fund's portfolio by the market value of that
security. For securities which have put dates, reset dates, or trade based on
average maturity, the put date, reset date or average maturity will be used
instead of the final maturity date for the average maturity calculation. Average
maturity is normally used when trading mortgage backed securities and asset
backed securities.
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.
FUNDAMENTAL AND OPERATING POLICIES
The Funds have adopted the investment restrictions described below. Fundamental
policies of a Fund may not be changed without the approval of the lesser of (1)
67% of the Fund's shares present at a meeting of shareholders if the holders of
more than 50% of the outstanding shares are present in person or by proxy or (2)
more than 50% of the Fund's outstanding shares. Operating policies are subject
to change by the Board of Trustees without shareholder approval. Any investment
restriction
28
<PAGE> 116
which involves a maximum percentage of securities or assets will not be
considered to be violated unless an excess occurs immediately after, and is
caused by, an acquisition of securities or assets of, or borrowings by, the
Fund.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, a Fund may not:
(1) BORROWING. Borrow money, except as a temporary measure for extraordinary or
emergency purposes or for the clearance of transactions, and then only in
amounts not exceeding 30% of its total assets valued at market (for this
purpose, reverse repurchase agreements and delayed delivery transactions covered
by segregated accounts are not considered to be borrowings).
(2) COMMODITIES. Purchase or sell commodities or commodity contracts, except
that (i) a Fund other than the U.S. Government Fund may enter into financial and
currency futures contracts and options on such futures contracts, (ii) a Fund
other than the U.S. Government, Short Duration Tax Exempt and Tax Exempt Bond
Funds may enter into forward foreign currency exchange contracts (the Funds do
not consider such contracts to be commodities), and (iii) a Fund other than the
U.S. Government Fund may invest in instruments which have the characteristics of
both futures contracts and securities.
(3) LOANS. Make loans, except that (I) a Fund may purchase money market
securities and enter into repurchase agreements, (ii) a Fund may acquire bonds,
debentures, notes and other debt securities, and (iii) a Fund other than the
U.S. Government Fund may lend portfolio securities in an amount not to exceed
30% of its total assets (with the value of all loan collateral being "marked to
market" daily at no less than 100% of the loan amount).
(4) MARGIN. Purchase securities on margin, except that (I) a Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) a Fund other than the U.S. Government Fund may make margin deposits in
connection with futures contracts and options on futures contracts.
(5) MORTGAGING. Mortgage, pledge, hypothecate or in any manner transfer any
security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in amounts not
exceeding 30% of the Fund's total assets valued at market at the time of the
borrowing.
(6) ASSETS INVESTED IN ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 5% of the value
of its total assets would be invested in the securities of any one issuer (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(7) SHARE OWNERSHIP OF ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 10% of the
outstanding voting securities of any issuer would be held by the Fund (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(8) REAL ESTATE. Purchase or sell real estate (although it may purchase
securities secured by real estate
29
<PAGE> 117
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 a Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its portfolio
securities in the ordinary course of pursuing its investment program.
(11) GLOBAL DIVERSIFICATION. Under normal market conditions, each of the Global
Fixed Income and Global Short Bond Funds may not invest less than 65% of the
Fund's assets in debt securities of issuers located in at least three countries
(one of which may be the United States for the Global Funds). Under normal
market conditions, no less than 65% of the International Equity Fund's assets
will be invested in equity securities of companies which are headquartered in at
least three foreign countries.
OPERATING POLICIES
As a matter of operating policy, a Fund may not:
(1) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the purpose of
exercising management or control.
(2) ILLIQUID SECURITIES. Purchase a security if, as a result of such purchase,
more than 15% of the value of the Fund's net assets would be invested in
illiquid securities or other securities that are not readily marketable,
including repurchase agreements which do not provide for payment within seven
days. For this purpose, restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 may be determined to be liquid.
(3) INVESTMENT COMPANIES. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.
(4) OIL AND GAS PROGRAMS. Purchase participations or other direct interests in
oil, gas, or other mineral exploration or development programs or leases.
(5) OPTIONS. Invest in puts, calls, or any combination thereof, except that a
Fund may invest in or commit its assets to purchasing and selling call and put
options to the extent permitted by the Prospectus and Statement of Additional
Information.
(6) BORROWINGS. The U.S. Treasury Fund will not borrow amounts exceeding 33% of
total assets valued at market (including reverse repurchase agreements and
delayed delivery transactions).
PORTFOLIO TRANSACTIONS
The Funds pay commissions to brokers in connection with the purchase and sale of
equity securities, options and futures contracts. There is generally no stated
commission in the case of fixed-income
30
<PAGE> 118
securities, which are traded in the over-the-counter markets, but the price paid
by a Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by a Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Agency
transactions involve the payment by a Fund of negotiated brokerage commissions.
Such commissions vary among different brokers. Also, a particular broker may
charge 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 and Sub-adviser each place all orders for the purchase and sale of
portfolio securities, options and futures contracts for the Funds it manages and
buys and sells such securities, options and futures for the Funds through a
substantial number of brokers and dealers. In so doing, the Adviser and
Sub-adviser seek the best execution available. In seeking the most favorable
execution, the Adviser and Sub-adviser consider all factors it deems relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.
Some securities considered for investment by a Fund's portfolio may also be
appropriate for other clients served by the Adviser or Sub-adviser. If a
purchase or sale of securities consistent with the investment policies of a Fund
is considered at or about the same time as a similar transaction for one or more
other clients served by the Adviser or Sub-adviser, transactions in such
securities will be allocated among the Fund and other clients in a manner deemed
fair and reasonable by the Adviser or Sub-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 and Sub-adviser each manages the Funds without regard generally to
restrictions on portfolio turnover, except those imposed on its ability to
engage in short-term trading by provisions of the federal tax laws (see
"Taxation"). Trading in fixed-income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
The higher the rate of portfolio turnover, the higher these transaction costs
borne by the Funds generally will be. The turnover rate of a Fund is calculated
by dividing (a) the lesser of purchases or sales of portfolio securities for a
particular fiscal year by (b) the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. In calculating the rate of
portfolio turnover, all securities, including options, whose maturities or
expiration dates at the time of acquisition were one year or less, are excluded.
Interest rate and currency swap, cap and floor transactions do not affect the
calculation of portfolio turnover.
The only Funds which paid brokerage commissions during the last three fiscal
years are noted below:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31
--------------------------------------------
1995 1996 1997
------ ------- ------
<S> <C> <C> <C>
Investment Quality Bond Fund $ 0 $ 5,980 $ 9,225
Short Duration Tax Exempt Fund 0 760 0
Tax Exempt Bond Fund 2,300 5,760 2,080
Market Return Fund 0 13,894 2,504
Global Fixed Income Fund 40 300 50,895
Total Return Fund * * 12,935
European Growth & Income Fund * * 24,579
International Equity Fund * * 58,148
Global Balanced Fund * * 27,711
Growth & Income Fund * * 57,494
Intermediate Bond Fund 0 0 9,975
</TABLE>
- - --------
* Fund had not commenced operations
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<PAGE> 119
The Board of Trustees will periodically review the Adviser's and Sub-adviser's
performance of their responsibilities in connection with the placement of
portfolio transactions on behalf of the Funds.
VALUATION OF PORTFOLIO SECURITIES
Equity securities for which the primary market is the U.S. are valued at last
sale price or, if no sale has occurred, at the closing bid price. Equity
securities for which the primary market is outside the U.S. are valued using the
official closing price or the last sale price in the principal market where they
are traded. If the last sale price on the local exchange is unavailable, the
last evaluated quote or last bid price is normally used.
Fixed income securities are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques. Such techniques take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities.
Foreign securities are valued at the closing bid price in the principal market
where they are traded, or, if closing prices are unavailable, at the last traded
bid price available prior to the time a fund's net asset value is determined.
Foreign security prices that cannot be obtained by the quotation services are
priced individually by the pricing service using dealer-supplied quotations.
Short-term obligations that mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.
Generally, trading in corporate bonds, U.S. government securities, foreign
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. The values of any such securities held by a Fund are
determined as of such times for the purpose of computing the Fund's net asset
value. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. If an extraordinary event that is
expected to affect the value of a portfolio security materially occurs after the
close of an exchange on which that security is traded, then the security will be
valued at fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees.
FUND PERFORMANCE
The Funds may quote their performance in various ways. All performance
information supplied by a Fund in advertising is historical and is not intended
to indicate future returns. A Fund's share price, yield and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.
Performance information for a Fund may be compared to various unmanaged indices
(such as the Lehman Brothers Municipal Bond Index) or indices prepared by Lipper
Analytical Services and other
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<PAGE> 120
entities or organizations which track the performance of investment companies or
investment advisers. Comparisons may also be made to indices or data in
publications such as The Bond Buyer, Forbes, Barron's, The Wall Street Journal,
The New York Times, and Business Week. For example, a Fund may quote
Morningstar, Inc. in its advertising materials. Morningstar, Inc. is a mutual
fund rating service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance a Fund to other funds in
appropriate categories over specific periods of time may also be quoted in
advertising. Unmanaged indices generally do not reflect deductions for
administrative and management costs and expenses. Payden & Rygel may also report
to shareholders or to the public in advertisements concerning the performance of
Payden & Rygel as adviser to clients other than the Funds, and on the
comparative performance or standing of Payden & Rygel in relation to other money
managers. Such comparative information may be compiled or provided by
independent rating services or other organizations.
Information regarding a Fund may also be included in newsletters or other
general communications by Payden & Rygel to advisory clients and potential
clients. These publications principally contain information regarding market and
economic trends and other general matters of interest to investors, such as:
principles of investing which, among other things includes asset allocation,
model portfolios, diversification, risk tolerance and goal setting, saving for
college or other goals or charitable giving; long-term economic or market
trends; historical studies of gold, other commodities, equities, fixed income
securities and statistical market indices; new investment theories or
techniques; economic and/or political trends in foreign countries and their
impact on the United States; municipal bond market fundamentals and trends;
corporate financing trends and other factors that may impact corporate debt; and
housing trends and other economic factors that may impact mortgage rates and
lending activity. In addition, Payden & Rygel may quote financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques. Materials may also include discussions
regarding Payden & Rygel's asset allocation services and other Payden & Rygel
funds, products and services.
Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills and the U.S. rate
of inflation (based on the Consumer Price Index) and a combination of various
capital markets. The Group may use the long-term performance of these capital
markets in order to demonstrate general long-term risk-versus-reward investment
scenarios or the value of a hypothetical investment in any of these capital
markets. The performance of these capital markets is based on the returns of
several different indices. Ibbotson calculates total returns in the same method
as the Group. Performance comparisons could also include the value of a
hypothetical investment in any of the capital markets.
If appropriate, the Group may compare the performance of a Fund or the
performance of securities in which a Fund may invest to averages published by
IBC USA (Publications, Inc.). These averages assume reinvestment of
distributions. The IBC/Donoghue's Money Fund Averages(TM)/All Taxable, which is
reported in the Donoghue's Money Fund Report(R), covers over 772 taxable money
market funds. The Fund may quote its fund number, Quotron(TM) number and CUSIP
number or quote its current portfolio manager or any member of Payden & Rygel's
market strategy group.
YIELD CALCULATIONS
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<PAGE> 121
Yields for each class of shares of a Fund used in advertising are computed by
dividing the interest income of the class for a given 30-day or one month
period, net of expenses allocable to the class, by the average number of shares
of the class entitled to receive dividends during the period, dividing this
figure by the class' net asset value per share at the end of the period and
annualizing the result (assuming compounding of income) in order to arrive at an
annual percentage rate. Income is calculated for purposes of yield quotations in
accordance with standardized methods applicable to bond funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. For a Fund's investments denominated in foreign
currencies, income and expenses are calculated first in their respective
currencies, and converted to U.S. dollars either when they are actually
converted or at the end of the period, whichever is earlier. Capital gains and
losses are generally excluded from the calculation, as are gains and losses from
currency exchange rate fluctuations.
Because yield accounting methods differ from the methods used for other
accounting purposes, the Fund's yield may not equal its distribution rate or
income reported in the Fund's financial statements.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising with respect to a class of shares of the
Fund reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the class' net asset
value per share over the period. Average annual total returns for each class are
calculated by determining the growth or decline in value of a hypothetical
historical investment in that class of shares of a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would result from an average annual total return of 7.18%, which is the
steady annual total return that would equal 100% growth on a compounded basis in
ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that a Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
For Class R Shares, the one-year, five-year and since inception total returns
for each of the Funds through October 31, 1997 (except as otherwise noted) were
as follows:
<TABLE>
<CAPTION>
Annualized
Return Since
1 Year 5 Year Inception Inception Date
------ ------ --------- --------------
<S> <C> <C> <C> <C>
Limited Maturity Fund 5.46% 5.47% May 1, 1994
Short Bond Fund 5.52% 5.21% January 1, 1994
U.S. Government Fund 6.10% 8.08% January 1, 1995
Intermediate Bond Fund 7.26% 5.12% January 1, 1994
Investment Quality Bond Fund 8.44% 6.01% January 1, 1994
Total Return Fund 7.10%* December 9, 1996
Short Duration Tax Exempt Fund 4.55% 4.20% September 1, 1994
Tax Exempt Bond Fund 7.33% 3.91% December 21, 1993
Growth & Income Fund 29.19% 29.19% November 1, 1996
Market Return Fund 31.74% 23.62% December 1, 1995
</TABLE>
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<PAGE> 122
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Global Short Bond Fund 7.02% 7.29% September 18, 1996
Global Fixed Income Fund 8.84% 8.07% 7.86% September 1, 1992
Global Balanced Fund 9.49%* December 9, 1996
International Equity Fund 7.59%* December 9, 1996
European Growth & Income Fund 1.90%* June 30, 1997
</TABLE>
*Unannualized
In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns for each class of shares reflecting the simple change
in value of an investment over a stated period of time. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken down
into their components of income, capital (including capital gains and changes in
share price) and currency returns in order to illustrate the relationship of
these factors and their contributions to total return. Total returns, yields and
other performance information maybe quoted numerically, or in a table, graph or
similar illustration.
TAXATION
Each Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, a Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); (b) 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 (c) distribute
to its shareholders 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) and 90% of its net exempt interest income each
taxable year. The Treasury Department is authorized to promulgate regulations
under which gains from foreign currencies (and options, futures, and forward
contracts on foreign currency) would constitute qualifying income for purposes
of the Qualifying Income Test only if such gains are directly relating to
investing in stocks or securities. To date, such regulations have not been
issued.
In addition, no definitive guidance currently exists with respect to the
classification of interest rate swaps and cross-currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, a Fund will limit its positions in swaps to transactions for
the purpose of hedging against either interest rate or currency fluctuation
risks, and will treat swaps as excluded assets for purposes of
35
<PAGE> 123
determining compliance with the Diversification Test.
As a regulated investment company, a Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (any
net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from the prior eight years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders.
Each Fund intends to distribute to its shareholders substantially all of its
investment company taxable income monthly and any net capital gains annually.
Investment company taxable income or net capital gains not distributed by a Fund
on a timely basis in accordance with a calendar year distribution requirement
are subject to a nondeductible 4% excise tax. To avoid the tax, a Fund must
distribute during each calendar year an amount at least equal to the sum of (1)
98% of its ordinary income (with adjustments) for the calendar year and foreign
currency gains or losses for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (and adjusted for certain ordinary losses)
for the twelve month period ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by the Fund in October,
November, or December of that year to shareholders of record on a date in such a
month and paid by a Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid application of the excise tax, the Funds intend to make their
distributions in accordance with the distribution requirements.
DISTRIBUTIONS
The Short Duration Tax Exempt and Tax Exempt Bond Funds intend to qualify to pay
"exempt-interest" dividends to its shareholders, who may exclude those dividends
from their gross income for federal income tax purposes. In order to be able to
pay those dividends, a Fund must satisfy the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
With the exception of the Short Duration Tax Exempt and Tax Exempt Bond Funds,
dividends paid out of a Fund's investment company taxable income will be taxable
to a U.S. shareholder as ordinary income. Distributions received by tax-exempt
shareholders will not be subject to federal income tax to the extent permitted
under the applicable tax exemption.
Dividends paid by a Fund generally are not expected to qualify for the deduction
for dividends received by corporations. Distributions of net capital gains, if
any, are taxable as long-term capital gains, regardless of how long the
shareholder has held a Fund's shares and are not eligible for the dividends
received deduction. The tax treatment of dividends and distributions will be the
same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
HEDGING TRANSACTIONS
Many of the options, futures contracts and forward contracts used by the Funds
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by a Fund at the
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<PAGE> 124
end of each taxable year (and, for purposes of the 4% excise tax, on certain
other dates as prescribed under the Code) are "marked to market" with the result
that unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss, depending
on the circumstances.
Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a Fund, may result in "straddles"
for U.S. federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the
investment company taxable income or net capital gain for the taxable year in
which such losses are realized. Because limited regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
The qualifying income and diversification requirements applicable to the Fund's
assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts or forward contracts.
SALES OF SHARES
Upon disposition of shares of a Fund (whether by redemption, sale or exchange),
a shareholder will realize a gain or loss. Such gain or loss will be capital
gain or loss if the shares are capital assets in the shareholder's hands, and
will be long-term, mid-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed by "wash sale" rules to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30 days
after the disposition. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
BACKUP WITHHOLDING
A Fund may be required to withhold for U.S. federal income taxes 31% of all
taxable distributions
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<PAGE> 125
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.
FOREIGN INVESTMENTS
Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund amortizes or accrues premiums or discounts,
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.
Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. In
addition, the Adviser intends to manage the Funds with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of a Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, the Fund will be eligible
to elect to "pass-through" to the Fund's shareholders the amount of foreign
income and similar taxes paid by the Fund. If this election is made, a
shareholder generally subject to tax will be required to include in gross income
(in addition to taxable dividends actually received) his pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct (as
an itemized deduction) his or her pro rata share of foreign taxes in computing
his taxable income or to use such amount (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 in writing within 60 days after
the close of a Fund's taxable year whether the foreign taxes paid by the Fund
will "pass-through" for that year. Absent the Fund making the election to "pass
through" the foreign source income and foreign taxes, none of the distributions
may be treated as foreign source income for purposes of the foreign tax credit
calculation.
Investment income received from sources within foreign countries may be subject
to foreign income taxes. The U.S. has entered into tax treaties with many
foreign countries which entitle certain investors to a reduced rate of tax or to
certain exemptions from tax. The Funds will operate so as to qualify for such
reduced tax rates or tax exemptions whenever practicable. The Funds may qualify
for an make an election permitted under section 853 of the Code so that
shareholders will be able to claim a credit or deduction on their Federal income
tax returns for, and will be required to treat as part of the amounts
distributed to them, their pro rata portion of the income taxes paid by the
Funds to foreign countries (which taxes relate primarily to investment income).
The shareholders of the Funds may claim a credit by reason of the Funds'
election subject to certain limitations imposed by Section 904 of the Code.
However, no deduction for foreign taxes may be claimed under the Code by
38
<PAGE> 126
individual shareholders who do not elect to itemize deductions on their Federal
income tax returns, although such a shareholder may claim a credit for foreign
taxes and in any event will be treated as having taxable income in the amount of
the shareholder's pro rata share of foreign taxes paid by the Funds. Although
the Funds intend to meet the requirements of the Code to "pass through" such
taxes, there can be no assurance that the Funds will be able to do so.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of a Fund's income will flow through to shareholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income, and to certain other types
of income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit is modified for purposes of the Federal alternative minimum tax and can
be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible in
computing alternative minimum taxable income.
CERTAIN DEBT SECURITIES
Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by a Fund may be treated as debt
securities that are issued originally at a discount. Generally, the amount of
the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount issued after July 18, 1984 is treated as ordinary income
to the extent the gain, or principal payment, does not exceed the "accrued
market discount" on such debt security. Market discount generally accrues in
equal daily installments. A Fund may make one or more of the elections
applicable to debt securities having market discount, which could affect the
character and timing of recognition of income.
Some of the debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having an
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income ratably over the term of the debt security, even though payment
of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
39
<PAGE> 127
OTHER TAXES
Distributions also may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Under the laws of various
states, distributions of investment company taxable income generally are taxable
to shareholders even though all or a substantial portion of such distributions
may be derived from interest on certain Federal obligations which, if the
interest were received directly by a resident of such state, would be exempt
from such state's income tax ("qualifying Federal obligations"). However, some
states may exempt all or a portion of such distributions from income tax to the
extent the shareholder is able to establish that the distribution is derived
from qualifying Federal obligations. Moreover, for state income tax purposes,
interest on some Federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on Federal National
Mortgage Association Certificates and Government National Mortgage Association
Certificates). Each Fund will provide information annually to shareholders
indicating the amount and percentage of the Fund's dividend distribution which
is attributable to interest on Federal obligations, and will indicate to the
extent possible from what types of Federal obligations such dividends are
derived. Shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in a Fund.
MANAGEMENT OF THE GROUP
TRUSTEES AND OFFICERS
The Trustees and officers of the Group are as set forth below. Unless otherwise
indicated, the address of all persons below is 333 South Grand Avenue, Los
Angeles, California 90071.
BOARD OF TRUSTEES:
<TABLE>
<CAPTION>
Position with Principal Occupations
Name the Group During Past Five Years
---- --------- ----------------------
<S> <C> <C>
*Joan A. Payden(1) Chairman of the Board, President, Payden & Rygel
Chief Executive
Officer, 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
</TABLE>
40
<PAGE> 128
<TABLE>
<S> <C> <C>
J. Clayburn La Force Trustee Dean Emeritus, The John E. Anderson
P.O. Box 1009 Graduate School of Management at
Pauma Valley, CA 92061 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 McKernan, Jr. (1) Trustee President and Chief Executive Officer,
3333 Fairview Road Automobile Club of Southern California
Costa Mesa, CA 92626
Dennis C. Poulsen Trustee Chairman of Board since 1997;
3900 South Workman Mill Road previously, President and Chief
Whittier, CA 90601 Executive Officer, Rose Hills Company
Stender E. Sweeney Trustee Private Investor since 1994; previously,
Vice President, Finance, Times Mirror
Company
W.D. Hilton, Jr. Trustee Managing Trustee, NGC Settlement Trust;
2608 Eastland Avenue, Suite 202 previously, Chief Financial Officer,
Greenville, TX 75402 Texas Association of School Boards and
Board Member, First Greenville National
Bank
</TABLE>
* An "interested person" of the Group, as defined in the 1940 Act.
(1) Ms. Payden is a Director of the Automobile Club of Southern California, of
which Mr. McKernan is President and Chief Executive Officer.
Trustees other than those affiliated with the Adviser or Sub-adviser currently
receive an annual retainer of $20,000, plus $1,500 for each Board of Trustees
meeting and/or audit committee meeting attended and reimbursement of related
expenses. The following table sets forth the aggregate compensation paid by the
Group for the fiscal year ended October 31, 1997, 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; there are no other funds in the "trust
complex" (as defined in Schedule 14A under the Securities Exchange Act of 1934):
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Annual Compensation
Aggregate Accrued as Benefits from Group and
Compensation Part of Upon Group Complex
Name from Group Group Expenses Retirement Paid to Trustee
- - ---- ------------ --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Dennis Poulsen $23,500 None N/A $23,500
James Clayburn La Force $23,500 None N/A $23,500
</TABLE>
41
<PAGE> 129
<TABLE>
<S> <C> <C> <C> <C>
Stender Sweeney $25,000 None N/A $25,000
W.D. Hilton $23,500 None N/A $23,500
Thomas V. McKernan, Jr. $25,000 None N/A $25,000
</TABLE>
<TABLE>
<CAPTION>
OFFICERS:
Position with Principal Occupations
Name the Group During Past Five Years
- - -------------------- -------------------------- ----------------------------
<S> <C> <C>
Shirley T. Hosoi President, Chief Operating Chief Operating Officer,
Officer Payden & Rygel (since 1996);
previously, First Interstate
Bancorp: Director of
Corporate Communications,
Executive Assistant to the
Chairman and President and
CEO, First Interstate
Franchise Services
Thomas Barrett Vice President, Treasurer Controller, Payden & Rygel
(since 1995); previously,
Manager, Finance and
Administration, Marine Spill
Response Corp.
David L. Wagner Vice President Portfolio Manager, Payden &
Rygel
Gregory P. Brown Vice President Institutional Marketing,
Payden & Rygel (since 1996);
previously, Vice President,
Corporate Banking at Wells
Fargo Bank
Yot Chattrabhuti Vice President Manager, Mutual Fund
Operations, Payden & Rygel
(since 1997); previously, Bank
of America: Vice President
and Manager, Securities
Processing, Assistant Vice
President and Manager of
various finance related
functions, and Senior Trust
Officer, Employee Benefit
Trust Accounts
Edward S. Garlock Secretary General Counsel, Payden &
Rygel (since 1997);
previously, Senior Vice
President and Group General
Counsel, First Interstate
Bancorp
</TABLE>
ADVISER
42
<PAGE> 130
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
October 31, 1997, its staff consisted of 85 employees, 34 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 over $22 billion, with about $5 billion invested globally.
The Adviser's focus is the management of fixed income securities in both the
domestic and global markets. These include securities that have absolute or
average maturities out to five years with a bias toward very high quality and
liquidity. Portfolios are actively managed according to client approved
guidelines and benchmarks. Payden & Rygel also utilizes futures and options
strategies, primarily as defensive measures to control interest rate and
currency volatility.
The Adviser provides investment management services to the Funds pursuant to an
Investment Management Agreement with the Group dated as of June 24, 1992 as
amended on June 14, 1994 with respect to Class S shares of the Group. The
Agreement provides that the Adviser will pay all expenses incurred in connection
with managing the ordinary course of a Fund's business, except the following
expenses, which are paid by each Fund: (i) the fees and expenses incurred by a
Fund in connection with the management of the investment and reinvestment of the
Fund's assets; (ii) the fees and expenses of Trustees who are not affiliated
persons of the Adviser; (iii) the fees and expenses of the Trust's Custodian,
Transfer Agent, Fund Accounting Agent and Administrator; (iv) the charges and
expenses of legal counsel and independent accountants for the Group; (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 Group may be a
member; (viii) the cost of fidelity bonds and trustees and officers errors and
omission insurance; (ix) the fees and expenses involved in registering and
maintaining registration of a Fund and of its shares with the SEC, registering
the Group as a broker or dealer and qualifying the shares of a 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 Group pursuant to a plan of
distribution adopted in conformity with Rule 12b-1 under the 1940 Act.
The Adviser has agreed that if in any fiscal year the expenses borne by a Fund
exceed the applicable expense limitations imposed by the securities regulations
of any state in which shares of such Fund are registered or qualified for sale
to the public, it will reimburse the Fund for any excess to the extent required
by such regulations. The Administrator will bear a portion of this reimbursement
obligation. Unless otherwise required by law such reimbursement would be accrued
and paid on the same basis that the advisory fees are accrued and paid by the
Fund. To the Trust's knowledge, no such state expense limitation is currently in
effect.
Fees earned by the Adviser during the last three fiscal years ended October 31,
are shown below.
43
<PAGE> 131
<TABLE>
<CAPTION>
Fiscal Year Ending October 31
-------------------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Limited Maturity Fund $ 44,030 $ 104,879 $ 305,823
Short Bond Fund 27,936 150,282 291,286
U.S. Government Fund 13,233 49,630 59,618
Intermediate Bond Fund 71,012 111,179 153,304
Investment Quality Bond Fund 23,790 83,067 153,572
Short Duration Tax Exempt Fund 51,350 89,100 113,695
Tax Exempt Bond Fund 99,303 159,206 162,255
Market Return Fund * 8,031 31,634
Global Short Bond Fund * 7,843 386,216
Global Fixed Income Fund 1,533,836 1,982,809 1,805,589
Total Return Fund * * 99,922
Growth & Income Fund * * 391,158
Global Balanced Fund * * 43,057**
European Growth & Income Fund * * 14,831**
International Equity Fund * * 54,170**
</TABLE>
* Fund had not commenced operations
** Including advisory Fee earned by the Sub-adviser
The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to each Fund until
June 14, 1995 and thereafter for successive annual periods, subject to annual
approval by the Board of Trustees (or by a majority of the outstanding voting
shares of each Fund as defined in the 1940 Act) and by a majority of the
Trustees who are not interested persons of any party to the Agreement by vote
cast in person at a meeting called for such purpose. The Agreement terminates
upon assignment and may be terminated with respect to a Fund without penalty on
60 days' written notice at the option of either party thereto or by the vote of
the shareholders of the Fund.
SUB-ADVISER
The Sub-adviser provides investment management services to the International
Equity and Global Balanced Funds pursuant to the Subadvisory Agreement with the
Adviser dated as of December 5, 1996. The Agreement provides that the
Sub-adviser will pay all expenses of its personnel and facilities required to
carry out its duties. Fees payable to the Sub-adviser for its services are the
obligation of the Adviser, and not the Group, and are not reduced in the event
of any voluntary or regulatory
44
<PAGE> 132
limitation on the adviser's fees.
The Sub-adviser also provides management services to the European Growth &
Income Fund pursuant to the Subadvisory Agreement with the Advisor dated as of
June 15, 1997. The Agreement provides that the Sub-adviser will pay all expenses
of its personnel and facilities required to carry out its duties. Fees payable
to the Sub-adviser for its services are the obligation of the Adviser, and not
the Group, and are commensurately reduced in the event of any voluntary or
regulatory limitation on the Adviser's fees.
Each Subadvisory Agreement contains provisions regarding liability of the
Sub-adviser similar to those of the Investment Management Agreement between the
Group and the Adviser described above. Unless earlier terminated as described
below, each Subadvisory Agreement will continue in effect for an initial period
of two years with respect to each Fund, and thereafter for successive annual
periods, subject to annual approval by the Board of Trustees in the same manner
as the Investment Management Agreement. Each Subadvisory Agreement terminates
upon assignment or upon termination of the Investment Management Agreement with
respect to a Fund, and may be terminated with respect to a Fund without penalty
on 60 days' written notice by the Adviser or the Board of Trustees or
shareholders of the Fund, or upon 90 days' written notice by the Sub-adviser.
Fees earned by the Sub-adviser since the inception of the Funds are shown below:
<TABLE>
<CAPTION>
Fiscal Year Ending
October 31, 1997
----------------
<S> <C>
International Equity Fund $36,271
Global Balanced Fund 16,102
European Growth & Income Fund 6,007
</TABLE>
ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Treasury Plus, Incorporated, a wholly owned subsidiary of the Adviser serves as
Administrator to the Fund. Under its Administration Agreement with the Group,
the Administrator has agreed to prepare periodic reports to regulatory
authorities, maintain financial accounts and records of the Fund, transmit
communications by the Fund to shareholders of record, make periodic reports to
the Board of Trustees regarding Fund operations, and overview the work of the
fund accountant and transfer agent.
Investors Fiduciary Trust Company ("IFTC") provides fund accounting and transfer
agency services to the Group. IFTC calculates daily expense accruals and net
asset value per share of the Funds, issues and redeems Fund shares, maintains
shareholder accounts and prepares annual investor tax statements.
The liability provisions of the Group's agreements with Treasury Plus and IFTC
are similar to those of the Investment Management Agreement discussed above. In
addition, the Group has agreed to indemnify IFTC against certain liabilities.
The respective agreements may be terminated by either party on 90 days notice.
The Administrator has agreed that, if in any fiscal year the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the
45
<PAGE> 133
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 Group,
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 Group.
During the last three fiscal years, the Administrator was paid the amounts
listed below.
<TABLE>
<CAPTION>
Fiscal Year Ending October 31
-------------------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Limited Maturity Fund $ 12,864 $ 22,883 $ 65,533
Short Bond Fund 7,884 32,665 62,419
U.S. Government Fund 4,476 10,950 12,775
Intermediate Bond Fund 20,487 24,631 32,851
Investment Quality Bond Fund 6,731 18,435 32,908
Short Duration Tax Exempt Fund 14,771 17,181 21,318
Tax Exempt Bond Fund 25,275 30,854 30,423
Market Return Fund * 1,721 6,779
Global Short Bond Fund * 1,569 77,243
Global Fixed Income Fund 386,974 397,116 361,118
Total Return Fund * * 21,412
Growth & Income Fund * * 46,939
Global Balanced Fund * * 5,167
European Growth & Income Fund * * 1,780
International Equity Fund * * 5,417
</TABLE>
* Fund had not commenced operations
DISTRIBUTOR
Payden & Rygel Distributors, 333 South Grand Avenue, Los Angeles, California
90071, acts as Distributor to the Group pursuant to a Distribution Agreement
with the Group dated as of June 24, 1992, as amended. The Distributor has agreed
to use its best efforts to effect sales of shares of the Funds, but is not
obligated to sell any specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Investment Management Agreement described above. Pursuant to the Agreement,
the Group has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of 1933.
No compensation is payable by the Funds to the Distributor for its distribution
services. The Distributor pays for the personnel involved in accepting orders
for purchase and redemption of Fund shares, expenses incurred in connection with
the printing of Prospectuses and Statements of Additional Information (other
than those sent to existing shareholders), sales literature, advertising and
other communications used in the public offering of shares of a Fund, and other
expenses associated with performing services as distributor of the Funds'
shares. Each Fund pays the expenses of issuance, registration and transfer of
its shares, including filing fees and legal fees.
46
<PAGE> 134
SHAREHOLDER SERVICE PLAN
Pursuant to the Shareholder Service Plan, each Fund will pay the Distributor for
expenses incurred in connection with non-distribution shareholder services
provided by the Distributor to securities broker-dealers and other securities
professionals ("Service Organizations") with respect to Class S shares of a
Fund, and to the beneficial owners of such shares, and for fees paid by the
Distributor to such Service Organizations for the provision of support services
to their clients who are beneficial owners of Class S 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 S shares; (b) aggregating and processing purchase, exchange and
redemption requests for Class S 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 S 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 S 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 S 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.
No Plan fees were paid for any Fund during the fiscal year ended October 31,
1997.
PURCHASES AND REDEMPTIONS
Certain managed account clients of the Adviser may purchase shares of the Fund.
To avoid the imposition of duplicative fees, the Adviser may be required to make
adjustments in the management fees charged separately by the Adviser to these
clients to offset the generally higher level of management fees and expenses
resulting from a client's investment in the Fund.
The Funds reserve the right to suspend or postpone redemptions during any period
when: (a) trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, or that Exchange is closed for other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
47
<PAGE> 135
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of its net assets during any 90-day period for any one shareholder. Each Fund
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Fund in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder would incur
transaction costs upon the disposition of the securities received in the
distribution.
Due to the relatively high cost of maintaining smaller accounts, each Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly be paid to the investor) if at any time, due to
shareholder redemption, the shares in the Fund account do not have a value of at
least $5,000. An investor will be notified that the value of his account is less
than the minimum and allowed at least 30 days to bring the value of the account
up to at least $5,000 before the redemption is processed. The Declaration of
Trust also authorizes the Funds to redeem shares under certain other
circumstances as may be specified by the Board of Trustees
OTHER INFORMATION
CAPITALIZATION
Each Fund is a series of The Payden & Rygel Investment Group, an open-end
management investment company organized as a Massachusetts business trust in
January 1992 (initially called P&R Investment Trust). The capitalization of the
Funds consists solely of an unlimited number of shares of beneficial interest.
The Board of Trustees has currently authorized nineteen series of shares: Global
Fixed Income Fund, Global Short Bond Fund, Short Duration Tax Exempt Fund, Tax
Exempt Bond Fund, Limited Maturity Fund, Short Bond Fund, Intermediate Bond
Fund, Investment Quality Bond Fund, U.S. Government Fund (formerly the U.S.
Treasury Fund), Growth & Income Fund, Market Return Fund, Total Return Fund,
Global Balanced Fund, European Growth & Income Fund, High Income, International
Equity Fund, Value Stock Fund, Growth Stock Fund and Bunker Hill Money Market
Fund. The Board of Trustees may establish additional funds (with different
investment objectives and fundamental policies) and additional classes of shares
at any time in the future. Establishment and offering of additional portfolios
will not alter the rights of the Funds' shareholders. Shares do not have
preemptive rights or subscription rights. In liquidation of a Fund, each
shareholder is entitled to receive their pro rata share of the assets of the
Fund.
Expenses incurred by the Group in connection with its organization and the
initial public offering are being reimbursed to the Adviser, subject to the
expense limitation described in the Prospectus under "Management of the Funds --
Expense Guarantee", and amortized on a straight line basis over a period of five
years. Expenses incurred in the organization of subsequently offered series of
the Group will be charged to those series and will be amortized on a straight
line basis over a period of not less than five years.
PRINCIPAL SHAREHOLDERS
As of September 30, 1997, the following persons held of record more than 5% of
the outstanding shares of the Limited Maturity Fund: Tessera, Inc., San Jose, CA
95134, 19.2%; Retirement Fund
48
<PAGE> 136
Trust of the Plumbing, Heating and Piping Industry of Southern California, Los
Angeles, CA 90020, 13.3%; Infirmary Health Systems Inc., Mobile, AL 36633, 5.0%;
Jicarrila Apache Tribe, Dulce, NM 87528, 8.9%; Northwest Building Corporation,
Seattle, WA 98104, 10.8%; Academy of Motion Pictures Arts and Sciences, Beverly
Hills, CA 90211, 6.5%; Peacehealth, Bellevue, WA 98007, 6.5%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Short Bond Fund: Michigan Conference of Teamsters
Welfare Fund, Detroit, MI 48216, 29.3%; Rockford Health System, Rockford, Il
61103, 11.8%; Center Theatre Group, Los Angeles, CA 90012, 7.2%; Rose Hills
Memorial Park, New York, NY 10008, 5.1%; Southern California Local Union 831, El
Monte, CA 91731, 5.5%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the U.S. Government Fund: L. Horvitz, Moreland Hills,
OH 44122, 52.1%; L. Wasserman, Beverly Hills, CA 90210, 6.1%; B. Richardson
Trust, Cleveland, OH 44122, 5.8%; CH Foundation, Los Angeles, CA 90071, 30.5%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Intermediate Bond Fund: Bert Bell NFL Retirement
Plan, Brooklyn, NY 11231, 46.1%; Lon V. Smith Foundation, Beverly Hills, CA
90210, 8.9%; North Hills Passavant, Philadelphia, PA 19182, 8.7%; Passavant
Hospital Pension, Philadelphia, PA 19182, 5.4%; Dan Murphy Foundation, Los
Angeles, CA 90016, 10.8%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Investment Quality Bond Fund: The Interlake
Corporation Retirement Plan, Milwaukee, WI 53202, 15.2%; FMTC Premier Trust, N.
Quincy, MA 02171, 18.9%; City of University City Retirement Funds, St. Louis, MO
63178, 15.04%; Washington Suburban Sanitary Commission, Laurel, MD 20702, 10.1%;
Earl B. and Loraine Miller Foundation, Long Beach, CA 90802, 7.2%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Short Duration Tax Exempt Fund: R. Bension, La
Canada, CA 91011, 14,2%; C. Leif, Beverly Hills, CA 90210, 24.4%; Wertheimer
Family Trust, Santa Monica, CA 90402, 6.0%; C. Myers Trusts, Beverly Hills, CA
90210, 16.2%; Kleiner Family Trust, Menlo Park, CA 94025, 9.7%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Tax Exempt Bond Fund: Kleiner Family Trust, Menlo
Park, CA 94025, 16.0%; Wertheimer Family Trust, Santa Monica, CA 90402, 10.2%;
Clack & Co., Spokane, WA 99202, 7.3%; Charles S. Paul Living Trust, Los Angeles,
CA 90077, 9.2%; P. Dermody Trust, Reno, NV 89510, 6.1%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Market Return Fund: Wasserman Foundation, Beverly
Hills, CA 90210,
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<PAGE> 137
32.4%; Dan Murphy Foundation, Los Angeles, CA 90016, 10.2%; CMA Management
Company, Los Angeles, CA 90071, 5.6%; CH Foundation, Los Angeles, CA 90071,
11.9%; Vanderbilt University, Nashville, TN 37240, 13.8%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Global Short Bond Fund: Annuity Board of the
Southern Baptist Convention, Dallas, TX 75221, 9.3%; Kaiser Permanente
Retirement Plan, Los Angeles, CA 90071, 9.4%; Hoag Memorial Hospital Board, Los
Angeles, CA 90051, 7.3%; Joint Industry Board of the Electrical Industry,
Flushing, NY 11365, 9.3%; Stryker Corporation, Los Angeles, CA 90051, 16.7; SSM
Health Care System, Pittsburgh, PA 15230-3198, 12.5%; J M Huber Corporation,
Edison, NJ, 7.1%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Global Fixed Income Fund: UniHealth, Pittsburgh,
PA 15230, 11.0%; Federated Dept. St. Inc., Brooklyn, NY 12131, 6.3% SSM Health
Care System, Pittsburgh, PA 15230, 6.3%; Self-Realization Fellowship Church, Los
Angeles, CA 90065, 5.94%; Southern California Edison VEBA, Chicago, IL 60675,
5.7%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the International Equity Fund: Scottish Widows
Investment Management, Scotland, 13.3%; Dan Murphy Foundation, Los Angeles, CA
90016, 16.9%; Wasserman Foundation, Beverly Hills, CA 90210, 16.2%; Sheinberg
Family Trust, Beverly Hills, CA 90210, 10.1%; Teague Family Trusts, Palos
Verdes, CA 90274, 9.9%; C. Leif, Beverly Hills, CA 90210, 8.0%; C. Myers Trusts,
Beverly Hills, CA 90210, 5.4%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Total Return Fund: The Academy Foundation, Beverly
Hills, CA 90211, 11.9%; Academy of Motion Picture Arts and Sciences, Beverly
Hills, CA 90211, 9.0%; Walt Disney Disability Trust, Burbank, CA 91521, 12.4%;
Washington Suburban Sanitary Commission, Laurel, MD, 20702, 13.14%; Amateur
Athletic Foundation, Los Angeles, CA 90018, 22.9%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the Global Balanced Fund: Lon V. Smith Foundation,
Beverly Hills, CA 90210, 41.4%; Scottish Widows Fund and Life Assurance Society,
Edenburgh, Scotland, 25.1%; CMA Management Company, Los Angeles, CA 90071,
16.1%.
As of December 15, 1997, the following persons held of record more than 5% of
the outstanding shares of the European Growth & Income Fund: CH Foundation, Los
Angeles, CA 90071, 14.2%; CMA Management Company, Los Angeles, CA 90071, 5.9%;
Wertheimer Family Trust, Santa Monica, CA 90402, 6.8%; Sheinberg Family Trust,
Beverly Hills, CA 90210, 12.0%.
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<PAGE> 138
The Fund has no information regarding the beneficial ownership of such shares.
As of such date, the officers and directors of the Group as a group owned less
than 1% of the outstanding shares of the Funds, except for the Total Return
Fund, 1.4%; Market Return Fund, 5.7%; European Growth & Income Fund, 2.3%;
Growth & Income Fund, 2.6%; and Global Balanced Fund, 16.8%.
DECLARATION OF TRUST
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a Fund. However, the Declaration
of Trust disclaims liability of the shareholders of a Fund for acts or
obligations of the Group, which are binding only on the assets and property of
the Fund, and requires that notice of the disclaimer be given in each contract
or obligation entered into or executed by a Fund or the Trustees. The
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder held personally liable for the obligations
of a Fund. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable to meet its obligations and thus should be considered remote.
The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will any
officer or Trustee be personally liable to the Group or its shareholders except
by reason of his own bad faith, willful misfeasance, gross negligence in the
performance of his duties or reckless disregard of his obligations and duties.
With these exceptions, the Declaration of Trust provides that a Trustee or
officer of the Group is entitled to be indemnified against all liabilities and
expenses, including reasonable accountants' and counsel fees, incurred by the
Trustee or officer in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee or officer.
CLASS R AND S SHARES
The Board of Trustees of the Group has adopted a Multiple Class Plan in
accordance with Rule 18f-3 under the 1940 Act in order to establish two series
of shares of the Funds. The Plan provides that Class R and Class S shares will
be identical in all respects except as follows: (a) the designation of each
class of shares of a Fund; (b) the exclusive right of Class S 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 a class of shares ; (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.
VOTING
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Shareholders of the Funds and any other series of the Group will vote in the
aggregate and not by series or class except as otherwise required by law or when
the Board of Trustees determines that the matter to be voted upon affects only
the interests of the shareholders of a particular series or class of shares.
Pursuant to Rule 18f-2 under the 1940 Act, the approval of an investment
advisory agreement or any change in a fundamental policy would be acted upon
separately by the series affected. Matters such as ratification of the
independent public accountants and election of Trustees are not subject to
separate voting requirements and may be acted upon by shareholders of the Group
voting without regard to series or class.
CUSTODIAN
The Boston Safe Deposit and Trust Company serves as Custodian for the assets of
the Funds. The Custodian's address is One Boston Place, Boston, Massachusetts
02109. Under its Custodian Agreement with the Group, the Custodian has agreed
among other things to maintain a separate account in the name of each Fund; hold
and disburse portfolio securities and other assets on behalf of the Funds;
collect and make disbursements of money on behalf of the Funds; and receive all
income and other payments and distributions on account of each Fund's portfolio
securities.
Pursuant to rules adopted under the 1940 Act, the Funds may maintain foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Funds; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and risks of nationalization or expropriation of Fund
assets. The Board of Trustees reviews annually the continuance of foreign
custodial arrangements for the Funds. No assurance can be given that the
Trustees' appraisal of the risks in connection with foreign custodial
arrangements will always be correct or that expropriation, nationalization,
freezes, or confiscation of assets that would impact assets of the Portfolio
will not occur, and shareholders bear the risk of losses arising from these or
other events.
INDEPENDENT AUDITORS
Deloitte & Touche LLP serves as the independent auditors for the Funds. Deloitte
& Touche 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 LLP 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, Los Angeles, California
90071. Paul, Hastings, Janofsky & Walker LLP 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
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Group to use the name "Payden & Rygel". The Adviser has the right to require the
Group to cease using the name at such time as the Adviser is no longer employed
as investment manager to the Group.
FINANCIAL STATEMENTS
The Funds' 1997 Annual Report to Shareholders accompanies this Statement of
Additional Information. The financial statements in such Annual Report are
incorporated in this Statement of Additional Information by reference. The
financial statements in such Annual Report have been audited by the Fund's
independent auditors, Deloitte & Touche LLP, whose report thereon also appears
in such Annual Report and is incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such reports given
upon their authority as experts in accounting and auditing.
Additional copies of the Funds' 1997 Annual Report to Shareholders may be
obtained at no charge by writing or telephoning the Group at the address or
number on the front page of this Statement of Additional Information.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain all
the information included in the Group's registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The registration statement, including the exhibits filed therewith, may be
examined at the offices of the Securities and Exchange Commission in Washington,
D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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APPENDIX A
DESCRIPTION OF RATINGS
The following paragraphs summarize the descriptions for the ratings for
municipal securities and commercial paper referred to in the Prospectus and
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.
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.
U.S. TAX-EXEMPT MUNICIPALS
Moody's ratings for U.S. Tax-Exempt Municipals range from Aaa to B and utilize
the same definitional elements as are set forth in the Prospectus under the
"Bonds" section of the Moody's descriptions.
Advance refunded issues: Advance refunded issues that are secured by
escrowed funds held in cash, held in trust, reinvested in direct non-callable
United States government obligations or non-callable obligations unconditionally
guaranteed by the U.S. government are identified with a # (hatchmark) symbol,
e.g., # Aaa.
MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade (MIG), and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG2/VMIG 2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:
Prime-1: Issuers rated Prime-1 (or related supporting institutions) have
a superior ability 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
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reliance on debt and ample 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.
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
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.
MUNICIPAL BOND RATINGS
AAA - Prime Grade: These are obligations of the highest quality. They
have the strongest capacity for timely payment of debt service.
General Obligations Bonds: In a period of economic stress, the issuers
will suffer the smallest declines in income and will be least
susceptible to autonomous decline. Debt burden is moderate. A strong
revenue structure appears more than adequate to meet future expenditure
requirements. Quality of management appears superior.
Revenue Bonds: Debt service coverage has been, and is expected to
remain, substantial, stability of the pledged revenues is also
exceptionally strong due to the competitive position of the municipal
enterprise or to the nature of the revenues. Basic security provisions
(including rate covenant, earnings test for issuance of additional bonds
and debt service reserve requirements) are rigorous.
There is evidence of superior management.
AA - High Grade: The investment characteristics of bonds in this group
are only slightly less marked than those of the prime quality issues. Bonds
rated AA have the second strongest capacity for payment of debt service.
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A - Good Grade: Principal and interest payments on bonds in this
category are regarded as safe although the bonds are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
bonds in higher rated categories. This rating describes the third strongest
capacity for payment of debt service. Regarding municipal bonds, the rating
differs from the two higher ratings because:
General Obligation Bonds: There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the
issuer to meet debt obligations at some future date.
Revenue Bonds: Debt service coverage is good, but not exceptional.
Stability of the pledged revenues could show some variations because of
increased competition or economic influences on revenues. Basic security
provisions, while satisfactory, are less stringent. Management
performance appearance appears adequate.
Rating Refinements: Standard & Poor's letter ratings may be modified by
the addition of a plus (+) or a minus (-) sign, which is used to show relative
standing within the major rating categories, except in the AAA rating category.
MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, or SP-2) to distinguish more clearly the credit
quality of notes as compared to bonds. Notes rated SP-1 have a very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given the designation of SP-1.
Notes rated SP-2 have a satisfactory capacity to pay principal and interest.
COMMERCIAL PAPER
A-1: A short-term obligation rated A-1 is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
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
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and credit quality. Fitch ratings do not reflect any credit enhancement that may
be provided by insurance policies or financial guarantees unless otherwise
indicated.
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 Thompson Bank Watch's
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
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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.
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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 Statements of Assets and Liabilities as of October
31, 1997, Statements of Operations for the period ended October
31, 1997, Statements of Changes in Net Assets for the periods
ended October 31, 1997 and October 31, 1996, Schedules of
Portfolio Investments as of October 31, 1997, related notes, and
Independent Auditors' Report, with respect to the Funds are
incorporated by reference in Part B.
(b) Exhibits:
(1.1) Master Trust Agreement of Registrant (a).
(1.2) Certificate of Amendment of Master Trust Agreement (b).
(1.3) Amendment No. 2 to the Master Trust Agreement dated
September 16, 1993 (c).
(1.4) Amendment No. 3 to the Master Trust Agreement dated
December 13, 1993 (d).
(1.5) Amendment No. 4 to the Master Trust Agreement dated
March 17, 1994 (e).
(1.6) Amendment No. 5 to the Master Trust Agreement dated as
of August 31, 1994 (f).
(1.7) Amendment No. 6 to the Master Trust Agreement (g).
(1.8) Amendment No. 7 to the Master Trust Agreement (h).
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<PAGE> 147
(1.9) Amendment No. 8 to the Master Trust Agreement (i).
(1.10) Amendment No. 9 to the Master Trust Agreement (j).
(1.11) Amendment No. 10 to the Master Trust Agreement (k).
(1.12) Form of Amendment No. 11 to the Master Trust Agreement
(k).
(1.13) Form of Amendment No. 12 to the Master Trust Agreement
(l).
(1.14) Form of Amendment No. 13 to the Master Trust Agreement
(m).
(1.15) Form of Amendment No. 14 to the Master Trust Agreement
(u).
(1.16) Form of Amendment No. 15 to the Master Trust Agreement
(u).
(1.17) Amendment No. 16 to the Master Trust Agreement.
(1.18) Form of Amendment No. 17 to the Master Trust Agreement.
(2) By-laws of Registrant (a).
(3) None.
(4) None.
(5.1) Investment Management Agreement between Registrant and
Payden & Rygel (n).
(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 (n).
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(5.3) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated December 29, 1993,
adding Short Bond, Intermediate Bond and Investment
Quality Bond (previously Opportunity) Funds to the
Agreement (n).
(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 (e).
(5.5) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated as of June 14, 1994
with respect to Class B shares (e).
(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
(e).
(5.7) Agreement between Registrant and Payden & Rygel dated
June 14, 1994 with respect to voluntary expense
limitations (g).
(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 (g).
(5.9) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding Market
Return Fund to the Agreement (o).
(5.10) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding Growth &
Income Fund to the Agreement (k).
(5.11) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding Global
Short Bond Fund to the Agreement (l).
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(5.12) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding Total
Return Fund, International Equity Fund and Global
Balanced Fund to the Agreement (m).
(5.13) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding European Growth &
Income Fund to the Agreement.
(5.14) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the PRAAM
Money Market Fund (now the Bunker Hill Money Market
Fund) to the Agreement (u).
(5.15) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the High Income
Fund to the Agreement.
(5.16) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the Value Stock
Fund and Growth Stock Fund to the Agreement.
(5.17) Form of Subadvisory Agreement between Payden & Rygel and
Scottish Widows Investment Management Limited with
respect to the International Equity Fund and Global
Balanced Fund (m).
(5.18) Form of Subadvisory Agreement between Payden & Rygel and
Scottish Widows Investment Management Limited with
respect to the European Growth & Income Fund (t).
(6.1) Distribution Agreement between Registrant and Payden &
Rygel Distributors, Inc. (n).
(6.2) Amendment to Distribution Agreement between Registrant
and Payden & Rygel Distributors dated August 31, 1992
(p).
(7) None.
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(8) Form of Custody Agreement between Registrant and Boston
Safe Deposit and Trust Company (q).
(9.1) Management and Administration Agreement between
Registrant and Treasury Plus, Incorporated dated as of
January 1, 1996 (o).
(9.2) Form of Investment Accounting Agreement between
Registrant and Investors Fiduciary Trust Company (o).
(9.3) Form of Transfer Agency and Service Agreement between
Registrant and Investors Fiduciary Trust Company (o).
(9.4) License Agreement between Registrant and Payden & Rygel
(n).
(10.1) Opinion of Counsel (b).
(10.2) Opinion of Counsel, dated December 23, 1997.
(11) Consent of Independent Auditors.
(12) Not applicable.
(13) Investment letter of Payden & Rygel (b).
(14.1) Form of Payden & Rygel Investment Group Section
403(b)(7) Custodial Account Agreement, including related
application material (t).
(14.2) Form of Payden & Rygel Individual Retirement Account
Disclosure Statement, including related application
material (t).
(15) The Payden & Rygel Investment Group Distribution Plan,
adopted September 9, 1997 (u).
(16) Total return calculations (o).
(17) Not applicable.
(18) The Payden & Rygel Investment Group Multiple Class Plan,
dated December 16, 1997.
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(19.1) Powers of Attorney of Dennis Poulsen and J. Clayburn La
Force (r).
(19.2) Power of Attorney of Stender E. Sweeney (r).
(19.3) Power of Attorney of Thomas McKernan, Jr. (s).
(19.4) Power of Attorney of W.D. Hilton, Jr. (f).
(19.5) Annual Report to Shareholders for the fiscal year ended
October 31, 1997, filed in accordance with Rule 303(b)
of Regulation S-T.
- - ----------
(a) Filed as an exhibit to the Registration Statement on April 2, 1992 and
incorporated herein by reference.
(b) Filed as an exhibit to the Pre-Effective Amendment No. 2 to the
Registration Statement on July 28, 1992 and incorporated herein by
reference.
(c) Filed as an exhibit to Post-Effective Amendment No. 2 to the
Registration Statement and incorporated herein by reference.
(d) Filed as an exhibit to Post-Effective Amendment No. 4 to the
Registration Statement on January 24, 1994 and incorporated herein by
reference.
(e) Filed as an exhibit to Post-Effective Amendment No. 6 to the
Registration Statement on June 30, 1994 and incorporated herein by
reference.
(f) Filed as an exhibit to Post-Effective Amendment No. 9 to the
Registration Statement on October 17, 1994 and incorporated herein by
reference.
(g) Filed as an exhibit to Post-Effective Amendment No. 11 to the
Registration Statement on January 12, 1995 and incorporated herein by
reference.
(h) Filed as an exhibit to Post-Effective Amendment No. 15 to the
Registration Statement on July 6, 1995 and incorporated herein by
reference.
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<PAGE> 152
(i) Filed as an exhibit to Post-Effective Amendment No. 17 to the
Registration Statement on October 5, 1995 and incorporated herein by
reference.
(j) Filed as an exhibit to Post-Effective Amendment No. 21 to the
Registration Statement on February 7, 1996 and incorporated herein by
reference.
(k) Filed as an exhibit to Post-Effective Amendment No. 24 to the
Registration Statement on May 29, 1996 and incorporated herein by
reference.
(l) Filed as an exhibit to Post-Effective Amendment No. 25 to the
Registration Statement on July 3, 1996 and incorporated herein by
reference.
(m) Filed as an exhibit to Post-Effective Amendment No. 26 to the
Registration Statement on September 23, 1996 and incorporated herein by
reference.
(n) Filed as an exhibit to Post-Effective Amendment No. 7 to the
Registration Statement on July 1, 1994 and incorporated herein by
reference.
(o) Filed as an exhibit to Post-Effective Amendment No. 16 to the
Registration Statement on September 11, 1995 and incorporated herein by
reference.
(p) Filed as an exhibit to Post-Effective Amendment No. 1 to the
Registration Statement on February 17, 1993 and incorporated herein by
reference.
(q) Filed as an exhibit to Post-Effective Amendment No. 27 to the
Registration Statement on December 20, 1996 and incorporated herein by
reference.
(r) Filed as an exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement on June 19, 1992 and incorporated herein by reference.
(s) Filed as an exhibit to Post-Effective Amendment No. 5 to the
Registration Statement on March 1, 1994 and incorporated herein by
reference.
C-7
<PAGE> 153
(t) Filed as an exhibit to Post-Effective Amendment No. 29 to the
Registration Statement on April 17, 1997 and incorporated herein by
reference.
(u) Filed as an exhibit to Post-Effective Amendment No. 31 to the
Registration Statement on September 24, 1997 and incorporated herein by
reference.
Item 25. Persons Controlled by or Under Common Control with Registrant.
As of December 15, 1997, the following persons held of record more than
25% of the outstanding shares of the following classes of shares of Registrant:
Payden & Rygel Intermediate Bond Fund, Class R -- Bert Bell NFL Retirement Plan
(46%); Payden & Rygel U.S. Government Fund, Class R -- CH Foundation (31%) and
L. Horvitz (52%); Payden & Rygel Market Return Fund, Class R - Wasserman
Foundation (32%); Payden & Rygel Short Bond Fund, Class R - Michigan Conference
of Teamsters Welfare Fund (29%); Payden & Rygel Global Balanced Fund, Class R --
Lon V. Smith Foundation (41%) and Scottish Widows Fund and Life Assurance
Society (25%).
Item 26. Number of Holders of Securities.
As of December 19, 1997, 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 R 262
- Class S 0
Shares of beneficial interest of Payden
& Rygel International Bond Fund - Class R 11
- Class S 0
Shares of beneficial interest of Payden
& Rygel Tax Exempt Bond Fund - Class R 81
- Class S 0
C-8
<PAGE> 154
Shares of beneficial interest of Payden
& Rygel Short Duration - Class R 56
Tax Exempt Fund - Class S 0
Shares of beneficial interest of Payden
& Rygel Short Bond Fund - Class R 61
- Class S 0
Shares of beneficial interest of Payden
& Rygel Intermediate Bond Fund - Class R 49
- Class S 0
Shares of beneficial interest of Payden
& Rygel Investment Quality - Class R 66
Bond Fund - Class S 0
Shares of beneficial interest of Payden
& Rygel Limited Maturity Fund - Class R 238
- Class S 0
Shares of beneficial interest of Payden
& Rygel U.S. Government Fund - Class R 28
- Class S 0
Shares of beneficial interest of Payden
& Rygel Market Return Fund - Class R 137
- Class S 0
Shares of beneficial interest of Payden
& Rygel Growth & Income Fund - Class R 5,500
- Class S 0
Shares of beneficial interest of Payden
& Rygel Global Short Bond Fund - Class R 41
- Class S 0
Shares of beneficial interest of Payden
& Rygel Total Return Fund - Class R 45
- Class S 0
Shares of beneficial interest of Payden
& Rygel Global Balanced Fund - Class R 52
- Class S 0
C-9
<PAGE> 155
Shares of beneficial interest of Payden
& Rygel International Equity - Class R 77
Fund - Class S 0
Shares of beneficial interest of Payden
& Rygel European Growth - Class R 625
Fund - Class S 0
Shares of beneficial interest of Bunker
Hill Money Market Fund - Class R 18
- Class D 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
C-10
<PAGE> 156
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, 1996, 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, 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
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<PAGE> 157
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, Los Angeles, California 90071, except as
otherwise indicated below.
<TABLE>
<CAPTION>
Positions and
Offices with Positions and
Name and Principal Principal Offices with
Business Address Underwriter Registrant
- - ------------------ ------------- -------------
<S> <C> <C>
Joan A. Payden President Trustee, Chairman
and Director of the Board and
Chief Executive Officer
Christopher N. Orndorff Director Trustee
Shirley T. Hosoi Vice President and President and
Chief Operating Officer Chief Operating Officer
Thomas J. Barrett Chief Financial
Officer
</TABLE>
(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, Los Angeles, California 90071), its adviser Payden & Rygel (333
South Grand Avenue, 32nd
C-12
<PAGE> 158
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 Boston Safe Deposit and
Trust Company (One Boston Place, Boston, Massachusetts 02108).
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.
C-13
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") 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 26th day of December, 1997. The undersigned hereby certifies
that this Amendment meets all of the requirements for effectiveness pursuant to
Rule 485(b) under the 1933 Act.
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 December 26, 1997
Principal
/s/ Joan A. Payden Executive Officer
- - ---------------------------
Joan A. Payden
/s/ J. Clayburn La Force* Trustee December 26, 1997
- - ---------------------------
J. Clayburn La Force
/s/ Dennis C. Poulsen* Trustee December 26, 1997
- - ---------------------------
Dennis C. Poulsen
/s/ Thomas McKernan, Jr.* Trustee December 26, 1997
- - ---------------------------
Thomas McKernan, Jr.
/s/ Stender E. Sweeney* Trustee December 26, 1997
- - ---------------------------
Stender E. Sweeney
/s/ W.D. Hilton, Jr.* Trustee December 26, 1997
- - ---------------------------
W.D. Hilton, Jr.
/s/ Lynda L. Faber Trustee December 26, 1997
- - ---------------------------
Lynda L. Faber
/s/ John Paul Isaacson Trustee December 26, 1997
- - ---------------------------
John Paul Isaacson
/s/ Christopher N. Orndorff Trustee December 26, 1997
- - ---------------------------
Christopher N. Orndorff
/s/ Thomas J. Barrett Principal December 26, 1997
- - ---------------------------
C-14
<PAGE> 160
Thomas J. Barrett Financial and
Accounting Officer
*s/Joan A. Payden
- - ---------------------------
By: Joan A. Payden
Attorney-In-Fact
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<PAGE> 161
EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 34
Exhibit No. Title of Exhibit
- - ----------- ----------------
(1.17) Amendment No. 16 to the Master Trust Agreement.
(1.18) Form of Amendment No. 17 to the Master Trust Agreement.
(5.13) Amendment to Investment Management Agreement between Registrant
and Payden & Rygel adding European Growth & Income Fund to the
Agreement
(5.15) Amendment to Investment Management Agreement between Registrant
and Payden & Rygel adding High Income Fund to the Agreement.
(5.16) Amendment to Investment Management Agreement between Registrant
and Payden & Rygel adding the Value Stock Fund and Growth Stock
Fund to the Agreement.
(10.2) Opinion of Counsel, dated December 23, 1997.
(11) Consent of Independent Auditors.
(18) The Payden & Rygel Investment Group Multiple Class Plan, dated
December 16, 1997.
(19.5) Annual Report to Shareholders for the fiscal year ended October
31, 1997, filed in accordance with Rule 303(b) of Regulation
S-T.
<PAGE> 1
EXHIBIT 1.17
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 16 TO
MASTER TRUST AGREEMENT
This Amendment No. 16 to the Master Trust Agreement of The Payden &
Rygel Investment Group dated January 22, 1992, as amended (the "Agreement"), is
made as of December 16, 1997.
WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated seventeen sub-trusts known as the Payden & Rygel
Global Fixed Income Fund, the Payden & Rygel International Bond Fund, the Payden
& Rygel Tax Exempt Bond Fund, the Payden & Rygel Short Bond Fund, the Payden &
Rygel Intermediate Bond Fund, the Payden & Rygel Investment Quality Bond Fund
(formerly known as the Payden & Rygel Opportunity Fund), the Payden & Rygel
Limited Maturity Fund, the Payden & Rygel Short Duration Tax Exempt Fund, the
Payden & Rygel U.S. Treasury Fund, the Payden & Rygel Market Return Fund, the
Payden & Rygel Growth & Income Fund, the Payden & Rygel Global Short Bond Fund,
the Payden & Rygel Total Return Fund, the Payden & Rygel International Equity
Fund, the Payden & Rygel Global Balanced Fund, the Payden & Rygel European
Growth & Income Fund, and the PRAAM Money Market Fund; and
WHEREAS, the Trustees have the authority, without shareholder approval,
under Section 7.3 of the Agreement, to amend the Agreement in any manner, so
long as such amendment does not adversely affect the rights of any shareholder
and is not in contravention of applicable law; and
WHEREAS, the Trustees hereby desire to establish and designate three
additional sub-trusts, to be known as the Payden & Rygel High Income Fund, the
Payden & Rygel Value Stock Fund and the Payden & Rygel Growth Stock Fund, and to
fix the rights and preferences of the shares of each such additional sub-trust;
and
WHEREAS, the Trustees hereby desire to rename the classes of shares for
each of the existing seventeen sub-trusts, such that with respect to (a) the
PRAAM Money Market Fund, the "Series A" shares and "Series B" shares
<PAGE> 2
are renamed the "Series R" shares and "Series D" shares, respectively, and (b)
each of the remaining sixteen sub-trusts, the "Series A" shares and "Series B"
shares are renamed the "Series R" shares and "Series S" shares, respectively;
and
WHEREAS, the Trustees hereby desire to rename the PRAAM Money Market
Fund as the Bunker Hill Money Market Fund, and to rename the Payden & Rygel U.S.
Treasury Fund as the Payden & Rygel U.S. Government Fund;
NOW THEREFORE:
The first paragraph of Section 4.2 of the Agreement is hereby amended to
read in pertinent part as follow:
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustee set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby
establish and designate eighteen Sub-Trusts and classes thereof: the
Payden & Rygel Global Fixed Income Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel International Bond Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel Tax Exempt Bond Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; the Payden &
Rygel Short Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel
Intermediate Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel
Investment Quality Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
Limited Maturity Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel Short
Duration Tax Exempt Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
U.S. Government Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the
<PAGE> 3
Payden & Rygel Market Return Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
Growth & Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel Global
Short Bond Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; the Payden & Rygel Total Return Fund,
which shall consist of two classes of shares designated as "Class R" and
"Class S" shares; the Payden & Rygel International Equity Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; the Payden & Rygel Global Balanced Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; the Payden & Rygel European Growth & Income Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; the Payden & Rygel High Income Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel Value Stock Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
Growth Stock Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; and the Bunker Hill Money
Market Fund, which shall consist of two classes of shares designated as
"Class R" and "Class D" shares. The shares of each Sub-Trust and classes
thereof and any shares of any further Sub-Trusts and classes thereof
that may from time to time be established and designated by the Trustees
shall (unless the Trustees otherwise determine with respect to some
further Sub-Trust or class a the time of establishing and designating
the same) have the following relative rights and preferences:".
The undersigned hereby certify that the Amendment set forth above has
been duly adopted in accordance with the provisions of the Master Trust
Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands for
themselves and their assigns, as of the day and year first above written. This
instrument may be
<PAGE> 4
executed in one or more counterparts, all of which shall together constitute a
single instrument.
- - ------------------------ ------------------------
Joan A. Payden Lynda L. Faber
- - ------------------------ ------------------------
John Paul Isaacson Christopher N. Orndorff
- - ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen
- - ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.
- - ------------------------
W.D. Hilton, Jr.
<PAGE> 1
EXHIBIT 1.18
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 17 TO
MASTER TRUST AGREEMENT
This Amendment No. 17 to the Master Trust Agreement of The Payden &
Rygel Investment Group dated January 22, 1992, as amended (the "Agreement"), is
made as of __________, 1998.
WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated twenty sub-trusts known as the Payden & Rygel Global
Fixed Income Fund, the Payden & Rygel International Bond Fund, the Payden &
Rygel Tax Exempt Bond Fund, the Payden & Rygel Short Bond Fund, the Payden &
Rygel Intermediate Bond Fund, the Payden & Rygel Investment Bond Fund (formerly
the Payden & Rygel Opportunity Fund), the Payden & Rygel Limited Maturity Fund,
the Payden & Rygel Short Duration Tax Exempt Fund, the Payden & Rygel U.S.
Government Fund (formerly the Payden & Rygel U.S. Treasury Fund), the Payden &
Rygel Market Return Fund, the Payden & Rygel Growth & Income Fund, the Payden &
Rygel Global Short Bond Fund, the Payden & Rygel Total Return Fund, the Payden &
Rygel International Equity Fund, the Payden & Rygel Global Balanced Fund, the
Payden & Rygel European Growth & Income Fund, the Payden & Rygel High Income
Fund, the Payden & Rygel Value Stock Fund, the Payden & Rygel Growth Stock Fund,
and the Bunker Hill Money Market Fund (formerly the PRAAM Money Market Fund);
and
WHEREAS, the Trustees have the authority, without shareholder approval,
under Section 7.3 of the Agreement, to amend the Agreement in any manner, so
long as such amendment does not adversely affect the rights of any shareholder
and is not in contravention of applicable law; and
WHEREAS, the Trustees hereby desire to liquidate, and have authorized
the liquidation of, the Payden & Rygel International Bond Fund, effective the
day and year first above written;
NOW THEREFORE:
The first paragraph of Section 4.2 of the Agreement is hereby amended to
read in pertinent part as follow:
<PAGE> 2
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustee set forth in Section 4.1 to
establish and designate any further Sub-Trusts, the Trustees hereby
establish and designate nineteen Sub-Trusts and classes thereof: the
Payden & Rygel Global Fixed Income Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel Tax Exempt Bond Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; the Payden &
Rygel Short Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel
Intermediate Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel
Investment Quality Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
Limited Maturity Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel Short
Duration Tax Exempt Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; the Payden & Rygel
U.S. Government Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel Market
Return Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; the Payden & Rygel Growth & Income Fund,
which shall consist of two classes of shares designated as "Class R" and
"Class S" shares; the Payden & Rygel Global Short Bond Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; the Payden & Rygel Total Return Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel International Equity Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; the
Payden & Rygel Global Balanced Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; the Payden &
Rygel European Growth & Income Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; the Payden &
Rygel High Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; the Payden & Rygel Value
Stock Fund, which shall consist of two classes of shares designated as
<PAGE> 3
"Class R" and "Class S" shares; the Payden & Rygel Growth Stock Fund,
which shall consist of two classes of shares designated as "Class R" and
"Class S" shares; and the Bunker Hill Money Market Fund, which shall
consist of two classes of shares designated as "Class R" and "Class D"
shares. The shares of each Sub-Trust and classes thereof and any shares
of any further Sub-Trusts and classes thereof that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Sub-Trust or class a
the time of establishing and designating the same) have the following
relative rights and preferences:".
The undersigned hereby certify that the Amendment set forth above has
been duly adopted in accordance with the provisions of the Master Trust
Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands for
themselves and their assigns, as of the day and year first above written. This
instrument may be executed in one or more counterparts, all of which shall
together constitute a single instrument.
- - ------------------------ ------------------------
Joan A. Payden Lynda L. Faber
- - ------------------------ ------------------------
John Paul Isaacson Christopher N. Orndorff
- - ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen
- - ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.
- - ------------------------
W.D. Hilton, Jr.
<PAGE> 1
EXHIBIT 5.13
THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
June 15, 1997
Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071
Ladies and Gentlemen:
As you know, we wish to retain Payden & Rygel to act as investment
adviser to our newly created Payden & Rygel European Growth & Income Fund
series. Accordingly, this will confirm our agreement to amend Exhibit A to the
Investment Management Agreement between us dated as of June 24, 1992, as
heretofore amended, by adding the following paragraph:
Payden & Rygel European Growth & Income Fund Series
Annual Advisory Fees (as a percentage of average daily net assets) -
0.50% of the first $2 billion; and 0.40% of assets in excess of $2
billion.
Operating Expense Limitation (as a percentage of average daily net
assets) - Class A shares, 0.90%; Class B shares, 1.15%.
In all other respects, the Investment Management Agreement between us,
as heretofore amended, will remain unchanged. Please sign this letter below to
confirm your agreement to this amendment.
Very truly yours,
Joan A. Payden
President
AGREED:
PAYDEN & RYGEL
BY:
----------------------------------------
TITLE:
-------------------------------------
<PAGE> 1
EXHIBIT 5.15
THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
December 16, 1997
Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071
Ladies and Gentlemen:
As you know, we wish to retain Payden & Rygel to act as investment
adviser to our newly created High Income Fund series. Accordingly, this will
confirm our agreement to amend Exhibit A to the Investment Management Agreement
between us dated as of June 24, 1992, as heretofore amended, by adding the
following paragraph:
High Income Fund Series
Annual Advisory Fees (as a percentage of average daily net assets) -
0.35% of net assets.
Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 0.75%; Class S shares, 1.00%.
In all other respects, the Investment Management Agreement between us,
as heretofore amended, will remain unchanged. Please sign this letter below to
confirm your agreement to this amendment.
Very truly yours,
Joan A. Payden
President
AGREED:
PAYDEN & RYGEL
BY:
--------------------------------------
TITLE:
-----------------------------------
<PAGE> 1
EXHIBIT 5.16
THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
December 17, 1997
Payden & Rygel
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071
Ladies and Gentlemen:
As you know, we wish to retain Payden & Rygel to act as investment
adviser to our newly created Value Stock Fund and Growth Stock Fund series.
Accordingly, this will confirm our agreement to amend Exhibit A to the
Investment Management Agreement between us dated as of June 24, 1992, as
heretofore amended, by adding the following paragraphs:
Value Stock Fund Series
Annual Advisory Fees (as a percentage of average daily net assets) -
0.60% on the first $1 billion, and 0.50% in excess thereof.
Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 1.00%; Class S shares, 1.25%.
Growth Stock Fund Series
Annual Advisory Fees (as a percentage of average daily net assets) -
0.60% on the first $1 billion, and 0.50% in excess thereof.
Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 1.00%; Class S shares, 1.25%.
In all other respects, the Investment Management Agreement between us,
as heretofore amended, will remain unchanged. Please sign this letter below to
confirm your agreement to this amendment.
Very truly yours,
Joan A. Payden
President
AGREED:
PAYDEN & RYGEL
BY:
----------------------------------------
TITLE:
-------------------------------------
<PAGE> 1
Exhibit 10.2
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 West Flower Street
Los Angeles, California 90071
(213) 683-6000
December 23, 1997
The Payden & Rygel Investment Group
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
Ladies and Gentlemen:
We have acted as counsel to the Payden & Rygel Investment Group, a
Massachusetts business trust (the "Group"), in connection with the issuance of
an indefinite number of shares of beneficial interest ("Shares") in the
following series of the Group in a public offering pursuant to a Registration
Statement on Form N-1A (Registration No. 33-20899), as amended, filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Registration Statement"): Limited Maturity Fund, Short Bond Fund,
U.S. Treasury Fund, Intermediate Bond Fund, Investment Quality Bond Fund, Total
Return Fund, Short Duration Tax Exempt Fund, Tax Exempt Bond Fund, Growth &
Income Fund, Market Return Fund, Global Short Bond Fund, Global Fixed Income
Fund, International Bond Fund, Global Balanced Fund, European Growth & Income
Fund, International Equity Fund, Value Stock Fund, and Growth Stock Fund.
In our capacity as counsel for the Trust, we have examined the Master
Trust Agreement of the Trust dated January 22, 1992, as amended, the bylaws of
the Trust, as amended, originals or copies or actions of the Trustees as
furnished to us by the Trust, certificates of public officials, statures and
such other documents, records and certificates as we have deemed necessary for
the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that the
shares are duly authorized and, when purchased and paid for as described in the
Registration Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion of counsel as an
exhibit to the Registration Statement.
Very truly yours,
/s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 34 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 33-46973 of our report dated December 9, 1997, relating to Payden & Rygel
Investment Group, including Payden & Rygel Global Short Bond Fund, Payden &
Rygel Global Fixed Income Fund, Payden & Rygel Global Balanced Fund, Payden &
Rygel International Equity Fund, Payden & Rygel European Growth & Income Fund,
Payden & Rygel Growth & Income Fund, Payden & Rygel Market Return Fund, Payden &
Rygel Limited Maturity Fund, Payden & Rygel Short Bond Fund, Payden & Rygel U.S.
Government Fund (formerly Payden & Rygel U.S. Treasury Fund), Payden & Rygel
Intermediate Bond Fund, Payden & Rygel Investment Quality Bond Fund, Payden &
Rygel Total Return Fund, Payden & Rygel Short Duration Tax Exempt Fund and
Payden & Rygel Tax Exempt Bond Fund, incorporated by reference in the Statement
of Additional Information and to the references to us under the captions
"Financial Highlights" and "Independent Auditors," in such Registration
Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
December 22, 1997
<PAGE> 1
EXHIBIT 18
THE PAYDEN & RYGEL INVESTMENT GROUP
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") has been prepared, pursuant to
the requirements of rule 18f-3(d) under the Investment Company Act of 1940
("Investment Company Act" or "Act"), in connection with the offer and sale of
shares of the various series of The Payden & Rygel Investment Group (the
"Trust"). Each series (each a "Fund" and collectively the "Funds") is a multiple
class fund within the meaning of rule 18f-3.
In accordance with the requirements of rule 18f-3, this Plan
describes the differences between the classes of shares that are issued by the
Funds, including the various services offered to shareholders, the distribution
arrangement that pertains to each class, the methods of allocating expenses
relating to those differences, and the conversion features or exchange
privileges relating to the classes.
This Plan shall become effective immediately upon approval by the
Board of Trustees of the Trust.
I. Background
The Trust is an open-end investment company registered under the
Investment Company Act. The Trust currently has 20 series, including the Bunker
Hill Money Market Fund (the "Money Market Fund") and 19 other series, and may
have other Funds in the future. Each Fund has differing investment objectives
and policies.
Each Fund, other than the Money Market Fund, has two classes of
shares, Class R and Class S. The Money Market Fund has two classes of shares,
Class R and Class D. The classes of each Fund represent interests in the same
portfolio of investments held by the Fund and, except as described below, are
identical in all respects. The classes differ in the following respects: (1) in
the shareholder service plan attributable to Class S shares of all Funds other
than the Money Market Fund but not Class R shares, and the distribution plan
attributable to Class D shares of the Money Market Fund but not Class R shares
of the Money Market Fund or any other Fund; (2) in the expenses that may be
incurred by one class as compared to another, and in the
<PAGE> 2
method of allocating expenses between the classes; and (3) in the voting rights
accorded to each class. These differences are discussed below in more detail.
II. Discussion of Differences
A. Shareholder Service Arrangements
An investor in a Fund pays no front-end or contingent deferred
sales charge in connection with the purchase of Class R or Class S shares.
However, Class S shares of all Funds are subject to a Shareholder Service Plan
(the "Service Plan"). Pursuant to the Service Plan, Class S shares of each such
Fund pay the Fund's Distributor an annual fee of up to 0.25% of the average net
assets of the Fund attributable to the Class S shares. These payments are for
services provided by the Distributor, broker-dealers and other service
organizations to the beneficial owners of Class S shares. Such support services
include establishing and maintaining accounts and records relating to clients;
assisting clients in processing purchase, exchange and redemption requests, and
account designations; preparing tax reports and forms; forwarding shareholder
communications from the Funds; and responding to client inquiries concerning
their investments.
Services provided under the Service Plan are not primarily
intended to result in the sale or distribution of Class S shares of such Funds.
The Service 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 limitation under the Service Plan, the unpaid
amount is carried forward from month to month while the Service 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 S shares with
respect to any amount carried forward.
B. Distribution Plan Arrangements
Class D shares of the Money Market Fund are subject to a
Distribution Plan. Pursuant to the
<PAGE> 3
Distribution Plan, Class D shares of the Money Market Fund pay the Fund's
Distributor an annual fee of up to 0.35% of the average net assets of the Fund
attributable to Class S shares. These payments are for expenses incurred by the
Distributor in connection with advertising and marketing Class S shares of the
Fund; periodic payments of fees for distribution assistance made to one or more
securities dealers or other industry professionals (such as investment advisers,
accountants, estate planning firms and the Distributor itself); and expenses
incurred in preparing, printing and distributing the Fund's prospectus and
statement of additional information (except those used for regulatory purposes
or for distribution to existing shareholders of the Fund).
The Distribution Plan is a "reimbursement" plan, which means that
the fees paid to the Distributor for distribution services rendered are payable
only to the extent of the reimbursable amounts expended by the Distributor. If
in any month the Distributor is due more fees for distribution services than are
immediately payable because of the expense limitation under the Distribution
Plan, the unpaid amount is carried forward from month to month while the
Distribution 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 S shares with respect to any amount carried forward.
C. General
These arrangements permit an investor to choose the method of
purchasing shares that the investor determines is most beneficial given the
level of services that the investor wishes to receive from his broker-dealer or
other service organization through which he has purchased shares of the Fund,
and other circumstances related to the investor's overall relationship with such
broker-dealer or other service organization.
The net income attributable to Class S and Class D shares and the
dividends payable on Class S and Class D shares will be reduced by the amount of
the shareholder servicing fees attributable to such shares, as well as by
certain incremental expenses associated with such fees, as described below.
<PAGE> 4
B. Paying for Expenses
1. Expenses Allocated to a Particular Class
Certain expenses of a Fund will be allocated solely to a
particular class of shares of the Fund because they relate only to the expenses
of that class. Such expenses include:
(a) distribution expenses associated with distribution of Class D
shares of the Money Market Fund and for which distribution plan
fees will be assessed, and shareholder servicing expenses
associated with the servicing of Class S shareholders of the
other Funds and for which a shareholder servicing fee will be
assessed;
(b) incremental transfer agent fees identified by the transfer agent
as being attributable to a specific class;
(c) printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses,
and proxies to shareholders of a particular class;
(d) blue sky registration fees incurred by a particular class;
(e) SEC registration fees incurred by a particular class;
(f) the expenses of administrative personnel and services as required
to support the shareholders of a particular class;
(g) accounting expenses relating to one class;
(h) litigation or other legal expenses relating to one class;
(i) trustees' fees and expenses incurred as a result of issues
relating to one class;
(j) any other incremental expenses subsequently identified that
should be properly allocated to one class of shares.
<PAGE> 5
2. Expenses Allocated to Both Classes
Other expenses of a Fund will be allocated to both classes of
shares of the Fund in accordance with the requirements of rule 18f-3(c). These
include the management fee paid to Payden & Rygel, the advisor to the Fund; the
custodial fee; and certain other expenses of the Fund. These expenses will be
allocated to each class of a Fund based on the net asset value of such class in
relation to the net asset value of the Fund.
C. Differences in Services Offered
Class R, Class S and Class D shareholders receive the same
services from the Trust. However, the holders of Class S shares of a Fund are
entitled to receive the additional assistance referred to in above from the
broker-dealer or other service organization which is receiving shareholder
service fees in connection with the Plan. The extent to which such services are
available to the holders of Class R shares of the Funds and to the holders of
Class D shares of the Money Market Fund will depend on the holders'
separately-negotiated arrangements with their broker-dealer or other service
organization, if any.
D. Voting of Class Shares
The voting rights of a Class R and Class S, or of a Class R and
Class D, shareholder of a Fund are the same, except that Class S and Class D
shares will have the exclusive right to vote on matters relating to the Service
Plan or Distribution Plan, as the case may be, to the extent that such a
shareholder vote is required by the Investment Company Act or otherwise
requested. Rule 12b-1 adopted by the Securities and Exchange Commission under
the Investment Company Act requires that (i) any amendment of the Distribution
Plan to increase materially the costs which the Class D shares of the Money
Market Fund may bear for distribution services under the Plan must be approved
by a vote of a majority of the outstanding Class D shares of the Fund; and (ii)
the Distribution Plan may be terminated at any time by vote of a majority of the
outstanding Class D shares of the Fund. Nothing in the Investment Company Act,
the Service Plan or the Trust's governing documents currently requires a
shareholder vote in connection with the
<PAGE> 6
adoption, administration or revision of the Service Plan. Each shareholder is
entitled to one vote for each full share held and fractional votes for
fractional shares held. Shareholders will vote in the aggregate and not by class
or series, except as noted above and where otherwise required by law (or when
permitted by the Board of Trustees).
Dated: December 16, 1997
<PAGE> 1
CONTENTS
Letter to Shareholders
-------------------------
1
Management Discussion
US Bond Funds
Global and International
Bond Funds
US Equity Funds
International Stock and
Global Balanced Funds
-------------------------
8
Portfolio Highlights
-------------------------
24
Statements of Assets
and Liabilities
-------------------------
28
Statements of Operations
-------------------------
32
Statements of Changes
in Net Assets
-------------------------
40
Schedules of Portfolio
Investments
-------------------------
107
Notes to Financial Statements
-------------------------
124
Financial Highlights
-------------------------
136
Independent Auditors' Report
-------------------------
<PAGE> 2
Dear Shareholders:
For more than a decade, superior service and compelling investment strategies
have defined Payden & Rygel's success. Our clients and our shareholders have
enjoyed the benefits of low-expense investing and have reached their financial
objectives without having to take undue risks along the way.
I believe that what makes the Payden & Rygel investment style so compelling to
clients and shareholders is our ability to communicate a strong, clear message
about our approach to money management. Simply put, it is this: We never
sacrifice long-term goals for short-term successes in our investments or in our
business. The future of our clients and our investors always comes first.
On the investment side of our business, the major component of that long-term
focus is global investing. For the past 14 years, Payden & Rygel has
concentrated on building a financial advisory business with both domestic and
international investment roots. Domestically, we have managed investments
successfully through a variety of U.S. markets, including the crash of 1987 and
the great bull market of the 1990s. Internationally, Payden & Rygel was among
the first U.S. investment advisors to participate in the world's developed bond
markets as they emerged in the mid-1980s. And Scottish Widows, our international
equity manager, has participated in European markets since its founding in 1815.
Today, we believe that the global markets continue to offer our clients an
opportunity to enhance their returns and to diversify their domestic portfolios.
Significant differences exist in the economic cycles, growth rates, and market
developments of countries around the world. Japan, for example, presents an
investor with a different set of challenges and opportunities today than the
U.S. market. So does Europe, where corporate restructurings, cross border trade,
mergers and acquisitions, and the promise of a single currency have created an
economic environment reminiscent of the U.S. market prior to its boom in 1995
and 1996. Even emerging markets, which still require a high level of
international investment expertise and experience and a great deal of caution,
have nevertheless become a bigger part of the global investment picture.
Over the long-term, as these markets become linked by faster and more efficient
technology, there will be greater demand for those who understand the
fundamentals of the global marketplace and the information that drives it daily.
Already, this link between markets is becoming stronger. Think about the U.S.
stock market's violent reaction to the whipsaw volatility in Hong Kong's stock
market this past October as a vivid example of the growing interconnectivity of
markets.
To see this global investment philosophy in action, take a look at one of our
funds. A good example is Payden & Rygel's first mutual fund, GLOBAL FIXED
INCOME. The fund embodies what's best about our approach. Launched in 1992, it
was the firm's first
<PAGE> 3
[PHOTO OF JOAN PAYDEN]
attempt to share our global investment vision and experience with both
institutional and individual investors. Today, it is one of the largest global
fixed income investment vehicles available to investors and its low-risk
strategy has provided investors with consistent long-term results. In
recognition of its merits, Morningstar added the fund to its top 500 funds list
and the September 1997 issue of Consumer Reports listed it as one of the four
global bond funds in the industry to watch.
The globalization of markets drives the service side as well as the investment
side of our business. Payden & Rygel clients and investors have the flexibility
to invest in stock and bond markets around the world. They also have the
opportunity to access up-to-the-minute global market information and analysis on
all of their portfolios. What's more, our successful long-term global strategies
are available for low annual costs. But don't just take our word for it. The
August 25, 1997 edition of Forbes magazine rated Payden & Rygel as one of the
most cost efficient families in the mutual fund industry.
That kind of recognition gives us great satisfaction. We have worked hard to
deliver shareholder-friendly products and we will continue to offer the same
personal, high-quality service that we always have. We will also continue to
broaden our array of mutual-fund investments. For those interested in new
product launches, look for two new funds to come out at the beginning of 1998: a
dollar-based money market fund and a high-yielding bond fund.
As always, feel free to contact us. We can show you the best ways to reach your
goals or we can give you greater insights into your individual investments.
Remember, we work for you.
Sincerely,
/s/ Joan Payden
Joan Payden
President & CEO
Payden & Rygel Investment Group
<PAGE> 4
MANAGEMENT DISCUSSION AND ANALYSIS
US BOND FUNDS
The one constant in the bond market is interest rate volatility. The past fiscal
year period, November 1, 1996 to October 31, 1997, was no exception. As the
chart below illustrates, 10-year Treasury yields moved between 6% and 7% during
the year. The cause for the fluctuation was alternating market perceptions of a
slow economy, low inflation, and unchanged Federal Reserve policy, or a fast
economy, inflation pressure, and restrictive Federal Reserve policy. While stock
market investors are jubilant over a strong economy and low inflation, the ever
skeptical bond market tries to find the flaw in the argument and then nervously
debates its validity.
10 YEAR U.S. TREASURY YIELD LEVELS
[PLOT POINTS TO COME]
The Federal Reserve did make a move toward more restrictive policy, moving
short-term interest rates 0.25% higher on March 25. Later the next month, bond
yields reached their highs for the year of 6.98% on the 10-year Treasury and
6.54% on the 2-year Treasury. Federal Reserve Chairman Greenspan spent much of
the year indicating he, too, is puzzled by the absence of inflation pressure in
such a strong economy with a tight labor market. Whenever Greenspan would make a
speech hinting that he may believe we are in a "new paradigm" economy of
unparalleled productivity, the bond market would embark on a price rally. His
most recent remarks, however, were more closely aligned with the traditional
economic view of capacity constraints and preemptive interest rate increases.
Such an environment caused the Payden & Rygel bond Funds to be more conservative
in their average maturity positions than previously. The Intermediate Bond Fund,
Investment Quality Bond Fund, and Total Return Fund maintained average
maturities consistent with their benchmark indices for much of the year. The
short maturity
ANNUAL REPORT 1
<PAGE> 5
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
Funds, such as the Limited Maturity Fund and the Short Bond Fund, were more
cautiously positioned, as the yield spread between short maturity bonds and the
Federal Funds rate was historically narrow.
Credit markets continued to be strong this year. Investment grade bond yield
spreads remained fairly constant, with some slight narrowing. This was positive
for the Short Bond Fund, Intermediate Bond Fund, and Investment Quality Bond
Fund, as they each held significant allocations to corporate securities. Yield
spreads in below investment grade debt fared better, as they narrowed 50 basis
points to 250 basis points above 10-year Treasury yields. The Total Return Fund
profited from this narrowing, as it held 19% in below investment grade debt.
Next year should be an exciting one for bond investors, as many factors could
positively influence yields. Currency turmoil in Asia could unleash some
powerful deflationary forces, and increased European efficiency from monetary
union could also help keep inflation in check.
CHANGING YIELD CURVES
[PLOT POINTS TO COME]
Global and International Bond Funds
Three central themes have dominated the global bond markets over the last
12 months: interest rates, credit spreads, and currency levels. Long-term
interest rates have fallen in all markets over this time period, despite solid
to improving economic activity in most regions. In fact, strong growth in the
United States prompted the Federal Reserve to raise interest rates in March of
this year, spooking the world's bond
2 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 6
markets and sending yields higher, albeit temporarily. Yields have since trended
lower, due primarily to the exceptionally stable inflation levels worldwide.
This benign inflation environment has also contributed to the second force
currently driving bond yields: lower risk premiums and the resulting convergence
in yield spreads. Government bond yields of traditionally higher risk countries
such as Canada and Australia have fallen to U.S. Treasury levels, and in many
cases even lower. Across the Atlantic, the onset of European Monetary Union has
officials enacting policy to coordinate economic cycles. Inflation is now
contained to sub 2% levels in most countries, even Italy and Spain. This has
driven bond yields lower as well, with minimal spreads remaining between the
different markets.
Finally, the U.S. dollar has been appreciating steadily against both the German
mark and Japanese yen. On a relative basis, the U.S. economy is structurally
sound due to deregulated markets, a well developed service sector, competitive
industries, and flexible labor markets. Interest rate differentials also favor
the dollar, as investors can earn more on deposits in the U.S. than in either
Japan or Germany. For U.S. investors who invest globally, currency losses may
have impacted performance in the last year, depending on the amount of currency
hedging employed.
WEEKLY SPOT EXCHANGE RATES
[PLOT POINTS TO COME]
Looking back over the last year, performance in our global bond Funds was
significantly impacted by all three of the trends discussed above. We
aggressively hedged currency exposure in all three of the funds, mitigating all
foreign exchange losses in the Global Fixed Income Fund and the Global Short
Bond Fund. Partial hedging helped reduce the impact of falling currencies on the
International Bond Fund, but performance was negatively affected by the rising
dollar.
ANNUAL REPORT 3
<PAGE> 7
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
In hindsight, the Payden and Rygel global bond Funds would have profited by
holding longer maturity bonds. Our neutral stance in duration was prudent given
the pick-up in global economic activity we foresaw at the beginning of the year.
However, inflation has been contained better than we expected. When yields began
to fall in late summer, a more aggressive duration position would have enhanced
the capital gains earned on the bond positions.
At the same time, the global bond Funds were well positioned to take advantage
of global yield convergence. Country allocations, which remained fairly
consistent during the year, had all three Funds heavily invested in the top
three performing bond markets: the United Kingdom, Australia, and Italy. At the
same time, our concern over the dramatically low yields in Japan kept all three
Funds out of the Japanese bond market, whose performance has ranked near the
bottom of the developed markets.
US EQUITY FUNDS
The stock market headed higher this year, as corporate profits improved and bond
yields remained fairly steady. Any sell-off, such as the 9% decline in March and
early April, proved to be an excellent buying opportunity. The S&P 500 Stock
Index was among the best performers in the world, gaining an impressive 32.1%
from November 1, 1996 to October 31, 1997. October proved to be a jittery month,
as investors marked the 10th anniversary of the great stock market crash in
1987. The doomsayers predicted another debacle this year. They got it, but it
happened in Hong Kong, which declined 29.3% while the U.S. fell only 3.3% in
October.
The Growth & Income Fund, which follows the "dogs of the Dow" theory, lagged the
S&P 500 Index. However, it still earned a respectable 29.2% for the one-year
period from November 1, 1996 to October 31, 1997. The reason it did not beat the
index is primarily the result of two "dogs" that remained dogs over the course
of the year. International Paper began the year as a "dog," then had a great
turnaround, but collapsed in October when Asian currency devaluations were
perceived as seriously aggravating paper pricing pressures. In the end,
International Paper earned only 7.9% for the year. Eastman Kodak, which became a
"dog" in April 1997, really suffered this year as the company's non-film
businesses racked up losses. The stock lost 20.3% for the period, and should
soon reach its value point. Successes of the strategy include AT&T, which gained
51.8%, and Exxon which advanced 42.9%.
The fact that the "dog" stocks did not beat the index this year should not be a
surprise to anyone who has researched the strategy. The strategy does not beat
the S&P 500 Index each and every year, but has accomplished its success over
time. We hope that investors have the same time horizon.
4 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 8
The new tax law has created a slight change in the Growth & Income Fund
methodology. We now hold each stock for 18 months to maximize capital gains. Our
historical research indicates that this increased holding period does not
diminish the strategy's documented effectiveness. The change does allow
shareholders to keep more of the returns for themselves, rather than paying them
in taxes.
INTERNATIONAL STOCK AND GLOBAL BALANCED FUNDS
The past year was one of great change in the international stock markets.
European bourses began to look forward to life as a common currency continent.
Investors generally liked the prospect, as European stock markets surged
forward. Germany gained
WHILE ASIAN STOCK MARKETS FALL...
<TABLE>
<CAPTION>
Nikkei Hang Seng
<S> <C> <C>
11/1/96 20633.1 12529.3
20276.7 13102.7
1/3/97 19361.3 13222.8
17867 13660.5
3/7/97 18198.7 13337.3
17860.6 12204.6
5/2/97 19514.8 13081.7
20485.8 14655.1
7/4/97 19968 14823
19804.4 16379.2
9/5/97 18650.2 14563.5
10/3/97 17647.5 15128
</TABLE>
...EUROPEAN AND US STOCKS GAIN
<TABLE>
<CAPTION>
DAX FTSE 100 S&P 500
<S> <C> <C> <C>
11/1/96 2683.25 3948.5 703.77
2791.96 3963 739.6
1/3/97 2859.28 4089.5 748.03
3138.01 4307.8 789.56
3/7/97 3376.2 4420.3 804.97
3244.93 4236.6 757.9
5/2/97 3460.37 4455.6 812.97
3695.29 4645 858.01
7/4/97 3942.53 4812.8 916.92
4408.79 4899.3 947.14
9/5/97 4100.67 4985.2 929.05
10/3/97 4273.71 5330.8 965.03
</TABLE>
35.7%, the Netherlands was up 48.8%, and France posted a 25.3% gain. Although
the United Kingdom will not participate in the common currency, it nevertheless
joined in the fun and rallied 21.2%. All of this positive stock market action
was good for the International Equity Fund, the European Growth & Income Fund,
and the Global Balanced Fund. Each had significant allocations to the European
region.
Unfortunately, stock market life was not so joyous in Asia. Overheated
economies, resulting from an easy monetary policy which remained so for too
long, finally came crashing back to reality. The Thailand stock market fell 49%,
Indonesia 11.5%, and Malaysia 43.9%. Their currencies were devalued as well,
adding to the woes for a U.S. dollar based investor. Panic spread to markets
thought "safe," such as Hong Kong. The Hang Seng Index of Hong Kong stocks fell
29.3% in October alone, creating a 12.4% decline for the fiscal year. Japan did
not experience a crash, as its Asian neighbors did, so it only lost 14% for the
year.
ANNUAL REPORT 5
<PAGE> 9
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
It is simple math to see that since the International Equity Fund had on average
a 5% larger allocation to Asia than the index, it was bound to lag the Morgan
Stanley Capital International Europe, Australia, and Far East (MSCI EAFE) index.
The story was the same for the Global Balanced Fund. Equity investors know that
volatility is an inescapable part of buying stocks. Management is confident that
the historic moves in Asia will ultimately serve to make the region stronger,
and this will eventually be reflected in the stock prices of well managed Asian
companies in which our Funds invest.
TAX EXEMPT FUNDS
Municipal yields declined in the year providing positive returns for the Tax
Exempt and Short Duration Tax Exempt Funds. The yield curve flattened by 0.20%,
with long rates declining more than short-term rates. This curve movement
provided positive performance for the Tax Exempt Bond Fund, which has the
majority of its assets in intermediate to long maturities. Yields moved in a
choppy fashion during the year, with a general rising tendency until the Federal
Reserve raised interest rates in a pre-emptive strike in March. After that move,
yields declined steadily through July, at which point the decline was further
fueled by the seasonal need for investors to reinvest coupon payments and
maturities.
After the positive month of July, with municipal yields at lows not seen since
October 1993, many issuers began to prepare to bring refunding issues to the
market. This heavy supply calendar in the late summer months hindered municipals
from rallying along with the Treasury market, which rallied on a wait-and-see
attitude from the Federal Reserve.
On the legislative front, the Taxpayer Relief Act of 1997 had little to no
impact on the municipal bond market. Provisions that would have limited
corporate purchases of municipal bonds were tabled at the last minute in the
discussions. While there was a momentary pause in the market, things resumed to
business as usual. As we mentioned in last year's report, tax reform continues
to be an agenda item for Republican lawmakers, and could have an impact on the
municipal market in the future, regardless of the feasibility of its passage.
6 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 10
Credit spreads continued their collapse during the year, with spreads between
AAA and BBB general obligations moving from 0.6% to 0.3% in the short end of the
curve, and 0.8% to 0.4% in the longer maturities. The strategy in the Funds
continues to focus on high quality credits and straightforward structures. We
have upgraded the overall credit quality in the Funds, as the risk/reward
trade-off clearly favors high quality instruments.
ANNUAL REPORT 7
<PAGE> 11
GLOBAL SHORT BOND FUND
Country Allocation
[PIE CHART]
<TABLE>
<S> <C>
U.S. 20%
Spain 10%
Germany 20%
Australia 20%
Sweden 10%
Italy 20%
</TABLE>
Maturity Composition
[BAR GRAPH]
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Australia 2.7
Sweden 2.5
Spain 2.5
Germany 2.2
Italy 1.8
U.S. 1.3
</TABLE>
FOREIGN CURRENCY
EXPOSURE FULLY HEDGED
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $220,865,000 $28,913,000
Number of Issues: 20 13
Average Maturity: 2.1 years 2.4 years
SEC Yield: 4.94% 5.12%
</TABLE>
<TABLE>
<CAPTION>
Investment Performance
Merrill Lynch 1-3 year Treasury Index Global Short Bond Fund
<S> <C> <C>
Sep 18 '96 10000 10000
10044 10060
10157 10110
10235 10216
10235 10265
Jan '97 10283 10336
10307 10346
10303 10346
10387 10439
10458 10532
10530 10604
10645 10655
10655 10686
10736 10792
Oct 31 '97 10816 10820
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Global Short Bond Fund: 7.02% 7.29%
Merrill Lynch 1-3 Year Treasury Index: 6.49% 7.25%
</TABLE>
*Fund Inception was 9/18/96
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
8 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 12
GLOBAL FIXED INCOME FUND
Country Allocation
[PIE CHART]
<TABLE>
<S> <C>
U.S. 30%
Canada 5%
France 10%
U.K. 10%
Germany 15%
Australia 10%
Spain 10%
Italy 10%
</TABLE>
Maturity Composition
[BAR GRAPH]
<TABLE>
<CAPTION>
Years
-----
<S> <C>
U.K. 15.3
Canada 10.6
U.S. 9.7
Australia 6.7
Italy 5.9
Germany 3.8
Spain 3.5
France 1.4
</TABLE>
FOREIGN CURRENCY
EXPOSURE FULLY HEDGED
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $535,644,000 $651,165,000
Number of Issues: 20 21
Average Maturity: 7.3 years 5.7 years
SEC Yield: 5.39% 5.40%
</TABLE>
<TABLE>
<CAPTION>
Investment Performance
JP Morgan Hedged Global Bond Index Global Fixed Income Fund Lehman U.S. Treasury Index
<S> <C> <C> <C>
Sep 1 '92 10000 10000 10000
10142 10048 10146
10166 10031 9997
10142 10002 9976
10286 10079 10146
Jan '93 10440 10201 10364
10635 10389 10572
10657 10515 10607
10703 10588 10690
10722 10618 10677
10941 10730 10916
11029 10834 10980
11257 11138 11225
11303 11138 11269
11399 11222 11311
11391 11201 11187
11537 11405 11230
Jan '94 11575 11470 11385
11330 11090 11140
11171 10891 10890
11088 10820 10805
11017 10789 10792
10948 10850 10768
11068 10940 10964
11014 10935 10967
10961 10902 10813
10981 10988 10806
11056 11049 10784
11070 11061 10850
Jan '95 11222 11240 11051
11406 11474 11287
11571 11775 11358
11738 11941 11506
12143 12241 11972
12157 12249 12066
12239 12295 12021
12354 12282 12161
12516 12470 12277
12669 12648 12467
12912 12908 12660
13052 13049 12841
Jan '96 13184 13105 12922
12994 12816 12658
13022 12829 12548
13093 12829 12468
13141 12817 12448
13265 12968 12606
13340 13029 12635
13447 13162 12609
13702 13391 12816
13948 13587 13098
14208 13837 13325
14173 13800 13188
Jan '97 14294 13854 13201
14358 13868 13217
14257 13706 13074
14431 13883 13262
14528 14034 13376
14742 14198 13526
15056 14489 13914
15003 14376 13773
15255 14656 13982
Oct 31 '97 15423 14788 14225
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year 5-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Global Fixed Income Fund: 8.84% 8.07% 7.86%
JP Morgan Hedged Global Bond Index: 10.58% 8.69% 8.74%
Lehman U.S. Treasury Index: 8.61% 7.31% 7.05%
</TABLE>
*Fund Inception was 9/1/92
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT 9
<PAGE> 13
INTERNATIONAL BOND FUND
Country Allocation
[PIE CHART]
<TABLE>
<S> <C>
Australia 13%
Denmark 15%
U.K. 17%
Spain 10%
Italy 9%
Canada 5%
Sweden 5%
U.S. 4%
Netherlands 2%
Germany 20%
</TABLE>
Maturity Composition
[BAR GRAPH]
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Canada 10.6
U.K. 8.5
Netherlands 7.3
Denmark 7.1
Italy 5.9
Australia 5.5
Sweden 4.8
Spain 4.6
Germany 3.4
U.S. 2.0
</TABLE>
FOREIGN CURRENCY EXPOSURE HEDGED 84%
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $23,698,000 $18,364,000
Number of Issues: 23 23
Average Maturity: 5.9 years 6.6 years
SEC Yield: 5.24% 5.31%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
J.P. Morgan Non-U.S. Bond Index International Bond Fund
<S> <C> <C>
Apr 1 '95 10000 10000
10185 10212
10408 10398
10462 10415
10562 10435
10015 9961
10332 10182
10404 10243
10495 10366
10619 10444
Jan '96 10394 10290
10417 10125
10441 10166
10414 10146
10439 10136
10513 10218
10806 10445
10884 10486
10885 10548
11098 10702
11244 10929
11179 10894
Jan '97 10723 10611
10595 10559
10530 10412
10331 10360
10678 10695
10799 10821
10526 10610
10578 10589
10860 10863
Oct 31 '97 11112 10970
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year 2-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
International Bond Fund: 2.51% 3.48% 3.64%
JP Morgan Non-U.S. Bond Index: 0.12% 3.34% 4.16%
</TABLE>
*Fund Inception was 4/1/95
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements. See Note 7 regarding fund
termination.
10 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 14
GLOBAL BALANCED FUND
Country Allocation
[PIE CHART]
<TABLE>
<S> <C>
U.K. 12%
Canada 3%
Europe 42%
Japan 8%
Pacific Rim 8%
U.S. 27%
</TABLE>
Top Equity Holdings
[BAR GRAPH]
<TABLE>
<CAPTION>
Yields (%)
----------
<S> <C>
Ibiden Co. Ltd. 1.3%
General Electric Co. 1.2%
Exxon 1.0%
Allstate 1.0%
Bristol Myers-Squibb 1.0%
Wal-Mart Stores 1.0%
Philips Electronics NV 1.0%
British Aerospace 1.0%
Glaxo Wellcome 1.0%
Tosco 1.0%
</TABLE>
<TABLE>
<S> <C>
EQUITIES 51%
BONDS 46%
CASH 3%
</TABLE>
FOREIGN CURRENCY EXPOSURE HEDGED 57%
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $ 10,312,000 Fund Not In
Number of Issues: 74 Operation
Number of Countries: 18
Average Market Cap (Equities): $29.2 Billion
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Index Composite** Global Balanced Fund
<S> <C> <C>
Dec 9 '96 10000 10000
9877 10032
9851 9861
9892 10032
9746 9932
9916 10022
10378 10462
10737 10873
11019 11353
10572 10753
11012 11213
Oct 31 '97 10749 10949
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Since Inception*
----------------
<S> <C>
Global Balanced Fund: 9.49%
Composite Index: 7.49%**
</TABLE>
*Fund Inception was 12/9/96
**Return is from 12/1/96
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT 11
<PAGE> 15
INTERNATIONAL EQUITY FUND
Country/Region Allocation
[PIE CHART]
<TABLE>
<S> <C>
Europe 41%
Japan 21%
Pacific Rim 10%
South America 4%
Cash 7%
U.K. 17%
</TABLE>
Top Holdings
[BAR GRAPH]
<TABLE>
<S> <C>
Shell Transportation 3.0%
Glaxo Wellcome 2.8%
Ibiden 2.7%
Barclays 2.6%
British Aerospace 2.3%
Bayerische Vereinsbank 2.1%
Roche Holdings AG 2.1%
Philips Electronics 1.9%
Guiness 1.9%
Sankyo 1.8%
</TABLE>
FOREIGN CURRENCY EXPOSURE UNHEDGED
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $ 14,403,000 Fund Not In
Number of Issues: 64 Operation
Number of Countries: 21
Average Market Capitalization: $ 24.1 billion
</TABLE>
<TABLE>
<CAPTION>
Investment Performance
Morgan Stanley EAFE Index** International Equity Fund
<S> <C> <C>
Dec 1 '96 10000 10000
10108 9874
9788 9531
10228 9689
10238 9726
10218 9780
10849 10419
11509 10996
11910 11176
10879 10344
11629 10926
Oct 31 '97 10759 10089
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Since Inception*
----------------
<S> <C>
International Equity: 7.59%
Morgan Stanley EAFE Index: 0.89%**
</TABLE>
*Fund Inception was 12/9/96
**From 12/1/96
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
12 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 16
EUROPEAN GROWTH & INCOME FUND
Top Holdings by Country
France
[BAR GRAPH]
<TABLE>
<S> <C>
Societe General 2.7%
Eridania Beghin-Say 2.6%
CIE Financiere 2.5%
Thomson CSF 2.4%
Lafarge SA 2.2%
</TABLE>
Netherlands
[BAR GRAPH]
<TABLE>
<S> <C>
ASR Verzekeringsgroep NV 2.9%
Akzo Nobel 2.8%
Royal Dutch Petroleum 2.4%
Elsevier NV 2.4%
Koninklijke PTT Nederlands 2.3%
</TABLE>
Germany
[BAR GRAPH]
<TABLE>
<S> <C>
Bayer Hypoth-Und Wech 2.8%
PWA Papierwerke Waldof 2.8%
BASF AG 2.2%
Douglas Holdings AG 2.2%
Bayer AG 2.1%
</TABLE>
U.K.
[BAR GRAPH]
<TABLE>
<S> <C>
British Telecom PLC 2.8%
Royal & Sun Alliance 2.8%
BTR PLC 2.7%
B.A.T. Industries PLC 2.6%
General Electric PLC 2.5%
</TABLE>
FOREIGN CURRENCY EXPOSURE UNHEDGED
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $13,608,000 Fund Not In
Number of Issues: 55 Operation
Number of Countries: 5
Average Market Cap: $14.4 billion
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
European Growth & Income Fund Morgan Stanley Europe Index
<S> <C> <C>
Jun 27 '97 10000 10000
10370 10471
9940 9875
10680 10836
Oct 31 '97 10190 10287
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Since Inception*
----------------
<S> <C>
European Growth & Income Fund: 1.90%
Morgan Stanley Europe Index: 2.87%
</TABLE>
*Fund Inception was 6/27/97
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT 13
<PAGE> 17
GROWTH & INCOME FUND
Top Dividend Yields
[BAR GRAPH]
<TABLE>
<CAPTION>
Yields %
--------
<S> <C>
Philip Morris 4.0%
JP Morgan 3.2%
General Motors 3.2%
Eastman Kodak 2.9%
Chevron 2.8%
</TABLE>
Best Total Return (11/1/96-11/20/97)
[BAR GRAPH]
<TABLE>
<CAPTION>
Total Return (%)
----------------
<S> <C>
AT&T 51.8%
Exxon 42.1%
Philip Morris 33.7%
JP Morgan 32.1%
Chevron 30.2%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $150,944,000 Fund Not In
Number of Issues: 16 Operation
Gross Dividend Yield*: 2.17%
Dividend Yield/S&P 500 1.69%
</TABLE>
*Prior to fund expenses
(Source: Barrons)
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Standard & Poor's 500 Index Growth & Income Fund
<S> <C> <C>
Nov 1 '96 10000 10000
10756 10640
10543 10639
Jan '97 11201 11191
11289 11331
10825 10905
11472 11369
12170 12084
12715 12486
13727 13294
12958 12759
13668 13354
Oct 31 '97 13211 12919
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Growth & Income Fund: 29.19% 29.19%
S&P 500 Index 32.11% 32.11%
</TABLE>
*Fund Inception was 11/1/96
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
14 Payden & Rygel Investment Group
<PAGE> 18
MARKET RETURN FUND
Portfolio Composition
[PIE CHART]
<TABLE>
<S> <C>
S&P Depositary Receipts 4%
Mortgage Backed 19%
Corporate 13%
Commercial Paper 25%
Treasury/Agency 39%
</TABLE>
Equity
Exposure
<TABLE>
<S> <C>
S&P Futures 96%
S&P Depositary 4%
Receipts
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $20,195,000 $5,789,000
Number of Issues: 43 20
Average Maturity: 0.4 years 2.1 years
SEC Yield: 5.62% 6.03%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Market Return Fund Standard & Poor's 500 Index
<S> <C> <C>
Dec 1 '95 10000 10000
10163 10193
Jan '96 10552 10540
10357 10637
10369 10740
10355 10898
10491 11179
10695 11222
10166 10726
10337 10952
10980 11569
11406 11888
12295 12786
11926 12533
Jan '97 12690 13316
12776 13420
12133 12869
12946 13637
13799 14467
14383 15116
15543 16318
14705 15404
15457 16248
Oct 31 '97 15026 15707
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Market Return Fund: 31.74% 23.62%
S&P 500 Index: 32.11% 26.49%
</TABLE>
*Fund Inception was 12/1/95
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
Annual Report 15
<PAGE> 19
LIMITED MATURITY FUND
Portfolio Composition
[PIE CHART]
<TABLE>
<S> <C>
Treasury/Agency 9%
Commercial Paper 44%
Mortgage Backed 21%
Cash 1%
Corporate 25%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 78%
AA 10%
A 10%
BBB 2%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $152,429,000 $50,771,000
Number of Issues: 37 27
Average Maturity: 0.4 years 0.7 years
SEC Yield: 5.51% 5.63%
</TABLE>
<TABLE>
<CAPTION>
Investment Performance
Merrill Lynch 90-day Treasury Bill Index Limited Maturity Fund
<S> <C> <C>
May 1 '94 10000 10000
10030 10023
10071 10062
10107 10118
10142 10154
10179 10157
10223 10184
10263 10198
10314 10240
Jan '95 10366 10308
10416 10394
10469 10447
10518 10496
10572 10583
10626 10634
10677 10683
10731 10738
10778 10773
10828 10839
10877 10899
10936 10964
Jan '96 10986 11031
11030 11047
11071 11065
11118 11099
11167 11138
11213 11192
11264 11241
11315 11288
11368 11344
11417 11427
11466 11483
11517 11530
Jan '97 11569 11577
11615 11611
11664 11647
11719 11713
11779 11774
11822 11824
11876 11890
11926 11929
11981 11995
Oct 31 '97 12032 12050
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year 3-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Limited Maturity Fund: 5.46% 5.76% 5.47%
Merrill Lynch 90-day Treasury Bill Index: 5.39% 5.58% 5.22%
</TABLE>
*Fund Inception was 5/1/94
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
16 Payden & Rygel Investment Group
<PAGE> 20
SHORT BOND FUND
Portfolio Composition
[PIE CHART]
<TABLE>
<S> <C>
Mortgage Backed 32%
Corporate 24%
Commercial Paper 5%
Cash 1%
Treasury/Agency 38%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 68%
AA 10%
A 9%
BBB 13%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $94,256,000 $97,966,000
Number of Issues: 31 34
Average Maturity: 1.4 years 1.9 years
SEC Yield: 6.05% 5.80%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Short Bond Fund Merrill Lynch 1-3 Year Treasury Index
<S> <C> <C>
Jan 1 '94 10000 10000
10051 10064
9997 10000
9938 9950
9885 9915
9898 9929
9927 9958
10002 10044
10038 10079
10000 10056
10021 10079
10014 10034
10038 10057
Jan '95 10160 10197
10296 10337
10368 10395
10455 10487
10667 10670
10728 10728
10754 10772
10831 10836
10888 10889
10979 10981
11095 11078
11185 11163
Jan '96 11279 11258
11207 11210
11155 11200
11132 11210
11147 11233
11225 11313
11261 11358
11303 11397
11389 11500
11515 11630
11597 11719
11594 11719
Jan '97 11647 11774
11687 11801
11676 11797
11772 11893
11839 11974
11899 12057
11993 12189
11993 12200
12086 12293
Oct 31 '97 12151 12384
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Since
1-Year 3-Years Inception*
------ ------- ----------
<S> <C> <C> <C>
Short Bond Fund 5.52% 6.63% 5.21%
Merrill Lynch 1-3 year Treasury Index 6.49% 7.10% 5.73%
</TABLE>
*Fund Inception was 1/1/94
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
Annual Report 17
<PAGE> 21
U.S. TREASURY FUND
Portfolio Composition
[PIE CHART]
<TABLE>
<S> <C>
Treasury/Agency 100%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 100%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $15,479,000 $22,114,000
Number of Issues: 10 13
Average Maturity: 2.7 years 4.7 years
SEC Yield: 5.35% 5.85%
</TABLE>
Investment Performance
Lehman Intermediate Treasury Index U.S. Treasury Fund
<TABLE>
<S> <C> <C>
Jan 1 '95 10000 10000
10162 10130
10356 10287
10413 10337
10533 10460
10831 10787
10902 10863
10907 10843
10995 10946
11068 11019
11191 11161
11328 11329
11442 11473
Jan '96 11540 11568
11416 11372
11361 11251
11327 11185
11322 11166
11434 11279
11469 11328
11483 11334
11630 11496
11820 11743
11962 11897
11897 11816
Jan '97 11941 11842
11959 11880
11889 11805
12022 11919
12116 11999
12218 12081
12447 12272
12397 12228
12532 12328
Oct 31 '97 12679 12460
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year 2-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
U.S. Treasury Fund: 6.10% 5.65% 8.07%
Lehman Intermediate Treasury Index: 7.27% 6.43% 8.73%
</TABLE>
*Fund Inception was 1/1/95
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
18 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 22
INTERMEDIATE BOND FUND
[PIE CHART]
Portfolio Composition
<TABLE>
<S> <C>
Mortgage Backed 31%
Treasury/Agency 24%
Corporate 41%
Cash 4%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 44%
AA 8%
A 27%
BBB 21%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $80,766,000 $52,767,000
Number of Issues: 39 31
Average Maturity: 4.5 years 3.1 years
SEC Yield: 5.87% 5.74%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Lehman Intermediate Government/Corporate Index Intermediate Bond Fund
<S> <C> <C>
Jan 1 '94 10000 10000
10111 10118
9962 9913
9797 9731
9731 9643
9737 9648
9738 9601
9879 9721
9909 9744
9818 9656
9817 9648
9772 9640
9807 9668
Jan '95 9972 9824
10179 10014
10237 10066
10364 10179
10677 10492
10749 10555
10750 10532
10848 10643
10927 10725
11048 10848
11194 11010
11311 11155
Jan '96 11408 11235
11275 11061
11216 10969
11177 10896
11168 10873
11287 10978
11321 10988
11329 11017
11487 11137
11690 11290
11845 11417
11769 11393
Jan '97 11814 11455
11837 11472
11755 11393
11893 11517
11992 11604
12102 11694
12348 11936
12286 11865
12429 12008
Oct 31 '97 12567 12109
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
1-Year 3-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Intermediate Bond Fund: 7.26% 7.86% 5.12%
Lehman Intermediate
Government/Corporate Index: 7.49% 8.57% 6.14%
*Fund Inception was 1/1/94
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
Annual Report 19
<PAGE> 23
INVESTMENT QUALITY BOND FUND
[PIE CHART]
Portfolio Composition
<TABLE>
<S> <C>
Corporate 28%
Commercial Paper 2%
Mortgage Backed 29%
Treasury/Agency 38%
Cash 3%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 57%
AA 9%
A 9%
BBB 25%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $94,987,000 $32,304,000
Number of Issues: 49 32
Average Maturity: 6.5 years 6.8 years
SEC Yield: 6.08% 6.63%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Quality Bond Fund Lehman Aggregate Index
<S> <C> <C>
Jan 1 '94 10000 10000
10190 10135
9877 9959
9642 9713
9554 9636
9545 9635
9506 9613
9668 9804
9632 9816
9479 9672
9452 9663
9483 9642
9531 9708
Jan '95 9707 9900
9916 10136
9989 10198
10114 10341
10557 10741
10616 10819
10555 10795
10698 10925
10833 11032
11001 11175
11208 11343
11410 11502
Jan '96 11465 11578
11135 11377
10999 11298
10891 11234
10849 11212
10979 11362
10983 11393
11113 11374
11216 11572
11536 11829
11738 12031
11609 11919
Jan '97 11646 11956
11660 11986
11535 11853
11709 12030
11803 12144
11930 12288
12257 12619
12170 12512
12357 12696
Oct 31 '97 12510 12880
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
1-Year 3-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Investment Quality Bond Fund: 8.44% 9.79% 6.01%
Lehman Aggregate Index: 8.89% 10.04% 6.82%
*Fund Inception was 1/1/94
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
20 Payden & Rygel Investment Group
<PAGE> 24
TOTAL RETURN FUND
Portfolio Composition
<TABLE>
<S> <C>
Mortgage Backed 17%
Cash 1%
Corporate 30%
Treasury/Agency 52%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 60%
AA 9%
A 0%
BBB 12%
BB 19%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $98,863,000 Fund Not In
Number of Issues: 59 Operation
Average Maturity: 6.5 years
SEC Yield: 6.39%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Lehman Aggregate Index** Total Return Fund
<S> <C> <C>
Dec 1 '96 10000 10000
9907 9959
9937 9990
9962 10031
9852 9900
9999 10031
10094 10123
10213 10255
10489 10501
10399 10428
10553 10593
Oct 31 '97 10706 10710
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since Inception*
----------------
<S> <C>
Total Return Fund: 7.10%
Lehman Aggregate Index: 7.06%**
*Fund Inception was 12/9/96
**From 12/1/96
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
Annual Report 21
<PAGE> 25
SHORT DURATION TAX EXEMPT FUND
Portfolio Composition
<TABLE>
<S> <C>
General Obligation 17%
Insured Bonds 28%
Pre-Refunded Bonds 12%
Cash 4%
Revenue Bonds 39%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 61%
AA 11%
A 20%
BBB 8%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $38,176,000 $36,336,000
Number of Issues: 37 35
Average Maturity: 2.0 years 2.1 years
SEC Yield: 3.72% 3.76%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Investment Performance
Short Duration Tax Exempt Fund Lehman 1-year General Obligation Index
<S> <C> <C>
Sep 1 '94 10000 10000
9974 10001
9965 10004
9957 10025
9989 10038
Jan '95 10040 10081
10117 10146
10183 10224
10206 10264
10327 10363
10342 10401
10439 10482
10477 10529
10501 10556
10551 10596
10628 10649
10676 10691
Jan '96 10756 10763
10736 10788
10676 10800
10676 10822
10682 10848
10745 10903
10776 10949
10797 10969
10838 11016
10898 11073
10972 11140
10989 11164
Jan '97 11028 11237
11068 11271
11048 11267
11097 11311
11153 11365
11206 11408
11287 11473
11286 11488
11354 11549
Oct 31 '97 11394 11595
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
1-Year 3-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Short Duration Tax Exempt Fund: 4.55% 4.56% 4.20%
Lehman 1-Year General Obligation Index: 4.72% 5.04% 4.78%
*Fund Inception was 9/1/94
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
22 Payden & Rygel Investment Group
<PAGE> 26
TAX EXEMPT BOND FUND
[PIE CHART]
Portfolio Composition
<TABLE>
<S> <C>
Insured Bonds 37%
Cash 5%
Pre-Refunded Bonds 2%
Revenue Bonds 25%
General Obligation 31%
</TABLE>
Credit
Quality
<TABLE>
<S> <C>
AAA 65%
AA 26%
A 5%
BBB 4%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Net Assets: $57,579,000 $49,862,000
Number of Issues: 49 43
Average Maturity: 7.3 years 9.3 years
SEC Yield: 4.08% 4.75%
</TABLE>
Investment Performance
[LINE GRAPH]
<TABLE>
<CAPTION>
Tax Exempt Bond Fund Lehman Quality Intermediate Index**
<S> <C> <C>
Dec 21 '93 10000 10000
10026 10000
10094 10105
9757 9890
9373 9617
9452 9696
9498 9752
9383 9730
9528 9863
9556 9907
9391 9817
9216 9724
9070 9597
9235 9727
Jan '95 9475 9911
9719 10124
9838 10239
9811 10264
10112 10523
9982 10508
10085 10644
10226 10759
10285 10805
10437 10894
10619 11010
10703 11070
Jan '96 10801 11178
10718 11146
10538 11043
10488 11023
10455 11008
10538 11090
10622 11179
10628 11185
10702 11279
10805 11396
10992 11574
10956 11540
Jan '97 10980 11585
11087 11674
10946 11542
10994 11603
11129 11744
11252 11848
11510 12096
11407 12017
11540 12139
Oct 31 '97 11597 12200
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
1-Year 3-Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
Tax Exempt Bond Fund: 7.33% 7.95% 3.91%
Lehman Quality Intermediate Index: 7.06% 7.85% 5.32%**
*Fund Inception was 12/21/93
**Since January 1, 1994
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
Annual Report 23
<PAGE> 27
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1997
<TABLE>
<CAPTION>
GLOBAL GLOBAL INTERNATIONAL
SHORT BOND FIXED INCOME BOND
FUND FUND FUND
============ ============ =============
<S> <C> <C> <C>
ASSETS:
Investments, at value*................... $210,861,927 $535,222,496 $23,237,389
Foreign Cash............................. -- 11,569,275 --
Cash..................................... -- 20,893 --
Receivable for:
Interest and dividends................. 4,839,472 10,654,201 688,892
Open forward currency contracts........ 2,221,743 3,988,084 143,628
Closed forward currency contracts...... 85,470 24,848 --
Investments sold....................... 7,263,088 -- --
Open futures and options contracts..... -- -- --
Fund shares sold....................... -- -- --
Unamortized organization costs (Note
4)..................................... 989 -- 1,168
Deferred expense subsidy (Note 5)........ 161,152 -- 124,934
Other assets............................. -- -- --
------------ ----------- -------------
Total Assets........................ 225,433,841 561,479,797 24,196,011
------------ ----------- -------------
LIABILITIES:
Payable for:
Open forward currency contracts........ 4,158,689 12,357,251 371,352
Closed forward currency contracts...... 195,176 1,622,601 --
Investments purchased.................. -- 11,562,625 --
Open futures contracts................. -- -- --
Fund shares redeemed................... -- 1,689 --
Payable to Payden & Rygel (Note 5)....... -- -- --
Accrued expenses:
Investment advisory fees............... 109,128 137,244 86,218
Administration fees.................... 11,221 27,449 12,723
Other expenses......................... 94,454 126,716 28,022
------------ ----------- -------------
Total Liabilities................... 4,568,668 25,835,575 498,315
------------ ----------- -------------
NET ASSETS.......................... $220,865,173 $535,644,222 $23,697,696
============ =========== =============
NET ASSETS:
Paid in capital.......................... $219,668,824 $539,035,736 $23,643,780
Undistributed net investment income...... 48,730 299,249 218,923
Accumulated net realized gains (losses)
from investments....................... (47,635) (4,954,174) 82,057
Net unrealized appreciation
(depreciation) from:
Investments............................ 436,768 7,910,938 417,291
Translation of assets and liabilities
in foreign currencies............... 758,486 (6,647,527) (664,355)
------------ ----------- -------------
NET ASSETS.......................... $220,865,173 $535,644,222 $23,697,696
============ =========== =============
Outstanding shares of beneficial
interest............................... 21,726,743 52,744,225 2,329,367
============ =========== =============
NET ASSET VALUE -- offering and
redemption price per share............. $ 10.17 $ 10.16 $ 10.17
============ =========== =============
- - ------------
* Investments, at cost................... $207,906,026 $525,645,214 $23,263,876
</TABLE>
See notes to financial statements.
24 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 28
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL EUROPEAN GROWTH & MARKET
BALANCED EQUITY GROWTH & INCOME RETURN
FUND FUND INCOME FUND FUND FUND
=========== ============= =========== ============ ===========
<S> <C> <C> <C> <C> <C>
$10,184,360 $14,289,461 $13,927,371 $152,143,180 $19,615,156
-- -- 23,053 -- --
-- 1,579 13,000 21,000 209
119,915 26,111 18,379 58,904 67,537
66,964 -- -- -- --
-- -- -- -- 71,010
151,239 321,431 -- -- --
-- -- -- -- 418,000
-- -- 26,547 315,782 13,948
2,714 2,519 4,458 8,054 23,006
80,132 60,139 50,653 118,396 177,212
-- -- -- -- 11,357
----------- ------------- ---------- ------------ -----------
10,605,324 14,701,240 14,063,461 152,665,316 20,397,435
----------- ------------- ---------- ------------ -----------
133,462 3,581 3,544 -- --
7,205 -- -- -- --
68,172 230,373 380,604 1,507,402 --
-- -- -- -- --
-- -- 15,069 90,818 --
20,876 2,573 34,169 -- 122,942
24,327 27,319 7,698 38,734 39,665
5,167 5,417 1,780 14,920 8,500
33,745 29,088 12,225 69,577 30,831
----------- ------------- ---------- ------------ -----------
292,954 298,351 455,089 1,721,451 201,938
----------- ------------- ---------- ------------ -----------
$10,312,370 $14,402,889 $13,608,372 $150,943,865 $20,195,497
=========== ============= ========== ============ ===========
$ 9,457,243 $13,945,094 $13,623,276 $136,970,308 $18,408,873
-- -- -- 400,495 4,911
460,445 -- (6,752) 13,164 2,196,722
488,104 513,371 (613,925) 13,559,898 (415,009)
(93,422) (55,576) 605,773 -- --
----------- ------------- ---------- ------------ -----------
$10,312,370 $14,402,889 $13,608,372 $150,943,865 $20,195,497
=========== ============= ========== ============ ===========
955,640 1,339,997 1,335,240 11,822,224 1,577,496
=========== ============= ========== ============ ===========
$ 10.79 $ 10.75 $ 10.19 $ 12.77 $ 12.80
=========== ============= ========== ============ ===========
$ 9,724,553 $13,830,985 $13,930,727 $138,583,282 $19,575,090
</TABLE>
See notes to financial statements.
ANNUAL REPORT 25
<PAGE> 29
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
LIMITED SHORT U.S.
MATURITY BOND TREASURY
FUND FUND FUND
============ ============ ===========
<S> <C> <C> <C>
ASSETS:
Investments, at value*................... $154,050,041 $ 98,754,052 $15,274,502
Foreign Cash............................. -- -- --
Cash..................................... 141 175,101 --
Receivable for:
Interest and dividends................. 959,219 693,876 205,668
Open forward currency contracts........ -- -- --
Closed forward currency contracts...... -- -- --
Investments sold....................... -- 9,637,328 --
Open futures and options contracts..... -- -- --
Fund shares sold....................... 36,000 -- --
Unamortized organization costs (Note
4)..................................... -- -- 399
Deferred expense subsidy (Note 5)........ 506,371 326,800 173,115
Other assets............................. -- -- --
------------ ------------ -----------
Total Assets........................ 155,551,772 109,587,157 15,653,684
------------ ------------ -----------
LIABILITIES:
Payable for:
Open forward currency contracts........ -- -- --
Closed forward currency contracts...... -- -- --
Investments purchased.................. -- 14,997,617 --
Open futures contracts................. -- -- --
Fund shares redeemed................... 2,614,948 -- --
Payable to Payden & Rygel (Note 5)....... -- -- 8,187
Accrued expenses:
Investment advisory fees............... 358,968 267,318 122,480
Administration fees.................... 76,922 34,437 22,039
Other expenses......................... 71,878 32,127 22,372
------------ ------------ -----------
Total Liabilities................... 3,122,716 15,331,499 175,078
------------ ------------ -----------
NET ASSETS.......................... $152,429,056 $ 94,255,658 $15,478,606
============ ============ ===========
NET ASSETS:
Paid in capital.......................... $152,343,281 $ 94,394,160 $15,437,199
Undistributed net investment income...... 40,535 22,255 4,110
Accumulated net realized gains (losses)
from investments....................... (126,972) (355,099) (153,536)
Net unrealized appreciation
(depreciation) from:
Investments............................ 172,212 194,342 190,833
Translation of assets and liabilities
in foreign currencies............... -- -- --
------------ ------------ -----------
NET ASSETS.......................... $152,429,056 $ 94,255,658 $15,478,606
============ ============ ===========
Outstanding shares of beneficial
interest............................... 15,153,628 9,499,849 1,465,864
============ ============ ===========
NET ASSET VALUE -- offering and
redemption price per share............. $ 10.06 $ 9.92 $ 10.56
============ ============ ===========
- - ------------
* Investments, at cost................... $153,877,829 $ 98,559,710 $15,083,669
</TABLE>
See notes to financial statements.
26 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 30
<TABLE>
<CAPTION>
INTERMEDIATE INVESTMENT TOTAL SHORT DURATION TAX EXEMPT
BOND QUALITY BOND RETURN TAX EXEMPT BOND
FUND FUND FUND FUND FUND
============ ============ ============ ============== ===========
<S> <C> <C> <C> <C> <C>
$88,952,145 $117,100,617 $126,249,813 $ 37,572,864 $56,770,341
-- -- -- -- --
125,624 41,563 162,210 -- --
737,839 1,014,500 1,094,489 598,378 812,106
-- -- -- -- --
-- -- 139,203 -- --
-- -- -- -- --
8,125 82,513 36,563 -- --
-- -- -- 5,000 5,000
-- -- 2,128 -- --
236,298 357,854 86,518 243,459 336,238
25,131 10,052 10,052 -- --
----------- ----------- ------------ ------------- ----------
90,085,162 118,607,099 127,780,976 38,419,701 $57,923,685
----------- ----------- ------------ ------------- ----------
-- -- -- -- --
-- -- 36,176 -- --
9,082,924 23,198,319 28,725,013 -- --
-- 61,563 61,563 -- 6,250
-- -- -- -- --
-- 17,918 -- -- --
156,015 264,996 23,524 183,409 272,154
40,603 48,020 5,041 33,481 35,333
40,027 29,718 67,003 26,712 31,353
----------- ----------- ------------ ------------- ----------
9,319,569 23,620,534 28,918,320 243,602 345,090
----------- ----------- ------------ ------------- ----------
$80,765,593 $94,986,565 $ 98,862,656 $ 38,176,099 $57,578,595
=========== =========== ============ ============= ==========
$79,026,124 $93,104,151 $ 97,143,093 $ 37,920,143 $57,242,997
16,277 22,564 139,334 3,382 5,558
477,378 520,404 576,522 24,992 (1,297,225)
1,245,814 1,339,446 1,003,707 227,582 1,627,265
-- -- -- -- --
----------- ----------- ------------ ------------- ----------
$80,765,593 $94,986,565 $ 98,862,656 $ 38,176,099 $57,578,595
=========== =========== ============ ============= ==========
8,314,810 9,488,598 9,642,346 3,788,693 5,932,070
=========== =========== ============ ============= ==========
$ 9.71 $ 10.01 $ 10.25 $ 10.08 $ 9.71
=========== =========== ============ ============= ==========
$87,722,581 $115,765,559 $125,431,588 $ 37,345,282 $55,123,700
</TABLE>
See notes to financial statements.
ANNUAL REPORT 27
<PAGE> 31
STATEMENTS OF OPERATIONS
Year ended October 31, 1997
<TABLE>
<CAPTION>
GLOBAL GLOBAL INTERNATIONAL
SHORT BOND FIXED INCOME BOND
FUND FUND FUND
========== ============ =============
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income......................................... $6,842,229 $37,154,452 $ 1,322,630
Dividend income......................................... -- -- --
Foreign tax withholdings................................ -- -- (6,320)
--------- ----------- ------------
Investment Revenues................................... 6,842,229 37,154,452 1,316,310
--------- ----------- ------------
EXPENSES:
Investment advisory fees (Note 5)....................... 386,216 1,805,589 63,612
Administration fees (Note 5)............................ 77,243 361,118 12,723
Custodian fees.......................................... 52,152 185,939 20,381
Accounting fees (Note 5)................................ 43,991 217,260 13,206
Legal fees.............................................. 3,861 33,122 826
Audit fees.............................................. 12,672 37,867 18,120
Professional fees....................................... -- 25,000 1,000
Insurance............................................... 2,687 70,063 1,617
Organization expenses (Note 4).......................... 524 15,212 2,486
Trustees' fees and expenses............................. 9,956 58,089 1,922
Transfer agent fees (Note 5)............................ 16,407 55,851 9,672
Registration and filing fees............................ 68,467 36,235 4,356
Printing costs.......................................... 13,803 37,168 3,997
Other expenses.......................................... 2,039 3,111 963
Expense previously deferred (Note 5).................... -- -- 2,302
Waived advisory fee (Note 5)............................ -- -- --
Expense subsidy (Note 5)................................ (110,694) -- (8,719)
--------- ----------- ------------
Net Expenses.......................................... 579,324 2,941,624 148,464
--------- ----------- ------------
Net Investment Income.............................. 6,262,905 34,212,828 1,167,846
--------- ----------- ------------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) from:
Investments........................................... 1,249,434 19,839,446 688,468
Foreign currency transactions......................... 129,600 11,433,445 (428,445)
Futures contracts..................................... 6,892 41,210 (26,292)
Options contracts..................................... -- (863,801) --
Change in net unrealized appreciation (depreciation)
from:
Investments........................................... 357,922 (8,680,432) (175,656)
Translation of assets and liabilities in foreign
currencies......................................... 734,998 (5,636,726) (518,577)
Futures contracts..................................... -- -- --
Open options contracts written........................ -- -- --
--------- ----------- ------------
Net realized and unrealized gains (losses)......... 2,478,846 16,133,142 (460,502)
--------- ----------- ------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS.......... $8,741,751 $50,345,970 $ 707,344
========= =========== ============
- - ------------
(a) The Fund commenced operations on December 9, 1996.
(b) The Fund commenced operations on June 27, 1997.
</TABLE>
See notes to financial statements.
28 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 32
<TABLE>
<CAPTION>
GLOBAL INTERNATIONAL EUROPEAN GROWTH & MARKET
BALANCED EQUITY GROWTH & INCOME RETURN
FUND(a) FUND(a) INCOME FUND(b) FUND FUND
========== ============= ============== =========== ==========
<S> <C> <C> <C> <C> <C>
$ 284,614 $ 45,516 $ 25,424 $ 92,143 $ 7,900
66,649 132,185 57,189 1,590,895 651,072
(6,927) (13,908) (10,218) -- --
---------- ------------ ------------ ----------- ----------
344,336 163,793 72,395 1,683,038 658,972
---------- ------------ ------------ ----------- ----------
43,057 54,170 14,831 391,158 31,634
5,167 5,417 1,780 46,939 6,779
21,238 13,489 3,864 19,097 6,426
8,393 8,208 2,592 31,415 9,773
863 848 76 12,930 889
15,186 15,168 10,024 18,650 11,828
-- -- -- -- --
303 6 -- 25 960
1,349 1,280 500 3,393 18,421
948 868 104 6,676 1,009
11,077 11,198 3,832 75,663 11,352
25,868 28,503 35,488 73,556 2,392
1,195 1,178 629 11,375 5,704
5,769 1,061 663 6,449 1,604
-- -- -- -- --
-- -- (2,966) (156,463) --
(80,132) (60,139) (50,653) (118,396) (57,930)
---------- ------------ ------------ ----------- ----------
60,281 81,255 20,764 422,467 50,841
---------- ------------ ------------ ----------- ----------
284,055 82,538 51,631 1,260,571 608,131
---------- ------------ ------------ ----------- ----------
396,524 201,901 (6,752) 13,164 25,947
(309,620) (463,905) (99,424) -- 388
220,308 -- -- -- 2,666,795
18,140 -- -- -- --
488,104 513,371 (613,925) 13,559,898 5,068
(93,422) (55,576) 605,773 -- --
-- -- -- -- (680,850)
-- -- -- -- --
---------- ------------ ------------ ----------- ----------
720,034 195,791 (114,328) 13,573,062 2,017,348
---------- ------------ ------------ ----------- ----------
$1,004,089 $ 278,329 $ (62,697) $14,833,633 $2,625,479
========== ============ ============ =========== ==========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 29
<PAGE> 33
STATEMENTS OF OPERATIONS (CONTINUED)
Year ended October 31, 1997
<TABLE>
<CAPTION>
LIMITED SHORT U.S.
MATURITY BOND TREASURY
FUND FUND FUND
========== ========== ==========
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest income............................................ $6,366,983 $6,659,208 $1,262,998
Dividend income............................................ -- -- --
Foreign tax withholdings................................... -- -- --
---------- ---------- ----------
Investment Revenues...................................... 6,366,983 6,659,208 1,262,998
---------- ---------- ----------
EXPENSES:
Investment advisory fees (Note 5).......................... 305,823 291,286 59,618
Administration fees (Note 5)............................... 65,533 62,419 12,775
Custodian fees............................................. 13,556 10,615 5,091
Accounting fees (Note 5)................................... 43,908 41,517 13,147
Legal fees................................................. 12,004 12,063 806
Audit fees................................................. 16,420 16,297 12,554
Professional fees.......................................... 6,000 4,000 600
Insurance.................................................. 5,282 9,378 1,832
Organization expenses (Note 4)............................. 880 -- 1,946
Trustees' fees and expenses................................ 10,065 10,299 1,651
Transfer agent fees (Note 5)............................... 24,292 17,479 12,168
Registration and filing fees............................... 50,013 19,195 6,735
Printing costs............................................. 15,734 13,906 4,434
Other expenses............................................. 3,664 5,729 1,229
Expenses previously deferred (Note 5)...................... -- -- --
Waived advisory fee (Note 5)............................... -- -- --
Expense subsidy (Note 5)................................... (245,674) (98,059) (38,771)
---------- ---------- ----------
Net Expenses............................................. 327,500 416,124 95,815
---------- ---------- ----------
Net Investment Income................................. 6,039,483 6,243,084 1,167,183
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES):
Net realized gains (losses) from:
Investments.............................................. (126,929) (224,312) (19,304)
Foreign currency transactions............................ -- -- --
Futures contracts........................................ -- -- --
Options contracts........................................ -- -- --
Change in net unrealized appreciation (depreciation) from:
Investments.............................................. 57,988 (425,436) (45,018)
Translation of assets and liabilities in foreign
currencies............................................ -- -- --
Futures contracts........................................ -- -- --
Open options contracts written........................... -- -- --
---------- ---------- ----------
Net realized and unrealized gains (losses)............ (68,941) (649,748) (64,322)
---------- ---------- ----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS............. $5,970,542 $5,593,336 $1,102,861
========== ========== ==========
</TABLE>
- - ------------
(a) The Fund commenced operations on December 9, 1996.
See notes to financial statements.
30 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 34
<TABLE>
<CAPTION>
INTERMEDIATE INVESTMENT TOTAL SHORT DURATION TAX EXEMPT
BOND QUALITY BOND RETURN TAX EXEMPT BOND
FUND FUND FUND(a) FUND FUND
============ ============ ========== ============== ==========
<S> <C> <C> <C> <C> <C>
$3,475,052 $3,538,169 $2,373,905 $1,491,011 $2,541,267
-- -- -- -- --
-- -- -- -- --
------------ ------------ ---------- ------------- ---------
3,475,052 3,538,169 2,373,905 1,491,011 2,541,267
------------ ------------ ---------- ------------- ---------
153,304 153,572 99,922 113,695 162,255
32,851 32,908 21,412 21,318 30,423
9,087 7,570 11,919 5,731 7,145
24,176 23,302 16,570 18,413 23,276
2,111 2,432 1,361 1,597 2,222
13,264 14,590 15,594 13,334 13,637
3,000 -- -- 1,500 2,000
5,174 3,551 334 2,803 5,820
-- -- 1,127 3,105 6,561
5,017 4,743 2,789 3,432 4,694
14,977 13,981 12,920 12,996 14,511
18,261 16,707 54,021 10,545 11,067
9,555 8,284 5,789 6,639 8,811
3,567 4,888 3,349 4,730 5,893
2,695 2,650 -- -- --
-- -- -- -- --
(50,710) (42,404) (86,518) (60,749) (70,180)
------------ ------------ ---------- ------------- ---------
246,329 246,774 160,589 159,089 228,135
------------ ------------ ---------- ------------- ---------
3,228,723 3,291,395 2,213,316 1,331,922 2,313,132
------------ ------------ ---------- ------------- ---------
451,330 788,145 519,273 68,232 401,779
-- -- (3,476) -- --
56,941 3,972 238,848 -- (224,188)
(16,375) (16,375) (20,250) -- --
779,210 1,077,869 818,225 175,031 969,159
-- -- -- -- --
16,250 5,313 186,094 -- 149,062
-- (925) (612) -- --
------------ ------------ ---------- ------------- ---------
1,287,356 1,857,999 1,738,102 243,263 1,295,812
------------ ------------ ---------- ------------- ---------
$4,516,079 $5,149,394 $3,951,418 $1,575,185 $3,608,944
============ ============ ========== ============= =========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 31
<PAGE> 35
STATEMENTS OF CHANGES IN NET ASSETS
October 31, 1997
<TABLE>
<CAPTION>
GLOBAL SHORT
BOND FUND
======================================
PERIOD ENDED
YEAR ENDED OCTOBER 31, 1996
OCTOBER 31, 1997 (a)
================ ===================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income........................................ $ 6,262,905 $ 130,720
Net realized gains (losses).................................. 1,385,926 (8)
Change in net unrealized appreciation (depreciation)......... 1,092,920 102,334
--------------- ----------------
Change in net assets resulting from operations............. 8,741,751 233,046
--------------- ----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income........................................ (7,673,449) (104,999)
Net realized gains from investments.......................... -- --
In excess of net realized gains from investments............. -- --
Return of capital............................................ -- --
--------------- ----------------
Change in net assets from distributions to shareholders.... (7,673,449) (104,999)
--------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold............................... 222,627,255 28,680,369
Reinvestment of distributions................................ 7,044,107 104,999
Cost of fund shares redeemed................................. (38,787,906)
--------------- ----------------
Change in net assets from capital transactions............. 190,883,456 28,785,368
--------------- ----------------
Total Change in Net Assets.............................. 191,951,758 28,913,415
NET ASSETS:
Beginning of period.......................................... 28,913,415 --
--------------- ----------------
End of period................................................ $220,865,173 $28,913,415
=============== ================
Undistributed net investment income.......................... $ 48,730 $ 25,713
=============== ================
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period.................... 2,871,151 --
--------------- ----------------
Shares sold.................................................. 21,965,267 2,860,724
Shares issued in reinvestment of distributions............... 694,777 10,427
Shares redeemed.............................................. (3,804,452) --
--------------- ----------------
Change in shares outstanding................................. 18,855,592 2,871,151
--------------- ----------------
Outstanding shares at end of period.......................... 21,726,743 2,871,151
=============== ================
</TABLE>
- - ------------
(a) The Fund commenced operations on September 18, 1996.
(b) The Fund commenced operations on December 9, 1996.
See notes to financial statements.
32 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 36
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME INTERNATIONAL BOND GLOBAL BALANCED INTERNATIONAL
FUND FUND FUND EQUITY FUND
================================= ================================= ================= =================
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 1997 OCTOBER 31, 1997
1997 1996 1997 1996 (b) (b)
============== ============== ============== ============== ================= =================
<S> <C> <C> <C> <C> <C> <C>
$ 34,212,828 $ 36,295,168 $ 1,167,846 $ 1,048,759 $ 284,055 $ 82,538
30,450,300 476,129 233,731 (956,437) 325,352 (262,004)
(14,317,158) 7,532,019 (694,233) 614,017 394,682 457,795
------------- ------------- ------------- ------------- --------------- ---------------
50,345,970 44,303,316 707,344 706,339 1,004,089 278,329
------------- ------------- ------------- ------------- --------------- ---------------
(60,308,541) (44,142,948) (990,578) (51,924) (42,206) --
-- -- -- (23,827) (106,756) --
-- -- -- (110,019) -- --
-- -- -- -- -- (5,580)
------------- ------------- ------------- ------------- --------------- ---------------
(60,308,541) (44,142,948) (990,578) (185,770) (148,962) (5,580)
------------- ------------- ------------- ------------- --------------- ---------------
59,238,120 230,552,397 7,051,390 4,234,969 10,510,669 14,175,623
26,681,751 40,665,055 969,470 180,026 131,260 3,938
(191,477,656) (160,254,143) (2,404,334) (5,765,447) (1,184,686) (49,421)
------------- ------------- ------------- ------------- --------------- ---------------
(105,557,785) 110,963,309 5,616,526 (1,350,452) 9,457,243 14,130,140
------------- ------------- ------------- ------------- --------------- ---------------
(115,520,356) 111,123,677 5,333,292 (829,883) 10,312,370 14,402,889
651,164,578 540,040,901 18,364,404 19,194,287 -- --
------------- ------------- ------------- ------------- --------------- ---------------
$ 535,644,222 $ 651,164,578 $ 23,697,696 $ 18,364,404 $10,312,370 $14,402,889
============= ============= ============= ============= =============== ===============
$ 299,249 $ 2,668,546 $ 218,923 $ -- $ -- $ --
============= ============= ============= ============= =============== ===============
62,918,935 52,327,237 1,766,919 1,912,673 -- --
------------- ------------- ------------- ------------- --------------- ---------------
5,735,467 22,249,887 700,533 421,938 1,049,707 1,344,022
2,605,537 4,006,005 95,150 17,707 11,941 393
(18,515,714) (15,664,194) (233,235) (585,399) (106,008) (4,418)
------------- ------------- ------------- ------------- --------------- ---------------
(10,174,710) 10,591,698 562,448 (145,754) 955,640 1,339,997
------------- ------------- ------------- ------------- --------------- ---------------
52,744,225 62,918,935 2,329,367 1,766,919 955,640 1,339,997
============= ============= ============= ============= =============== ===============
</TABLE>
See notes to financial statements.
ANNUAL REPORT 33
<PAGE> 37
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
EUROPEAN
GROWTH & GROWTH &
INCOME FUND INCOME FUND
============ ============
PERIOD ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 (d) 1997
============ ============
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................................ $ 51,631 $ 1,260,571
Net realized gains (losses)...................................... (106,176) 13,164
Change in net unrealized appreciation (depreciation)............. (8,152) 13,559,898
----------- -----------
Change in net assets resulting from operations................. (62,697) 14,833,633
----------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income............................................ -- (860,076)
Net realized gains from investments.............................. -- --
In excess of net realized gains from investments................. -- --
----------- -----------
Change in net assets from distributions to shareholders........ -- (860,076)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold................................... 14,157,125 145,410,059
Reinvestment of distributions.................................... 543,287
Cost of fund shares redeemed..................................... (486,056) (8,983,038)
----------- -----------
Change in net assets from capital transactions................. 13,671,069 136,970,308
----------- -----------
Total Change in Net Assets.................................. 13,608,372 150,943,865
NET ASSETS:
Beginning of period.............................................. -- --
----------- -----------
End of period.................................................... $13,608,372 $150,943,865
=========== ===========
Undistributed net investment income.............................. $ -- $ 400,495
=========== ===========
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period........................ -- --
----------- -----------
Shares sold...................................................... 1,382,337 12,473,647
Shares issued in reinvestment of distributions................... 42,701
Shares redeemed.................................................. (47,097) (694,124)
----------- -----------
Change in shares outstanding..................................... 1,335,240 11,822,224
----------- -----------
Outstanding shares at end of period.............................. 1,335,240 11,822,224
=========== ===========
</TABLE>
- - ------------
(c) The Fund commenced operations on December 1, 1995.
(d) The Fund commenced operations on June 27, 1997.
See notes to financial statements.
34 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 38
<TABLE>
<CAPTION>
MARKET RETURN FUND LIMITED MATURITY FUND SHORT BOND FUND
============================ ============================= =============================
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 (c) 1997 1996 1997 1996
=========== ============ ============ ============ ============ ============
<S> <C> <C> <C> <C> <C> <C>
$ 608,131 $ 171,576 $ 6,039,483 $ 2,049,447 $ 6,243,084 $ 3,057,159
2,693,130 16,524 (126,929) (60,491) (224,312) (353,688)
(675,782) 260,773 57,988 53,290 (425,436) 439,764
----------- ------------ ------------ ------------ ------------ ------------
2,625,479 448,873 5,970,542 2,042,246 5,593,336 3,143,235
----------- ------------ ------------ ------------ ------------ ------------
(605,389) (170,039) (5,948,776) (2,041,488) (6,017,570) (3,039,378)
(512,300) -- -- -- -- (16,883)
-- -- -- -- -- --
----------- ------------ ------------ ------------ ------------ ------------
(1,117,689) (170,039) (5,948,776) (2,041,488) (6,017,570) (3,056,261)
----------- ------------ ------------ ------------ ------------ ------------
13,368,335 5,468,086 184,443,501 111,950,760 34,031,446 95,063,381
1,005,715 141,367 3,221,631 2,027,495 2,184,739 2,857,489
(1,475,545) (99,085) (86,028,649) (81,622,509) (39,502,535) (19,198,388)
----------- ------------ ------------ ------------ ------------ ------------
12,898,505 5,510,368 101,636,483 32,355,746 (3,286,350) 78,722,482
----------- ------------ ------------ ------------ ------------ ------------
14,406,295 5,789,202 101,658,249 32,356,504 (3,710,584) 78,809,456
5,789,202 0 50,770,807 18,414,303 97,966,242 19,156,786
----------- ------------ ------------ ------------ ------------ ------------
$20,195,497 $5,789,202 $152,429,056 $ 50,770,807 $ 94,255,658 $ 97,966,242
=========== ============ ============ ============ ============ ============
$ 4,911 $ 1,537 $ 40,535 $ 12,828 $ 22,255 $ 22,497
=========== ============ ============ ============ ============ ============
532,943 -- 5,047,881 1,830,050 9,829,447 1,907,327
----------- ------------ ------------ ------------ ------------ ------------
1,080,769 528,431 18,330,395 11,140,482 3,426,440 9,562,749
83,247 13,760 320,424 201,954 220,346 287,635
(119,463) (9,248) (8,545,072) (8,124,605) (3,976,384) (1,928,264)
----------- ------------ ------------ ------------ ------------ ------------
1,044,553 532,943 10,105,747 3,217,831 (329,598) 7,922,120
----------- ------------ ------------ ------------ ------------ ------------
1,577,496 532,943 15,153,628 5,047,881 9,499,849 9,829,447
=========== ============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
ANNUAL REPORT 35
<PAGE> 39
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
U.S. TREASURY FUND
==============================
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
============ ===========
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.............................................. $ 1,167,183 $ 992,553
Net realized gains (losses)........................................ (19,304) (130,766)
Change in net unrealized appreciation
(depreciation)................................................... (45,018) (94,523)
------------ -----------
Change in net assets resulting from operations................... 1,102,861 767,264
------------ -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.............................................. (1,170,369) (988,707)
Net realized gains from investments................................ -- (37,939)
In excess of net realized gains from investments................... -- --
------------ -----------
Change in net assets from distributions to
shareholders.................................................. (1,170,369) (1,026,646)
------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold..................................... 14,417,612 21,850,747
Reinvestment of distributions...................................... 598,123 821,001
Cost of fund shares redeemed....................................... (21,583,263) (11,192,992)
------------ -----------
Change in net assets from capital transactions................... (6,567,528) 11,478,756
------------ -----------
Total Change in Net Assets.................................... (6,635,036) 11,219,374
NET ASSETS:
Beginning of period................................................ 22,113,642 10,894,268
------------ -----------
End of period...................................................... $ 15,478,606 $22,113,642
============ ===========
Undistributed net investment income................................ $ 4,110 $ 7,296
============ ===========
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period.......................... 2,098,931 1,026,380
------------ -----------
Shares sold........................................................ 1,365,481 2,071,280
Shares issued in reinvestment of distributions..................... 57,071 78,390
Shares redeemed.................................................... (2,055,619) (1,077,119)
------------ -----------
Change in shares outstanding....................................... (633,067) 1,072,551
------------ -----------
Outstanding shares at end of period................................ 1,465,864 2,098,931
============ ===========
</TABLE>
- - ------------
(b) The Fund commenced operations on December 9, 1996.
See notes to financial statements.
36 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 40
<TABLE>
<CAPTION>
TOTAL RETURN
INTERMEDIATE BOND FUND INVESTMENT QUALITY BOND FUND FUND
============================ ============================= ============
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996 1997 (b)
=========== ============ ============ ============ ============
<S> <C> <C> <C> <C> <C>
$ 3,228,723 $ 2,345,073 $ 3,291,395 $ 1,904,675 $ 2,213,316
491,896 (52,914) 775,742 (268,919) 734,395
795,460 (479,438) 1,082,257 (342,583) 1,003,707
----------- ------------ ------------ ------------ -----------
4,516,079 1,812,721 5,149,394 1,293,173 3,951,418
----------- ------------ ------------ ------------ -----------
(3,187,522) (2,340,379) (3,322,442) (1,843,583) (2,231,855)
-- (255,413) -- (13,424) --
-- -- -- -- --
----------- ------------ ------------ ------------ -----------
(3,187,522) (2,595,792) (3,322,442) (1,857,007) (2,231,855)
----------- ------------ ------------ ------------ -----------
66,036,447 32,977,552 105,924,171 25,161,170 100,529,378
2,522,572 1,610,996 3,032,320 1,728,421 1,985,084
(41,888,712) (15,429,671) (48,100,615) (19,843,931) (5,371,369)
----------- ------------ ------------ ------------ -----------
26,670,307 19,158,877 60,855,876 7,045,660 97,143,093
----------- ------------ ------------ ------------ -----------
27,998,864 18,375,806 62,682,828 6,481,826 98,862,656
52,766,729 34,390,923 32,303,737 25,821,911 0
----------- ------------ ------------ ------------ -----------
$80,765,593 $ 52,766,729 $ 94,986,565 $ 32,303,737 $98,862,656
=========== ============ ============ ============ ===========
$ 16,277 $ 11,959 $ 22,564 $ 67,182 $ 139,334
=========== ============ ============ ============ ===========
5,497,972 3,490,147 3,294,124 2,591,405 0
----------- ------------ ------------ ------------ -----------
6,908,211 3,433,330 10,781,572 2,556,961 9,978,479
262,392 166,498 308,738 177,262 195,644
(4,353,765) (1,592,003) (4,895,836) (2,031,504) (531,777)
----------- ------------ ------------ ------------ -----------
2,816,838 2,007,825 6,194,474 702,719 9,642,346
----------- ------------ ------------ ------------ -----------
8,314,810 5,497,972 9,488,598 3,294,124 9,642,346
=========== ============ ============ ============ ===========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 37
<PAGE> 41
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHORT DURATION TAX
EXEMPT FUND TAX EXEMPT BOND FUND
========================== ===========================
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1997 1996
============ =========== ============ ============
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 1,331,922 $ 1,063,571 $ 2,313,132 $ 2,353,994
Net realized gains (losses)................... 68,232 (43,242) 177,591 (167,524)
Change in net unrealized appreciation
(depreciation).............................. 175,031 (83,247) 1,118,221 (707,043)
------------ ----------- ------------ ------------
Change in net assets resulting from
operations............................... 1,575,185 937,082 3,608,944 1,479,427
------------ ----------- ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income......................... (1,330,765) (1,063,018) (2,313,809) (2,352,923)
Net realized gains from investments........... -- (32,675) -- --
In excess of net realized gains from
investments................................. -- -- -- --
------------ ----------- ------------ ------------
Change in net assets from distributions to
shareholders............................. (1,330,765) (1,095,693) (2,313,809) (2,352,923)
------------ ----------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold................ 25,806,604 28,660,093 17,559,290 19,067,316
Reinvestment of distributions................. 1,017,341 826,992 1,920,237 1,985,629
Cost of fund shares redeemed.................. (25,227,895) (9,011,463) (13,058,170) (10,369,014)
------------ ----------- ------------ ------------
Change in net assets from capital
transactions............................. 1,596,050 20,475,622 6,421,357 10,683,931
------------ ----------- ------------ ------------
Total Change in Net Assets............... 1,840,470 20,317,011 7,716,492 9,810,435
NET ASSETS:
Beginning of period........................... 36,335,629 16,018,618 49,862,103 40,051,668
------------ ----------- ------------ ------------
End of period................................. $ 38,176,099 $36,335,629 $ 57,578,595 $ 49,862,103
============ =========== ============ ============
Undistributed net investment income........... $ 3,382 $ 2,225 $ 5,558 $ 6,235
============ =========== ============ ============
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period..... 3,630,620 1,589,820 5,266,366 4,177,567
------------ ----------- ------------ ------------
Shares sold................................... 2,566,567 2,854,221 1,829,792 1,986,272
Shares issued in reinvestment of
distributions............................... 101,327 82,428 200,726 208,658
Shares redeemed............................... (2,509,821) (895,849) (1,364,814) (1,106,131)
------------ ----------- ------------ ------------
Change in shares outstanding.................. 158,073 2,040,800 665,704 1,088,799
------------ ----------- ------------ ------------
Outstanding shares at end of period........... 3,788,693 3,630,620 5,932,070 5,266,366
============ =========== ============ ============
</TABLE>
See notes to financial statements.
38 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 42
(This page intentionally left blank)
<PAGE> 43
GLOBAL SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL FAIR VALUE IN
CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
---------------- --------------------------------------------------- -------------
<C> <S> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (18.3%)
Government Bonds (15.1%)
11,410,000 Treasury Corporation of Victoria, 10.25%,
09/15/99........................................... $ 8,771,001
24,260,000 13.00%, 07/15/00................................... 20,395,416
4,930,000 Western Australia Treasury Corp., 12.00%,
08/01/01........................................... 4,219,321
-------------
33,385,738
U.S. Government Agencies (3.2%)
10,000,000 Federal Natl. Mortgage Assoc., 5.75%, 09/05/00
(a)................................................ 7,101,761
-------------
Total Australia (Cost -- $41,827,582).................................... 40,487,499
-------------
GERMANY (GERMAN MARK) (19.2%)
Government Bonds (3.7%)
13,300,000 Finland Government Eurobond, 7.50%, 01/27/00....... 8,201,680
Supranational Bonds (7.3%)
10,850,000 IBRD, 7.25%, 10/13/99.............................. 6,634,724
10,500,000 European Economic Com. Note, 6.50%, 03/10/00....... 6,357,238
5,300,000 European Investment Bond, 6.00%, 07/24/00.......... 3,183,943
-------------
16,175,905
Finance (8.2%)
11,000,000 LKB Bad-Wurt Finance, 6.00%, 05/10/1999............ 6,542,977
10,000,000 KFW International Finance, 7.50%, 01/24/00......... 6,167,258
8,700,000 Dresdner Bank, 6.50%, 05/22/00..................... 5,267,425
-------------
17,977,660
-------------
Total Germany (Cost -- $41,132,348)...................................... 42,355,245
-------------
ITALY (ITALIAN LIRA) (19.2%)
Government Bonds (19.2%)
29,200,000,000 8.25%, 07/01/99.................................... 17,994,625
39,650,000,000 7.50%, 10/01/99.................................... 24,286,623
-------------
Total Italy (Cost -- $40,454,461)........................................ 42,281,248
-------------
</TABLE>
See notes to financial statements.
40 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 44
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL FAIR VALUE IN
CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
---------------- --------------------------------------------------- -------------
<C> <S> <C>
SPAIN (SPANISH PESETA) (9.7%)
Government Bonds (9.7%)
2,783,000,000 6.75%, 04/15/00.................................... $ 19,895,261
240,000,000 5.00%, 01/31/01.................................... 1,628,849
-------------
Total Spain (Cost -- $20,869,761)........................................ 21,524,110
-------------
SWEDEN (SWEDISH KRONA) (9.4%)
Government Bonds (9.4%)
139,600,000 10.25%, 05/05/00................................... 20,664,689
-------------
Total Sweden (Cost -- $20,233,555)....................................... 20,664,689
-------------
UNITED STATES (UNITED STATES DOLLAR) (19.7%)
U.S. Treasury Notes (19.0%)
2,200,000 5.875%, 10/31/98................................... 2,205,940
2,100,000 5.500%, 11/15/98................................... 2,097,858
29,500,000 6.500%, 04/30/99................................... 29,857,835
7,500,000 7.750%, 01/31/00................................... 7,816,950
-------------
Total U.S. Treasury Notes................................................ 41,978,583
-------------
Investment Companies (0.7%)
1,570,553 Dreyfus Treasury Cash Management................... 1,570,553
-------------
Total United States (Cost -- $43,388,319)................................ 43,549,136
-------------
TOTAL (COST -- $207,906,026) (b) (95.5%)................................. $ 210,861,927
=============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $220,865,173.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
(b) For federal income tax purposes, cost is $209,607,091, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................ $ 3,027,308
Unrealized depreciation................................................ (1,772,472)
-----------
Net unrealized appreciation............................................ $ 1,254,836
===========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 41
<PAGE> 45
GLOBAL SHORT BOND FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - --------------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)..................... 1.33803 $ 20,231,306 $ 1,157,062 11/17/97
Australian Dollar (sell)..................... 1.34562 19,344,195 1,002,762 11/17/97
Australian Dollar (sell)..................... 1.39276 3,324,340 61,919 11/17/97
-------------- ------------
$ 42,899,841 $ 2,221,743
============== ============
LIABILITIES:
Australian Dollar (sell)..................... 1.42410 $ 1,517,285 $ (4,754) 11/03/97
German Mark (sell)........................... 1.76315 43,410,940 (1,180,732) 12/12/97
German Mark (sell)........................... 1.73298 1,997,156 (14,247) 11/03/97
Italian Lira (sell).......................... 1,769.10000 17,296,931 (796,588) 12/05/97
Italian Lira (sell).......................... 1,757.17000 20,373,669 (794,031) 12/05/97
Italian Lira (sell).......................... 1,733.65000 3,374,384 (84,672) 12/05/97
Italian Lira (sell).......................... 1,705.00000 1,694,092 (15,643) 11/03/97
Spanish Peseta (sell)........................ 152.93100 19,034,728 (1,005,384) 11/28/97
Spanish Peseta (sell)........................ 149.40000 1,572,959 (44,845) 11/28/97
Spanish Peseta (sell)........................ 147.15300 1,001,440 (12,702) 11/03/97
Swedish Krona (sell)......................... 7.52950 20,784,913 (184,925) 01/09/98
Swedish Krona (sell)......................... 7.59230 698,076 (12,085) 01/09/98
Swedish Krona (sell)......................... 7.54230 997,687 (8,081) 11/03/97
-------------- ------------
$133,754,260 $ (4,158,689)
============== ============
</TABLE>
See notes to financial statements.
42 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 46
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (10.9%)
Government Bonds (7.4%)
22,170,000 Treasury Corp. of Victoria, 10.25%, 09/15/99..... $ 17,042,339
29,300,000 7.50%, 07/15/05.................................. 22,731,706
--------------
39,774,045
--------------
U.S. Government Agencies (3.5%)
26,250,000 Federal Natl. Mortgage Assoc., 6.375%,
08/15/07........................................ 18,730,877
--------------
Total Australia (Cost -- $59,204,318)................................ 58,504,922
--------------
CANADA (CANADIAN DOLLAR) (4.8%)
Government Bonds (4.8%)
26,800,000 10.00%, 06/01/08................................. 25,706,084
--------------
Total Canada (Cost -- $24,557,628)................................... 25,706,084
--------------
FRANCE (FRENCH FRANC) (9.2%)
Government Bonds (9.2%)
282,000,000 4.75%, 04/12/99.................................. 49,383,076
--------------
Total France (Cost -- $47,492,163)................................... 49,383,076
--------------
GERMANY (GERMAN MARK) (15.0%)
Government Bonds (9.8%)
20,000,000 5.25%, 02/21/01.................................. 11,812,634
47,800,000 Bundesobligation #115, 5.875%, 05/15/00.......... 28,659,999
20,000,000 Treuhandanstalt, 6.25%, 03/04/04................. 12,241,530
--------------
52,714,163
--------------
Finance (5.2%)
20,000,000 LKB Bad-Wurt Finance, 5.25%, 05/15/01............ 11,748,707
28,200,000 Bayerische Vereinsbank Global, 4.50%, 06/24/02... 15,946,185
--------------
27,694,892
--------------
Total Germany (Cost -- $82,898,288).................................. 80,409,055
--------------
GREAT BRITAIN (BRITISH POUND) (10.8%)
Government Bonds (10.8%)
10,080,000 UK Gilt, 11.50%, 03/19/04........................ 19,233,311
18,400,000 UK Gilt, 8.75%, 08/25/17......................... 38,366,703
--------------
Total Great Britain (Cost -- $56,429,096)............................ 57,600,014
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 43
<PAGE> 47
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ITALY (ITALIAN LIRA) (10.0%)
Government Bonds (10.0%)
78,710,000,000 9.00%, 10/01/03.................................. $ 53,495,218
--------------
Total Italy (Cost -- $52,593,017).................................... 53,495,218
--------------
SPAIN (SPANISH PESETA) (10.1%)
Government Bonds (10.1%)
7,150,000,000 8.40%, 04/30/01(a)............................... 54,145,344
--------------
Total Spain (Cost -- $53,594,884).................................... 54,145,344
--------------
UNITED STATES (UNITED STATES DOLLAR) (29.1%)
U.S. Treasury Notes (20.6%)
14,200,000 6.375%, 05/15/00(a).............................. 14,419,390
52,200,000 7.875%, 08/15/01(a).............................. 55,861,308
35,000,000 5.750%, 08/15/03(a).............................. 34,838,650
5,000,000 6.500%, 10/15/06................................. 5,192,300
--------------
Total U.S. Treasury Notes............................................ 110,311,648
--------------
U.S. Treasury Bonds (7.5%)
40,000,000 6.250%, 08/15/23(a).............................. 40,072,400
Investment Companies (1.0%)
5,594,735 Dreyfus Treasury Cash Management................. 5,594,735
--------------
Total United States (Cost -- $148,875,820)........................... 155,978,783
--------------
TOTAL (COST -- $525,645,214) (B) (99.9%)............................. $ 535,222,496
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $535,644,222.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
(b) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................. $13,052,972
Unrealized depreciation............................................. (3,475,690)
-----------
Net unrealized appreciation......................................... $ 9,577,282
===========
</TABLE>
See notes to financial statements.
44 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 48
GLOBAL FIXED INCOME FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - ---------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Australian Dollar....................... (sell) 1.338025 $ 60,522,023 $ 3,461,355 11/17/97
Australian Dollar....................... (sell) 1.416932 592,830 944 11/17/97
Canadian Dollar......................... (sell) 1.380700 26,921,127 525,785 11/07/97
-------------- --------------
$ 88,035,980 $ 3,988,084
============== ==============
LIABILITIES:
British Pound........................... (sell) 0.635494 $ 53,784,794 $ (3,483,124) 11/14/97
French Franc............................ (sell) 5.978100 43,677,757 (1,806,587) 12/11/97
French Franc............................ (sell) 5.920800 5,066,883 (159,000) 12/11/97
German Mark............................. (sell) 1.763150 80,997,080 (2,203,035) 12/12/97
Italian Lira............................ (sell) 1,757.17000 50,251,256 (1,959,780) 12/05/97
Spanish Peseta.......................... (sell) 152.9310 51,984,228 (2,745,725) 11/28/97
-------------- --------------
$285,761,998 $(12,357,251)
============== ==============
</TABLE>
See notes to financial statements.
ANNUAL REPORT 45
<PAGE> 49
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (12.9%)
Government Bonds (10.6%)
830,000 Treasury Corp. of Victoria, 10.25%, 09/15/99.... $ 638,031
1,200,000 Western Australia Treasury Corp., 12.00%,
08/01/01....................................... 1,027,015
1,100,000 7.50%, 07/15/05................................. 853,409
--------------
2,518,455
--------------
U.S. Government Agencies (2.3%)
750,000 Federal Natl. Mortgage Assoc., 6.375%,
08/15/07....................................... 535,168
--------------
Total Australia (Cost -- $2,549,830)................................ 3,053,623
--------------
CANADA (CANADIAN DOLLAR) (4.7%)
Government Bonds (4.7%)
1,150,000 10.00%, 06/01/08................................ 1,103,060
--------------
Total Canada (Cost -- $1,053,780)................................... 1,103,060
--------------
DENMARK (DANISH KRONE) (13.8%)
Government Bonds (13.8%)
20,200,000 7.00%, 12/15/04(a).............................. 3,286,220
--------------
Total Denmark (Cost -- $3,395,071).................................. 3,286,220
--------------
GERMANY (GERMAN MARK) (19.8%)
Supranational Bonds (4.1%)
2,500,000 Bundesobligation #115, 5.875%, 05/15/00......... 1,498,954
1,600,000 IBRD, 7.25%, 10/13/99........................... 978,393
--------------
2,477,347
U.S. Government Agencies (2.2%)
870,000 Federal Natl. Mortgage Assoc., 6.00%,
08/23/00....................................... 522,293
Finance (7.2%)
1,800,000 Bayerische Vereinsbank Global, 4.50%,
06/24/02....................................... 1,017,842
1,125,000 KFW International Finance, 6.25%, 10/15/03...... 683,225
--------------
1,701,067
--------------
Total Germany (Cost -- $4,884,911).................................. 4,700,707
--------------
</TABLE>
See notes to financial statements.
46 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 50
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
GREAT BRITAIN (BRITISH POUND) (17.1%)
Government Bonds (5.0%)
205,000 UK Gilt, 11.50%, 03/19/04....................... $ 391,154
370,000 UK Gilt, 8.75%, 08/25/17........................ 771,504
--------------
1,162,658
--------------
Finance (3.4%)
475,000 General Electric Capital Corp., 8.00%,
12/29/00....................................... 817,281
Supranational Bonds (4.5%)
600,000 European Investment Bank, 7.625%, 12/07/06...... 1,054,686
U.S. Government Agencies (4.2%)
600,000 Federal Home Loan Bank-Global, 6.875%,
06/07/02....................................... 1,002,882
--------------
Total Great Britain (Cost -- $3,842,579)............................ 4,037,507
--------------
ITALY (ITALIAN LIRA) (9.3%)
Government Bonds (9.3%)
3,280,000,000 9.00%, 10/01/03................................. 2,229,251
--------------
Total Italy (Cost -- $2,184,270).................................... 2,229,251
--------------
NETHERLANDS (DUTCH GUILDER) (2.2%)
Government Bonds (2.2%)
875,000 7.75%, 03/01/05................................. 514,122
--------------
Total Netherlands (Cost -- $575,345)................................ 514,122
--------------
SPAIN (SPANISH PESETA) (9.4%)
Government Bonds (9.4%)
270,000,000 10.30%, 06/15/02................................ 2,217,081
--------------
Total Spain (Cost -- $2,193,691).................................... 2,217,081
--------------
SWEDEN (SWEDISH KRONA) (4.9%)
Government Bonds (4.9%)
4,000,000 10.25%, 05/05/00................................ 592,111
4,300,000 6.00%, 02/09/05................................. 566,977
--------------
Total Sweden (Cost -- $1,126,200)................................... 1,159,088
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 47
<PAGE> 51
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
UNITED STATES (UNITED STATES DOLLAR) (4.0%)
U.S. Treasury Notes (2.9%)
250,000 5.500%, 11/15/98................................ $ 249,745
400,000 7.875%, 08/15/01................................ 428,056
--------------
677,801
Investment Companies (1.1%)
258,929 Dreyfus Treasury Cash Management................ 258,929
--------------
Total United States (Cost -- $931,233).............................. 936,730
--------------
TOTAL (COST -- $23,263,876) (B) (98.1%)............................. $23,237,389
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $23,697,696.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
(b) For federal income tax purposes, cost is $23,289,970, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................. $ 338,676
Unrealized depreciation................................................. (391,257)
---------
Net unrealized depreciation............................................. $ (52,581)
=========
</TABLE>
See notes to financial statements.
48 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 52
INTERNATIONAL BOND FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - --------------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)..................... 1.33802 $ 2,264,531 $ 129,512 11/17/97
Australian Dollar (sell)..................... 1.39334 760,762 13,858 11/17/97
Australian Dollar (sell)..................... 1.41693 162,323 258 11/17/97
------------- ------------
$ 3,187,616 $ 143,628
============= ============
LIABILITIES:
British Pound (sell)......................... 0.63549 $ 1,730,933 $ (112,096) 11/14/97
Canadian Dollar (buy)........................ 1.38070 2,317,665 (45,265) 11/07/97
Danish Krone (sell).......................... 7.06310 1,274,228 (100,842) 11/13/97
Italian Lira (sell).......................... 1,757.17000 1,195,103 (46,609) 12/05/97
Japanese Yen (buy)........................... 119.70500 4,469,320 (5,709) 11/21/97
Spanish Peseta (sell)........................ 152.93100 948,140 (50,079) 11/28/97
Swedish Krona (sell)......................... 7.52950 1,208,580 (10,752) 01/09/98
------------- ------------
$ 13,143,969 $ (371,352)
============= ============
</TABLE>
See notes to financial statements.
ANNUAL REPORT 49
<PAGE> 53
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (44.3%)
AEROSPACE & DEFENSE (1.8%)
1,700 Boeing Company $ 81,388
3,805 British Aerospace PLC 101,236
--------------
Total Aerospace & Defense............................................ 182,624
--------------
BASIC INDUSTRIES (2.4%)
Chemicals (2.4%)
1,051 Air Products & Chemicals Inc..................... 79,876
706 CIBA Specialty Chemicals (c)..................... 69,543
60 Novartis AG...................................... 94,262
--------------
Total Basic Industries............................................... 243,681
--------------
CONGLOMERATES & HOLDING COMPANIES (0.9%)
Diversified Operations (0.5%)
10,600.00 Tomkins PLC...................................... 54,157
Business & Public Service (0.4%)
1,000 Nichii Gakkan Company............................ 40,759
--------------
Total Conglomerates & Holding Companies.............................. 94,916
--------------
DURABLES (3.1%)
Automobiles (1.6%)
842 Daimler-Benz Ag Designs.......................... 57,399
86,400 Qingling Motors Company.......................... 56,452
2,000 Toyota Motor..................................... 55,731
--------------
169,582
--------------
Consumer Products (0.6%)
700 Sony Corporation................................. 58,168
--------------
58,168
--------------
</TABLE>
See notes to financial statements.
50 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 54
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
Transportation (0.9%)
27,000 Cosco Pacific Limited............................ $ 31,440
3,600 Deutsche Lufthansa............................... 63,393
--------------
94,833
--------------
Total Durables....................................................... 322,583
--------------
ENERGY (3.0%)
1,886 Exxon Corporation................................ 115,871
13,513 Shell Transporting & Trading Company PLC......... 95,715
2,960 Tosco Corporation................................ 97,680
--------------
Total Energy......................................................... 309,266
--------------
FINANCE (8.5%)
Banking (5.4%)
3,369 Banco Galicia Y Bueno -- Sp ADR.................. 81,646
17,126 Bank Of East Asia................................ 38,334
1,495 Banque Nationale De Paris........................ 66,242
3,500 Barclays PLC..................................... 88,368
970 Bayerische Vereinsbank AG........................ 56,316
600 Credit Suisse Group-Reg.......................... 84,784
5,000 National Westminster Bank........................ 72,257
11,880 Westpac Banking Corporation...................... 69,289
--------------
557,236
--------------
Financial Services (3.1%)
1,440 Allstate Corp.................................... 119,430
4,050 Assi Gen......................................... 90,738
920 Axa -- UAP....................................... 63,145
4,122 Lloyds TSB Group PLC............................. 50,343
--------------
323,656
--------------
Total Finance........................................................ 880,892
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 51
<PAGE> 55
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH (4.0%)
1,500 Abbott Laboratories.............................. $ 91,969
1,206 Bristol-Myers Squibb Company..................... 105,827
4,710 Glaxo Wellcome PLC............................... 100,757
5 Roche Holding AG................................. 44,076
2,000 Sankyo Corporation Limited....................... 66,046
--------------
Total Health......................................................... 408,675
--------------
INDUSTRIAL MACHINERY & EQUIPMENT (1.4%)
2,579 Atlas Copco AB-B Shares.......................... 76,697
792 Electrolux AB.................................... 65,632
--------------
Total Industrial Machinery & Equipment............................... 142,329
--------------
MEDIA & LEISURE (3.0%)
Hotels & Motels (0.6%)
2,880 Scandic Hotels AB (c)............................ 65,440
--------------
Multimedia (2.4%)
4,350 Elsevier NV...................................... 68,382
1,260 Polygram NV...................................... 71,696
6,000 Shochiku......................................... 43,271
5,000 Toppan Printing Corporation Limited.............. 62,802
--------------
246,151
--------------
Total Media & Leisure................................................ 311,591
--------------
NONDURABLES (1.5%)
Food, Beverage & Tobacco (1.5%)
45 Nestle........................................... 63,604
10,150 Guinness PLC..................................... 90,868
--------------
Total Nondurables.................................................... 154,472
--------------
</TABLE>
See notes to financial statements.
52 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 56
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE & MINING (0.7%)
7,000 City Developments................................ $ 29,389
9,059 Land and House................................... 6,518
9,300 WMC Limited...................................... 33,082
--------------
Total Real Estate & Mining........................................... 68,989
--------------
RETAIL & WHOLESALE (5.0%)
Drug Stores (1.0%)
3,600 Walgreen Company................................. 101,250
Restaurants (0.2%)
12,600 Kentucky Fried Chicken Holding (Malaysia) Bhd.... 25,238
Retail (3.8%)
1,044 Etam Developpement SA (c)........................ 70,187
1,620 Metro AG......................................... 71,552
1,000 Seven-Eleven Japan............................... 74,863
1,300 Vendex International............................. 71,024
3,000 Wal-Mart Stores, Inc............................. 105,375
--------------
393,001
--------------
Total Retail & Wholesale............................................. 519,489
--------------
TECHNOLOGY (9.0%)
Data Processing (0.4%)
3,000 Ines............................................. 42,672
--------------
Electrical & Electronics (4.9%)
1,872 General Electric Company......................... 120,861
8,000 Ibiden Co. Ltd................................... 133,089
1,000 Murata Manufacturing Corporation Limited......... 40,592
4,200 Nihon Dempa Kogyo................................ 45,067
1,303 Philips Electronics.............................. 102,080
1,271 Schneider SA (Ex Spie Batig)..................... 68,022
--------------
509,711
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 53
<PAGE> 57
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
Telecommunications (3.7%)
679 Alcatel Alsthom.................................. $ 82,117
6,000 Nippon Comsys Corporation........................ 72,866
7 Nippon Telegraph & Telephone Corporation......... 59,391
936 Telecel -- Communicacoes Pessoai (c)............. 84,708
12,800 Telecom Italia................................... 80,388
--------------
379,470
--------------
Total Technology..................................................... 931,853
--------------
Total Common Stocks (Cost -- $4,194,218)............................. 4,571,360
--------------
BONDS AND NOTES (54.6%)
AUSTRALIA (AUSTRALIAN DOLLAR) (5.3%)
Government Bonds (5.3%)
700,000 7.50%, 07/15/05.................................. 543,078
--------------
Total Australia (Cost -- $554,205)................................... 543,078
--------------
CANADA (CANADIAN DOLLAR) (2.8%)
Government Bonds (2.8%)
300,000 10.00%, 06/01/08................................. 287,755
--------------
Total Canada (Cost -- $274,900)...................................... 287,755
--------------
FRANCE (FRENCH FRANC) (5.1%)
Government Bonds (5.1%)
3,000,000 4.75%, 04/12/99.................................. 525,352
--------------
Total France (Cost -- $504,687)...................................... 525,352
--------------
GERMANY (GERMAN MARK) (7.1%)
Government Bonds (7.1%)
1,225,000 5.25%, 02/21/01 (a).............................. 723,524
--------------
Total Germany (Cost -- $734,719)..................................... 723,524
--------------
</TABLE>
See notes to financial statements.
54 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 58
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
GREAT BRITAIN (BRITISH POUND) (5.7%)
Government Bonds (5.7%)
105,000 UK Gilt, 11.50%, 03/19/04........................ $ 200,347
190,000 UK Gilt, 8.75%, 08/25/17......................... 396,178
--------------
Total Great Britain (Cost -- $584,383)............................... 596,525
--------------
ITALY (ITALIAN LIRA) (5.9%)
Government Bonds (5.9%)
890,000,000 9.00%, 10/01/03.................................. 604,888
--------------
Total Italy (Cost -- $594,687)....................................... 604,888
--------------
SPAIN (SPANISH PESETA) (5.1%)
Government Bonds (5.1%)
70,000,000 8.40%, 04/30/01 (a).............................. 530,094
--------------
Total Spain (Cost -- $524,706)....................................... 530,094
--------------
UNITED STATES (UNITED STATES DOLLAR) (17.5%)
U.S. Treasury Notes (12.6%)
430,000 6.375%, 05/15/00 (a)............................. 436,644
830,000 6.500%, 10/15/06................................. 861,922
--------------
1,298,566
--------------
U.S. Treasury Bonds (2.4%)
250,000 6.250%, 08/15/23 (a)............................. 250,453
Investment Companies (2.5%)
252,765 Dreyfus Treasury Cash Management................. 252,765
--------------
Total United States (Cost -- $1,758,048)............................. 1,801,784
--------------
Total Bonds and Notes (Cost -- $5,530,335)........................... 5,613,000
--------------
TOTAL (COST -- $9,724,553) (B) (98.8%)............................... $10,184,360
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $10,312,370.
See notes to financial statements.
ANNUAL REPORT 55
<PAGE> 59
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
Distribution of investments by country of issue, as a percentage of total value
of investment securities, is as follows:
<TABLE>
<S> <C>
United States............................................ 27.7%
Great Britain............................................ 12.3%
Germany.................................................. 9.5%
France................................................... 8.6%
Japan.................................................... 7.8%
Italy.................................................... 7.6%
Australia................................................ 6.3%
Spain.................................................... 5.2%
Switzerland.............................................. 3.5%
Netherlands.............................................. 3.1%
Canada................................................... 2.8%
Sweden................................................... 2.0%
Hong Kong................................................ 1.2%
Other, less than 1%...................................... 2.4%
-----
100.0%
</TABLE>
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
(b) For federal income tax purposes, cost is $9,754,914, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $ 623,451
Unrealized depreciation............................................... (194,005)
---------
Net unrealized appreciation........................................... $ 429,446
=========
</TABLE>
(c) Non-income producing security.
See notes to financial statements.
56 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 60
GLOBAL BALANCED FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - --------------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)..................... 1.33803 $ 680,107 $ 38,896 11/17/97
Japanese Yen (sell).......................... 113.96000 570,376 28,068 11/21/97
------------- ------------
$1,250,483 $ 66,964
============= ============
LIABILITIES:
British Pound (sell)......................... 0.63549 $1,290,335 $ (83,563) 11/14/97
Dutch Guilder (buy).......................... 1.91050 69,231 (1,060) 11/03/97
French Franc (sell).......................... 5.97810 205,751 (8,510) 12/11/97
Italian Lira (sell).......................... 1,757.17000 369,913 (14,426) 12/05/97
Spanish Peseta (sell)........................ 152.93100 490,417 (25,903) 11/28/97
------------- ------------
$2,425,647 $ (133,462)
============= ============
</TABLE>
See notes to financial statements.
ANNUAL REPORT 57
<PAGE> 61
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (92.1%)
AEROSPACE & DEFENSE (2.3%)
12,548 British Aerospace PLC............................ $ 333,853
--------------
Total Aerospace & Defense............................................ 333,853
--------------
BASIC INDUSTRIES (4.4%)
Chemicals (4.4%)
2,487 CIBA Specialty Chemicals (b)..................... 244,976
166 Novartis AG...................................... 260,791
2,500 Quimica Y Minera Chil-SP......................... 129,688
--------------
Total Basic Industries............................................... 635,455
--------------
CONGLOMERATES & HOLDING COMPANIES (3.8%)
Diversified Operations (2.7%)
46,100 Tomkins PLC...................................... 235,531
23,000 Hutchison Whampoa................................ 159,206
--------------
394,737
--------------
Business & Public Service (1.1%)
4,000 Nichii Gakkan Company............................ 163,034
--------------
Total Conglomerates & Holding Companies.............................. 557,771
--------------
DURABLES (8.1%)
Automobiles (4.2%)
2,125 Daimler-Benz Ag Designs.......................... 144,861
372,000 Qingling Motors Company.......................... 243,059
8,000 Toyota Motor..................................... 222,925
--------------
610,845
--------------
Consumer Products (1.7%)
3,000 Sony Corporation................................. 249,293
--------------
</TABLE>
See notes to financial statements.
58 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 62
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
Transportation (2.2%)
10,917 Deutsche Lufthansa-Reg........................... $ 192,239
115,000 Cosco Pacific Limited............................ 133,911
--------------
326,150
--------------
Total Durables....................................................... 1,186,288
--------------
ENERGY (6.0%)
1,375 Elf Aquitaine.................................... 170,591
37,784 Eni Spa.......................................... 212,918
45,000 First Philippine Holdings........................ 37,606
61,895 Shell Transporting & Trading Company PLC......... 438,415
--------------
Total Energy......................................................... 859,530
--------------
FINANCE (16.2%)
Banking (13.1%)
6,702 Banco Galicia Y Bueno -- Sp ADR.................. 162,419
6,863 Banco Santander.................................. 192,462
28,567 Bank Of East Asia................................ 63,942
4,867 Banque Nationale De Paris........................ 215,653
15,000 Barclays PLC..................................... 378,721
5,250 Bayerische Vereinsbank AG........................ 304,803
1,633 Credit Suisse Group -- Reg....................... 230,754
11,000 National Westminster Bank........................ 158,966
35,100 Westpac Banking Corporation...................... 204,718
--------------
1,912,438
--------------
Financial Services (3.1%)
2,780 Axa -- UAP....................................... 190,808
21,193 Lloyds TSB Group PLC............................. 258,837
--------------
449,645
--------------
Total Finance........................................................ 2,362,083
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 59
<PAGE> 63
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH (6.7%)
19,100 Glaxo Wellcome PLC............................... $ 408,590
35 Roche Holding AG................................. 308,529
8,000 Sankyo Corporation Limited....................... 264,182
--------------
Total Health......................................................... 981,301
--------------
Industrial Machinery & Equipment (3.5%)
8,049 Atlas Copco AB -- B Shares....................... 239,371
3,147 Electrolux AB.................................... 260,788
--------------
Total Industrial Machinery & Equipment............................... 500,159
--------------
MEDIA & LEISURE (6.8%)
Hotels & Motels (1.4%)
9,000 Scandic Hotels AB (b)............................ 204,499
--------------
Multimedia (5.4%)
14,700 Elsevier......................................... 231,084
3,800 Polygram NV...................................... 216,225
19,000 Shochiku......................................... 137,024
15,000 Toppan Printing Corporation Limited.............. 188,405
--------------
772,738
--------------
Total Media & Leisure................................................ 977,237
--------------
NONDURABLES (3.5%)
Food, Beverage & Tobacco (3.5%)
30,400 Guinness PLC..................................... 272,156
134 Nestle........................................... 189,399
22,000 Ramayana Lestari Sen............................. 37,226
--------------
Total Nondurables.................................................... 498,781
--------------
</TABLE>
See notes to financial statements.
60 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE (3.2%)
23,000 City Developments................................ $ 96,565
198,000 Guangdong Kelon Elec............................. 251,054
21,728 Land and House................................... 15,634
29,100 WMC Limited...................................... 103,515
--------------
Total Real Estate & Mining........................................... 466,768
--------------
RETAIL & WHOLESALE (6.2%)
Restaurants (0.4%)
31,000 KFC Holding (Malaysia) Bhd....................... 62,093
Retail (5.8%)
2,700 Etam Developpement SA (b)........................ 181,517
4,743 Metro AG......................................... 209,489
3,000 Seven -- Eleven Japan............................ 224,588
3,800 Vendex International............................. 207,607
--------------
823,201
--------------
Total Retail & Wholesale............................................. 885,294
--------------
TECHNOLOGY (21.4%)
Data Processing (1.6%)
16,000 Ines............................................. 227,583
--------------
Electrical & Electronics (10.1%)
24,000 Ibiden Co. Ltd................................... 399,268
5,000 Murata Manufacturing Corporation Limited......... 202,961
16,800 Nihon Dempa Kogyo................................ 180,270
3,447 Philips Electronics.............................. 270,046
2,000 Rohm Company..................................... 197,970
3,376 Schneider........................................ 180,679
--------------
1,431,194
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 61
<PAGE> 65
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
Telecommunications (9.7%)
2,136 Alcatel Alsthom.................................. $ 258,324
21,000 Nippon Comsys Corporation........................ 255,032
25 Nippon Telegraph & Telephone Corporation......... 212,111
2,250 Telebras-Sponsored ADR........................... 227,813
2,155 Telecel -- Communicacoes Pessoai (b)............. 195,028
37,313 Telecom Italia................................... 234,338
--------------
1,382,646
--------------
Total Technology..................................................... 3,041,423
--------------
Total Common Stocks (Cost -- $12,827,467)............................ 13,285,943
--------------
INVESTMENT COMPANIES (7.1%)
1,003,518 Dreyfus Treasury Cash Management................. 1,003,518
--------------
TOTAL (COST -- $13,830,985) (A) (99.2%).............................. $14,289,461
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $14,402,889.
See notes to financial statements.
62 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 66
Distribution of investments by country of issue, as a percentage of total value
of investment securities, is as follows:
<TABLE>
<S> <C>
Japan.................................................... 21.9%
Great Britain............................................ 17.4%
Switzerland.............................................. 8.7%
France................................................... 8.4%
Netherlands.............................................. 6.5%
Germany.................................................. 6.0%
Hong Kong................................................ 6.0%
Sweden................................................... 4.9%
Italy.................................................... 3.1%
Australia................................................ 2.2%
Brazil................................................... 1.6%
Portugal................................................. 1.4%
Spain.................................................... 1.3%
Argentina................................................ 1.1%
Other, less than 1%...................................... 2.5%
United States (cash equivalent).......................... 7.0%
-----
100.0%
=====
</TABLE>
(a) For federal income tax purposes, cost is $13,878,831, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................ $1,070,711
Unrealized depreciation................................................ (660,081)
----------
Net unrealized appreciation............................................ $ 410,630
==========
</TABLE>
(b) Non-income producing security.
See notes to financial statements.
ANNUAL REPORT 63
<PAGE> 67
INTERNATIONAL EQUITY FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
CONTRACT CONTRACT VALUE UNREALIZED DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - ----------------------------------------------- -------- -------------- -------------- --------
<S> <C> <C> <C> <C>
LIABILITIES:
Dutch Guilder (buy)............................ 1.91050 $233,954 $(3,581) 11/03/97
</TABLE>
See notes to financial statements.
64 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 68
EUROPEAN GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (98.8%)
BASIC INDUSTRIES (11.6%)
Chemicals (8.8%)
2,134 Akzo Nobel....................................... $ 376,271
8,653 BASF AG.......................................... 298,457
8,095 Bayer AG......................................... 291,678
15,262 Imperial Chemical Inds. PLC...................... 227,466
--------------
1,193,872
--------------
Paper and Related Products (2.8%)
1,961 Papierwerke Waldhof Aschaff...................... 380,872
--------------
Total Basic Industries............................................... 1,574,744
--------------
BUILDING & CONSTRUCTION (7.3%)
296 Bouygues (b)..................................... 27,774
870 Dyckerhoff....................................... 278,590
15,401 Hollandsche Beton................................ 308,782
4,877 Lafarge SA (b)................................... 305,416
803 Suez Lyonnaise................................... 83,579
--------------
Total Building & Construction........................................ 1,004,141
--------------
CONGLOMERATES & HOLDING COMPANIES (10.4%)
Diversified Operations (10.4%)
106,657 BTR PLC.......................................... 363,432
53,660 General Electric................................. 341,402
8,751 Lagardere SCA (b)................................ 252,266
4,963 RWE AG........................................... 218,773
4,197 VEBA AG.......................................... 236,595
--------------
Total Conglomerates & Holding Companies.............................. 1,412,468
--------------
DURABLES (2.3%)
Transportation (2.3%)
9,384 Koninklijke Pakhoed.............................. 307,609
</TABLE>
See notes to financial statements.
ANNUAL REPORT 65
<PAGE> 69
EUROPEAN GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ENERGY (10.4%)
15,121 ABN Amro Holding................................. $ 304,727
77,893 BG PLC........................................... 340,507
38,509 National Power PLC............................... 319,896
6,119 Royal Dutch Petroleum............................ 323,895
16,243 Scottish Power................................... 121,044
--------------
Total Energy......................................................... 1,410,069
--------------
FINANCE (21.4%)
Banking (11.8%)
16,474 Abbey National Treasury.......................... 261,963
4,032 Banque Nationale De Paris........................ 178,655
9,154 Bayer Hypoth-Und Wechsel Bank.................... 386,227
1,926 Bayerische Vereinsbank........................... 111,819
7,662 Commercial Union................................. 107,516
4,938 Dresdner Bank.................................... 204,614
2,643 Societe Generale (b)............................. 362,810
--------------
1,613,604
--------------
Financial Services (9.6%)
7,425 ASR Verzekeringsgroep............................ 394,173
1,376 Axa -- UAP....................................... 94,443
4,618 CIE Financiere De Paribas (b).................... 336,139
2,416 ING Groep N.V.................................... 101,486
39,371 Royal & Sun Alliance............................. 379,202
--------------
1,305,443
--------------
Total Finance........................................................ 2,919,047
--------------
MEDIA & LEISURE (5.5%)
Advertising (1.8%)
3,809 Havas (b)........................................ 251,507
Hotels & Motels (1.2%)
840 Accor SA......................................... 156,761
</TABLE>
See notes to financial statements.
66 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 70
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
Multimedia (2.5%)
135 Canal Plus (b)................................... $ 23,552
20,363 Elsevier NV...................................... 320,107
--------------
343,659
--------------
Total Media & Leisure................................................ 751,927
--------------
METALS & STEELS (7.5%)
499 Buderus AG....................................... 242,439
79 Preussag......................................... 20,982
5,228 Stork............................................ 226,344
1,032 Thyssen.......................................... 228,807
18,020 Usinor SA (b).................................... 299,029
--------------
Total Metals & Steels................................................ 1,017,601
--------------
NONDURABLES (6.7%)
Food, Beverage & Tobacco (6.7%)
40,121 B.A.T. Industries PLC............................ 352,121
18,396 Bass PLC......................................... 254,437
6,549 Pernod-Ricard (b)................................ 304,179
--------------
Total Nondurables.................................................... 910,737
--------------
MINING (2.0%)
5,572 Koninklijke Hoogovens............................ 255,596
1,444 Rio Tinto PLC.................................... 18,738
--------------
Total Mining......................................................... 274,334
--------------
RETAIL (6.2%)
1,758 Metro............................................ 77,647
8,392 Douglas Holdings................................. 298,965
2,428 Eridania Beghin-Say (b).......................... 350,172
13,459 Sainsbury PLC.................................... 112,143
--------------
Total Retail......................................................... 838,927
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 67
<PAGE> 71
EUROPEAN GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TECHNOLOGY (7.5%)
Electrical & Electronics (2.4%)
11,963 Thomson CSF...................................... $ 325,942
Telecommunications (5.1%)
50,220 British Telecom PLC.............................. 380,346
8,353 Koninklijke PTT Nederlands....................... 319,448
--------------
699,794
--------------
Total Technology..................................................... 1,025,736
--------------
TOTAL COMMON STOCKS (COST -- $13,450,696)............................ 13,447,340
--------------
INVESTMENT COMPANIES (3.5%)
480,031 Dreyfus Treasury Cash Management................. 480,031
--------------
TOTAL (COST -- $13,930,727) (A) (102.3%)............................. $13,927,371
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $13,608,372.
Distribution of investments by country of issue, as a percentage of total value
of investment securities, is as follows
<TABLE>
<S> <C>
Great Britain............................................ 25.8%
France................................................... 24.0%
Netherlands.............................................. 23.2%
Germany.................................................. 23.5%
United States (cash equivalent).......................... 3.5%
-----
100.0%
=====
</TABLE>
(a) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities as follows
<TABLE>
<S> <C>
Unrealized appreciation............................................... $ 469,493
Unrealized depreciation............................................... (472,849)
---------
Net unrealized depreciation........................................... $ (3,356)
=========
</TABLE>
(b) All or a portion of the security was purchased on a delayed delivery basis
and cost is $117,343 (Note 2).
See notes to financial statements.
68 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 72
EUROPEAN GROWTH & INCOME FUND
FORWARD CURRENCY CONTRACTS
October 31, 1997
<TABLE>
<CAPTION>
CONTRACT CONTRACT VALUE UNREALIZED DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- - ------------------------------------------------ -------- -------------- -------------- --------
<S> <C> <C> <C> <C>
LIABILITIES:
French Franc (buy).............................. 5.75500 $119,828 $ (941) 11/28/97
British Pound (buy)............................. 1.67650 125,690 (834) 11/05/97
Dutch Guilder (buy)............................. 1.94020 115,578 (1,769) 11/03/97
------------ ----------
$361,096 $(3,544)
============ ==========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 69
<PAGE> 73
GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ----------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (48.1%)
BASIC INDUSTRIES (8.5%)
Chemicals (4.4%)
115,965 Du Pont (E.I.) De Nemours & Company............ $ 6,595,509
Paper and Related Products (4.1%)
137,740 International Paper Company.................... 6,198,300
--------------
Total Basic Industries............................................... 12,793,809
--------------
CONGLOMERATES & HOLDING COMPANIES (4.6%)
75,635 Minnesota Mining & Manufacturing Company....... 6,920,603
DURABLES (5.0%)
Automobiles (5.0%)
116,445 General Motors Corporation..................... 7,474,313
Energy (11.9%)
95,955 Chevron Corporation............................ 7,958,268
123,205 Exxon Corporation.............................. 7,569,407
42,616 Texaco Incorporated............................ 2,426,449
--------------
17,954,124
--------------
Total Durables....................................................... 25,428,437
--------------
FINANCE (4.7%)
65,195 J.P. Morgan & Company.......................... 7,155,151
HEALTH (0.2%)
2,725 Merck & Co Inc................................. 243,206
INDUSTRIAL MACHINERY & EQUIPMENT (0.2%)
4,950 Caterpillar International...................... 253,688
NONDURABLES (5.0%)
Food, Beverage & Tobacco (4.4%)
166,070 Philip Morris Companies Inc.................... 6,580,524
Auto Tires & Accessories (0.6%)
16,195 Goodyear Tire & Rubber Company................. 1,014,212
--------------
Total Nondurables.................................................... 7,594,736
--------------
</TABLE>
See notes to financial statements.
70 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 74
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ----------------------------------------------- ---------------
<C> <S> <C>
(CONTINUED)TECHNOLOGY (8.0%)
Photo Supplies & Equipment (2.1%)
53,785 Eastman Kodak.................................. $ 3,220,377
Telecommunications (5.9%)
182,910 AT&T Corporation............................... 8,951,158
--------------
Total Technology..................................................... 12,171,535
--------------
Total Common Stocks (Cost -- $67,346,759)............................ 72,561,165
--------------
INVESTMENT COMPANIES (52.7%)
829,340 S&P 500 Depositary Receipt..................... 76,351,114
3,230,901 Dreyfus Treasury Cash Management............... 3,230,901
--------------
Total Investment Companies........................................... 79,582,015
--------------
TOTAL (COST -- $138,583,282) (a) (100.8%)............................ $ 152,143,180
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $150,943,865.
(a) For federal income tax purposes, cost is $138,591,588, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $14,519,066
Unrealized depreciation............................................... (967,474)
-----------
Net unrealized appreciation........................................... $13,551,592
===========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 71
<PAGE> 75
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (3.7%)
29,210 Contimortgage Home Equity 1996-3 A1, 6.76%,
02/15/11 (a).................................... $ 29,365
226,453 Pacific Southwest 97-1, 6.06%, 06/15/02 (a)...... 226,313
500,000 Salomon, Inc., 6.132%, 07/23/01 (a) (d).......... 499,990
--------------
Total Asset Backed Securities........................................ 755,668
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (14.7%)
Corporate (3.7%)
178,326 Drexel Burnham Lambert, 6.4375%, 05/01/16........ 178,326
170,323 Drexel Burnham Lambert, 6.4875%, 10/01/18 (a).... 171,336
400,000 Merrill Lynch Mortgage, 6.527%, 06/15/16
(a) (d)......................................... 405,360
--------------
755,022
--------------
Federal Home Loan Bank (5.3%)
31,611 8.600%, 06/15/19 (a)............................. 31,555
1,006,855 6.625%, 03/15/21................................. 1,028,566
--------------
1,060,121
--------------
Federal National Mortgage Association (5.7%)
104,768 8.000%, 10/17/00 (a)............................. 107,251
382,504 5.500%, 02/25/14 (a)............................. 380,691
443,099 6.500%, 04/25/17 (a)............................. 441,380
74,064 8.000%, 03/25/18 (a)............................. 74,260
36,654 6.506%, 05/25/18................................. 36,654
118,096 6.106%, 04/25/21 (a)............................. 118,224
--------------
1,158,460
--------------
Total Collateralized Mortgage Obligations............................ 2,973,603
--------------
COMMERCIAL PAPER (24.2%)
AUTOMOBILES (8.4%)
700,000 Mitsubishi, 5.52%, 11/04/97...................... 699,678
1,000,000 Toyota Motor Corp., 5.46%, 12/05/97.............. 994,834
--------------
1,694,512
--------------
</TABLE>
See notes to financial statements.
72 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 76
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
CHEMICALS (4.9%)
1,000,000 Du Pont (E.I.) De Nemours, 5.48%, 11/14/97....... $ 998,021
FINANCIAL (3.5%)
700,000 Merrill Lynch, 5.51%, 11/12/97................... 698,821
COMPUTERS (7.4%)
1,500,000 IBM Credit Corp, 5.49%, 11/12/97................. 1,497,475
--------------
Total Commercial Paper............................................... 4,888,829
--------------
CORPORATE BONDS (12.3%)
DURABLES (0.5%)
Automobiles (0.5%)
100,000 General Motors Acceptance, 9.125%, 07/15/01
(a)............................................. 109,625
FINANCE (2.8%)
Banking (0.8%)
150,000 Nationsbank Corporation, 5.75%, 01/17/01 (a)..... 148,313
Financial (2.0%)
100,000 Lehman Brothers Holdings, 8.38%, 02/15/99 (a).... 103,000
300,000 Lehman Brothers Holdings, 7.63%, 07/15/99 (a).... 307,500
--------------
410,500
--------------
558,813
--------------
MULTIMEDIA (5.0%)
500,000 News American Holdings, 7.45%, 06/01/00.......... 514,375
500,000 Time Warner, 4.90%, 07/29/99 (a) (c)............. 488,750
--------------
1,003,125
--------------
TECHNOLOGY (4.0%)
Telecommunications (4.0%)
300,000 AT&T Capital Corp., 5.61%, 02/01/99 (a).......... 298,875
500,000 TCI Communications, 6.381%, 03/12/01............. 500,780
--------------
799,655
--------------
Total Corporate Bonds................................................ 2,471,218
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 73
<PAGE> 77
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (37.6%)
Federal Home Loan Bank (16.6%)
700,000 5.500%, 11/03/97................................. $ 699,786
451,731 6.025%, 01/15/06 (a)............................. 452,846
1,000,000 7.478%, 11/01/18................................. 1,037,344
368,043 6.075%, 06/17/20................................. 370,233
784,613 6.225%, 10/15/20 (a)............................. 796,873
--------------
3,357,082
--------------
Federal National Mortgage Association (20.2%)
1,000,000 5.425%, 11/24/97 (a)............................. 996,534
1,000,000 5.470%, 11/25/97................................. 996,353
500,000 5.400%, 12/17/97................................. 496,550
155,481 5.956%, 09/25/98 (a)............................. 155,509
198,586 11.00%, 10/01/06 (a)............................. 212,016
900,462 7.218%, 06/01/15 -- ARM.......................... 930,852
272,859 7.556%, 06/01/25 -- ARM.......................... 285,479
--------------
4,073,293
--------------
Government National Mortgage Association (0.8%)
26,967 7.993%, 01/16/08 -- ARM (a)...................... 26,985
128,799 7.375%, 06/20/18 -- ARM (a)...................... 132,824
--------------
159,809
--------------
Total U.S. Government Agencies....................................... 7,590,184
--------------
INVESTMENT COMPANIES (4.6%)
9,500 Standard & Poor 500 Depositary Receipt (a)....... 874,594
61,060 Dreyfus Treasury Cash Management................. 61,060
--------------
Total Investment Companies........................................... 935,654
--------------
TOTAL (COST -- $19,575,090) (b) (97.1%).............................. $19,615,156
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $20,195,497.
See notes to financial statements.
74 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 78
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
At October 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION CURRENT UNREALIZED
CONTRACTS CONTRACT TYPE DATE MARKET VALUE DEPRECIATION
--------- -------------------------------- ---------- ------------ ------------
<C> <S> <C> <C> <C>
40 Standard & Poors 500 Index Dec-97 $18,480,000 $ (455,075)
</TABLE>
(b) For federal income tax purposes, cost is $19,582,114, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................... $36,770
Unrealized depreciation................................................... (3,728)
-------
Net unrealized appreciation............................................... $33,042
=======
</TABLE>
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $488,750 or 2.4% of net assets.
(d) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
See notes to financial statements.
ANNUAL REPORT 75
<PAGE> 79
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (3.1%)
294,503 Chase Manhattan Grantor Trust 1995-A, 6.00%,
09/17/01........................................ $ 294,336
417,283 Contimortgage Home Equity, 6.76%, 02/15/11....... 419,507
125,000 MBNA Master Credit Card Trust 1992-1, 7.25%,
06/15/99........................................ 124,778
3,809,366 Olympic Automobile Receivables Trust, 7.88%,
07/15/01........................................ 3,879,877
-------------
Total Asset Backed Securities........................................ 4,718,498
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS (17.8%)
Corporate (4.6%)
6,965,634 Residential Funding 1995-S8 A2, 8.00%,
05/25/25........................................ 6,985,225
Federal Home Loan Mortgage Corporation (6.9%)
590,401 6.500%, 12/15/04................................. 589,356
4,653,710 5.925%, 04/15/08................................. 4,663,110
5,152,601 6.075%, 06/17,20 (c)............................. 5,183,259
-------------
10,435,725
-------------
Federal National Mortgage Association (6.3%)
863,811 6.0000%, 08/25/13................................ 860,849
3,825,038 5.5000%, 02/25/14................................ 3,806,908
5,000,000 6.0000%, 12/25/14................................ 4,987,900
-------------
9,655,657
-------------
Total Collateralized Mortgage Obligations............................ 27,076,607
COMMERCIAL PAPER (44.3%)
AUTOMOBILES (4.6%)
7,000,000 Toyota Motor Corp., 5.46%, 12/05/97.............. 6,963,903
CHEMICALS (4.2%)
6,500,000 Du Pont (E.I.) De Nemours & Co., 5.46%,
12/16/97........................................ 6,455,638
ENERGY (4.9%)
7,500,000 Amoco, 5.48%, 01/05/98........................... 7,425,792
FINANCIAL (4.6%)
7,000,000 American Express, 5.48%, 12/01/97................ 7,000,000
</TABLE>
See notes to financial statements.
76 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 80
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMERCIAL PAPER (CONTINUED)
FOOD, BEVERAGE & TOBACCO (4.8%)
7,500,000 Coca Cola, 5.48%, 01/15/98....................... $ 7,414,375
INDUSTRIAL EQUIPMENT (4.5%)
7,000,000 General Electric Capital Corp, 5.50%, 01/05/98... 6,930,486
MULTIMEDIA (4.9%)
7,500,000 Walt Disney, 5.45%, 12/19/97..................... 7,445,500
TECHNOLOGY (11.8%)
Computers & Office Equipment (8.5%)
7,500,000 IBM Credit Corp, 5.49%, 12/12/97................. 7,453,106
5,500,000 Xerox Credit Corp., 5.49%, 11/07/97.............. 5,494,968
-------------
12,948,074
Telecommunications (3.3%)
5,000,000 AT&T Corporation, 5.46%, 11/25/97................ 4,981,800
-------------
Total Technology..................................................... 17,929,874
-------------
Total Commercial Paper............................................... 67,565,568
-------------
CORPORATE BONDS (25.4%)
AEROSPACE & DEFENSE (2.0%)
3,000,000 Lockheed Martin Corporation, 6.63%, 06/15/98..... 3,012,390
FINANCE (11.5%)
Banking (8.5%)
4,000,000 Comerica Bank, 5.80%, 01/15/98................... 4,001,280
2,000,000 Key Bank, 6.05%, 04/06/98........................ 2,003,260
7,000,000 SBC Glacier Finance Limited, 5.88%, 09/10/02
(b)............................................. 6,997,813
-------------
13,002,353
Financial (3.0%)
4,500,000 International Lease Finance, 8.13%, 01/15/98..... 4,519,575
-------------
Total Finance........................................................ 17,521,928
-------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 77
<PAGE> 81
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
INDUSTRIAL EQUIPMENT (1.6%)
1,500,000 Ingersoll-Rand, 6.54%, 08/24/98.................. $ 1,505,940
1,000,000 Paccar Financial Corp., 8.03%, 04/15/98.......... 1,010,810
-------------
Total Industrial Equipment........................................... 2,516,750
-------------
INDUSTRIAL GOODS AND SERVICES (0.4%)
600,000 Rockwell International, 7.63%, 02/17/98.......... 603,000
MULTIMEDIA (4.2%)
6,500,000 Time Warner, 4.90%, 07/29/99 (b)................. 6,353,750
NONDURABLES (0.6%)
Food, Beverage & Tobacco (0.6%)
1,000,000 Pepsi Company Inc., 6.13%, 01/15/98.............. 1,000,670
TECHNOLOGY (5.1%)
Telecommunications (5.1%)
2,700,000 AT&T Capital Corporation, 6.39%, 01/22/99........ 2,716,875
5,000,000 TCI Communications, 6.381%, 03/12/01 (c)......... 5,007,800
-------------
Total Technology..................................................... 7,724,675
-------------
Total Corporate Bonds................................................ 38,733,163
-------------
U.S. GOVERNMENT AGENCIES (4.4%)
Federal Home Loan Mortgage Corporation (3.3%)
5,000,000 5.508%, 04/14/98................................. 4,998,454
Federal National Mortgage Association (1.1%)
1,651,405 9.500%, 09/01/24................................. 1,770,603
-------------
Total U.S. Government Agencies....................................... 6,769,057
-------------
U.S. TREASURY NOTES (5.4%)
8,000,000 6.875%, 08/31/99................................. 8,165,680
INVESTMENT COMPANIES (0.7%)
1,021,468 Dreyfus Treasury Cash Management................. 1,021,468
-------------
TOTAL (COST -- $153,877,829) (a) (101.1%)............................ $ 154,050,041
=============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $152,429,056.
See notes to financial statements.
78 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 82
(a) For federal income tax purposes, cost is $153,880,041, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $176,535
Unrealized depreciation............................................... (6,535)
--------
Net unrealized appreciation........................................... $170,000
========
</TABLE>
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $13,351,563 or 8.8% of net assets.
(c) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
See notes to financial statements.
ANNUAL REPORT 79
<PAGE> 83
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (4.9%)
358,863 Contimortgage Home Equity, 6.76%, 02/15/11....... $ 360,776
968,576 Fleetwood Credit Grantor Trust 1996-A, 6.75%,
10/17/11........................................ 985,178
3,235,048 Pacific Southwest 97-1, 6.06%, 06/17/02.......... 3,233,042
--------------
Total Asset Backed Securities........................................ 4,578,996
--------------
COLLATERIZED MORTGAGE OBLIGATIONS (27.9%)
Corporate (16.1%)
2,110,000 Capstead Securities Corp. IV 1992-12D, 7.60%,
08/25/07........................................ 2,137,694
3,771,255 Countrywide Home Loans, 7.125%, 09/25/27......... 3,793,647
2,806,092 Paine Webber Mtg. Acceptance Corp., 7.50%,
07/25/23........................................ 2,838,537
1,358,400 Residential Funding, 6.25%, 10/25/23............. 1,359,853
2,401,104 Residential Funding, 7.00%, 08/25/27............. 2,413,110
2,500,000 Westam Mortgage Financial Corp., 9.40%,
12/01/18........................................ 2,594,531
--------------
15,137,372
--------------
Federal Home Loan Mortgage Corporation (0.0%)
32,276 5.500%, 04/15/13................................. 32,199
Federal National Mortgage Association (11.8%)
1,079,764 6.000%, 08/25/13................................. 1,076,061
335,663 7.500%, 01/25/18................................. 334,391
2,909,803 10.00%, 07/01/21................................. 3,172,587
4,266,334 0.000%, 11/25/26................................. 3,475,729
3,027,226 6.2875%, 04/25/27................................ 3,040,607
--------------
11,099,375
--------------
Total Collateralized Mortgage Obligations............................ 26,268,946
--------------
COMMERCIAL PAPER (4.8%)
4,500,000 American Express, 5.55%, 11/21/97................ 4,500,000
--------------
Total Commercial Paper............................................... 4,500,000
--------------
</TABLE>
See notes to financial statements.
80 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 84
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (24.9%)
AEROSPACE & DEFENSE (6.3%)
2,500,000 Lockheed Martin Corp., 6.63%, 06/15/98........... $ 2,510,325
3,400,000 Raytheon Corporation, 6.30%, 8/15/00............. 3,417,000
--------------
5,927,325
--------------
FINANCIAL (2.2%)
2,000,000 Salomon, Inc., 7.125%, 08/01/99.................. 2,035,000
HEALTH CARE (3.2%)
2,990,000 Columbia/HCA Health, 6.41%, 06/15/00............. 2,975,050
INDUSTRIAL EQUIPMENT (3.7%)
1,000,000 Caterpillar Finance Inc., 6.41%, 06/11/98........ 1,005,460
2,500,000 Ingersoll-Rand, 6.47%, 08/24/98.................. 2,508,550
--------------
3,514,010
--------------
MULTIMEDIA (2.1%)
2,000,000 Time Warner, 4.90%, 07/29/99 (b)................. 1,955,000
TELECOMMUNICATIONS (7.4%)
3,500,000 AT&T Capital Corporation, 6.57%, 01/21/00........ 3,530,625
3,500,000 TCI Communications, 6.381%, 03/12/01 (c)......... 3,505,460
--------------
7,036,085
--------------
Total Corporate Bonds................................................ 23,442,470
--------------
U.S. GOVERNMENT AGENCIES (20.4%)
Federal Home Loan Mortgage Corporation (13.8%)
13,000,000 5.650%, 11/03/97................................. 12,995,919
Government National Mortgage Association (6.6%)
5,828,939 9.000%, 06/15/09................................. 6,267,931
--------------
Total U.S. Government Agencies....................................... 19,263,850
--------------
U.S. TREASURY NOTES (19.6%)
2,500,000 5.750%, 12/31/98................................. 2,503,375
15,000,000 5.625%, 10/31/99................................. 15,001,050
1,000,000 5.875%, 02/15/00................................. 1,003,370
--------------
Total U.S. Treasury Notes............................................ 18,507,795
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 81
<PAGE> 85
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
INVESTMENT COMPANIES (2.3%)
2,191,995 Dreyfus Treasury Cash Management................. $ 2,191,995
--------------
TOTAL (COST -- $98,559,710) (a) (104.8%)............................. $98,754,052
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $94,255,658.
(a) For federal income tax purposes, cost is $98,566,585, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $229,459
Unrealized depreciation............................................... (41,992)
--------
Net unrealized appreciation........................................... $187,467
========
</TABLE>
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $1,955,000 or 2.1% of net assets.
(c) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
See notes to financial statements.
82 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 86
U.S. TREASURY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
U.S. TREASURY NOTES (88.8%)
1,000,000 6.000%, 12/31/97................................. $ 1,001,110
3,500,000 5.630%, 01/31/98................................. 3,500,875
1,400,000 5.880%, 08/15/98................................. 1,402,982
500,000 5.880%, 10/31/98................................. 501,350
2,500,000 6.250%, 03/31/99................................. 2,520,900
2,600,000 5.750%, 08/15/03................................. 2,588,014
2,000,000 7.875%, 11/15/04................................. 2,227,000
--------------
Total U.S. Treasury Notes............................................ 13,742,231
--------------
U.S. TREASURY STRIPS (9.9%)
1,200,000 0.000%, 08/15/99................................. 1,087,236
550,000 0.000%, 08/15/01................................. 444,158
--------------
Total U.S. Treasury Strips........................................... 1,531,394
--------------
INVESTMENT COMPANIES (0.01%)
877 Dreyfus Treasury Cash Management................. 877
--------------
TOTAL (COST -- $15,083,669) (a) (98.7%).............................. $15,274,502
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $15,478,606.
(a) For federal income tax purposes, cost is $15,090,388, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $184,338
Unrealized depreciation............................................... (224)
--------
Net unrealized appreciation........................................... $184,114
========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 83
<PAGE> 87
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (23.7%)
3,150,000 Chase Manhattan Bank-New, 7.875%, 07/15/06....... $ 3,402,000
3,500,000 First Bank Corp. Card Master Trust, 6.40%,
02/15/03......................................... 3,558,450
1,000,000 First USA Credit Card Master Trust, 5.867%,
06/17/02 (d)..................................... 1,002,600
1,800,000 Green Tree Financial Corp., 6.93%, 07/15/28...... 1,843,875
4,000,000 Green Tree Financial Corp., 7.22%, 03/15/28...... 4,113,750
678,634 Merit Securities Corporation 8-A1, 5.876%,
09/28/30 (d)..................................... 678,210
1,600,000 Navistar Financial Corp 1997-AA3, 6.75%,
03/15/02......................................... 1,622,000
3,000,000 Salomon, Inc., 6.132%, 07/23/01(a)(d)............ 2,999,940
--------------
Total Asset Backed Securities........................................ 19,220,825
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS (9.4%)
Corporate (4.8%)
3,841,767 Residential Funding, 7.00%, 08/25/27 (a)......... 3,860,976
Federal Home Loan Mortgage Corporation (1.7%)
1,380,161 6.075%, 06/17/20 (a) (d)......................... 1,388,373
Federal National Mortgage Association (2.9%)
2,908,864 0.000%, 11/25/26................................. 2,369,815
--------------
Total Collateralized Mortgage Obligations............................ 7,619,164
--------------
CORPORATE BONDS (44.9%)
DURABLES (5.6%)
Automobiles (4.3%)
3,500,000 General Motors Acceptance, 5.75%, 01/05/00....... 3,473,750
Consumer Goods and Services (1.3%)
1,000,000 Disney Global Bond, 6.38%, 03/30/01.............. 1,011,250
--------------
Total Durables....................................................... 4,485,000
--------------
ENERGY (1.8%)
1,500,000 Puget Sound Power & Light, 6.50%, 09/14/99....... 1,511,250
</TABLE>
See notes to financial statements.
84 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 88
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
FINANCE (14.3%)
Banking (9.2%)
1,500,000 ABN-Amro Bank, 7.25%, 05/31/05................... $ 1,565,250
850,000 Citicorp, 6.65%, 05/15/00........................ 861,688
1,000,000 Old Kent Bank, 6.88%, 04/15/98................... 1,005,130
4,000,000 SBC Glacier Finance LTD, 5.879%,
09/10/02 (a) (c)................................. 3,998,750
--------------
7,430,818
--------------
Financial Services (5.1%)
3,000,000 Grand Metropolitan Investment, 8.63%,
08/15/01 (a)..................................... 3,240,000
850,000 Transamerica Financial Corporation, 7.40%,
07/29/99......................................... 869,125
--------------
4,109,125
--------------
Total Finance........................................................ 11,539,943
--------------
HEALTH CARE (0.6%)
450,000 Columbia/HCA Healthcare Corp., 6.41%, 06/15/00... 447,750
INDUSTRIAL EQUIPMENT (4.4%)
3,500,000 Paccar Financial Corporation, 6.86%, 02/15/00.... 3,565,625
INDUSTRIAL GOODS AND SERVICES (1.6%)
1,250,000 Honeywell Incorporated, 6.60%, 04/15/01.......... 1,268,750
MULTIMEDIA (4.1%)
3,000,000 News American Holdings, 8.625%, 02/01/03 (a)..... 3,273,750
TELECOMMUNICATIONS (12.5%)
2,500,000 AT&T Capital Corporation, 5.90%, 07/10/98 (a).... 2,502,350
4,000,000 TCI Communications, 6.381%, 03/12/01 (a) (d)..... 4,006,240
3,500,000 US West Capital Funding Note, 6.85%,
01/15/02 (a)..................................... 3,583,125
--------------
Total Telecommunications............................................. 10,091,715
--------------
Total Corporate Bonds................................................ 36,183,783
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 85
<PAGE> 89
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
U.S. GOVERNMENT AGENCIES (17.6%)
Federal Home Loan Mortgage Corporation (1.3%)
1,000,000 7.000%, 05/01/12 (f)............................. $ 1,014,060
Federal National Mortgage Association (10.2%)
645,945 8.500%, 10/01/19................................. 681,065
1,454,901 10.00%, 07/01/21................................. 1,586,294
6,000,000 7.000%, 10/01/27 (f)............................. 6,005,580
--------------
8,272,939
--------------
Government National Mortgage Association (4.3%)
1,363,501 8.000%, 12/15/26................................. 1,414,632
2,000,000 8.000%, 01/15/27 (f)............................. 2,071,860
--------------
3,486,492
--------------
Other Agencies (1.8%)
1,400,000 Tennessee Valley Authority, 6.3800%, 06/15/05.... 1,421,000
--------------
Total U.S. Government Agencies....................................... 14,194,491
--------------
U.S. TREASURY NOTES (8.8%)
1,000,000 6.130%, 12/31/01 (a)............................. 1,011,880
1,500,000 6.250%, 02/28/02................................. 1,525,485
2,000,000 6.625%, 04/30/02................................. 2,063,920
2,535,478 3.375%, 01/15/07 -- Inflation Index Note (e)..... 2,501,435
--------------
Total U.S. Treasury Notes............................................ 7,102,720
--------------
INVESTMENT COMPANIES (5.7%)
4,631,162 Dreyfus Treasury Cash Management................. 4,631,162
--------------
TOTAL (COST -- $87,722,581) (b) (110.1%)............................. $88,952,145
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $80,765,593.
See notes to financial statements.
86 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 90
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
At October 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION CURRENT UNREALIZED
CONTRACTS CONTRACT TYPE DATE MARKET VALUE APPRECIATION
- - --------- -------------------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
130 U.S. Treasury 10-Year Note Dec-97 $14,527,500 $ 16,250
</TABLE>
(b) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............................................. $1,231,735
Unrealized depreciation.............................................. (2,171)
----------
Net unrealized appreciation.......................................... $1,229,564
==========
</TABLE>
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,998,750 or 5.0% of net
assets.
(d) This is a variable rate investment and the rate reflected on the Schedule
of Portfolio Investments is the rate in effect at October 31, 1997.
(e) Inflation Index Notes are government securities with par values that
increase over time at the annual rate of inflation using the Consumer Price
Index (CPI).
(f) Security was purchased on a delayed delivery basis. Total cost of delayed
delivery transactions is $9,082,924 (Note 2).
See notes to financial statements.
ANNUAL REPORT 87
<PAGE> 91
INVESTMENT QUALITY BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (22.6%)
2,700,000 Green Tree Financial Corp., 6.80%, 10/15/27
(a)............................................. $ 2,773,197
2,500,000 Green Tree Financial Corp., 7.22%, 03/15/28...... 2,571,094
4,500,000 IMC Home Equity Loan Trust 1997-6 A, 5.847%,
01/20/28........................................ 4,500,000
4,220,000 MBNA Master Credit Card Trust, 6.60%, 11/15/04... 4,308,873
1,233,880 Merit Securities Corporation 8-A1, 5.876%,
09/28/30 (a)(d)................................. 1,233,109
2,846,842 Pacific Southwest 97-1, 6.06%, 06/15/02.......... 2,845,077
750,000 Premier Auto Trust 1996-2 A4, 6.575%, 10/6/00.... 758,468
2,500,000 Salomon, Inc., 6.1325%, 07/23/01 (a)............. 2,499,950
-------------
Total Asset Backed Securities........................................ 21,489,768
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS (13.4%)
Corporate (1.6%)
1,412,976 General Electric Capital 92-7A, 8.30%,
07/25/23........................................ 1,464,846
Federal Home Loan Mortgage Corporation (1.9%)
1,840,215 6.075%, 06/17/20 (a) (d)......................... 1,851,164
Federal National Mortgage Association (9.9%)
1,624,234 6.256%, 05/25/99 (a)............................. 1,633,460
1,905,539 6.056%, 02/25/06 (a)............................. 1,909,369
2,424,053 0.000%, 11/25/26................................. 1,974,846
3,960,000 6.500%, 09/01/27................................. 3,890,700
-------------
9,408,375
-------------
Total Collateralized Mortgage Obligations............................ 12,724,385
-------------
COMMERCIAL PAPER (2.1%)
2,000,000 General Electric Capital, 5.10%, 11/10/97 (a).... 2,000,000
-------------
Total Commercial Paper............................................... 2,000,000
-------------
</TABLE>
See notes to financial statements.
88 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 92
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (34.1%)
DURABLES (1.6%)
Automobiles (0.5%)
500,000 General Motors Acceptance Corp., 8.625%,
06/15/99........................................ $ 519,375
Consumer Goods and Services (1.1%)
1,000,000 Walt Disney Company, 6.375%, 03/30/01 (a)........ 1,011,250
-------------
Total Durables....................................................... 1,530,625
-------------
ENERGY (1.1%)
500,000 Union Electric, 6.875%, 08/01/04................. 515,000
500,000 Virginia Electric Power Company, 7.375%,
07/01/02........................................ 523,125
-------------
Total Energy......................................................... 1,038,125
-------------
FINANCE (14.5%)
Banking (5.4%)
400,000 ABN -- Amro Bank, 7.25%, 05/31/05................ 417,400
200,000 Citicorp, 6.65%, 05/15/00........................ 202,750
4,000,000 SBC Glacier Finance LTD, 5.879%, 09/10/02 (a)
(c)............................................. 3,998,750
500,000 Swiss Bank Corporation -- N.Y., 7.25%, 09/1/06... 526,250
-------------
5,145,150
-------------
Financial (9.1%)
5,000,000 FC CBO, 8.430%, 06/03/09 (a) (c)................. 5,284,375
1,500,000 Grand Metropolitan PLC, 8.63%, 08/15/01 (a)...... 1,620,000
1,500,000 Salomon Incorporated, 7.25%, 05/01/01............ 1,546,875
190,000 Transamerica Financial Corp., 7.40%, 07/29/99.... 194,275
-------------
8,645,525
-------------
Total Finance........................................................ 13,790,675
-------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 89
<PAGE> 93
INVESTMENT QUALITY BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
HEALTH CARE (2.1%)
1,900,000 Columbia/HCA Healthcare Corp., 6.87%, 09/15/03... $ 1,947,500
INDUSTRIAL GOODS AND SERVICES (5.1%)
500,000 Hanson Overseas, PLC, 6.75%, 09/15/05............ 508,125
4,000,000 Raytheon Company, 6.75%, 08/15/07 (a)............ 4,070,000
250,000 Rockwell International, 7.63%, 02/17/98.......... 251,250
-------------
Total Industrial Goods and Services.................................. 4,829,375
-------------
MULTIMEDIA (4.4%)
4,000,000 Time Warner, Inc., 7.75%, 06/15/05............... 4,215,000
TELECOMMUNICATIONS (5.3%)
2,500,000 TCI Communications, 6.381%, 03/12/01 (a) (d)..... 2,503,900
2,500,000 US West Capital Funding, 6.85%, 01/15/02 (a)..... 2,559,375
-------------
Total Telecommunications............................................. 5,063,275
-------------
Total Corporate Bonds................................................ 32,414,575
-------------
U.S. GOVERNMENT AGENCIES (39.8%)
Federal Home Loan Mortgage Corporation (19.4%)
1,000,000 5.550%, 11/24/97................................. 996,556
3,414,506 7.000%, 09/01/12 (a)............................. 3,462,514
2,700,000 7.000%, 10/01/12 (e)............................. 2,737,962
1,946,694 8.500%, 06/01/22................................. 2,053,139
2,508,350 7.500%, 08/01/27................................. 2,563,208
2,475,000 7.500%, 10/01/27................................. 2,529,128
4,000,000 7.500%, 10/01/27 (e)............................. 4,086,240
-------------
18,428,747
-------------
Federal National Mortgage Association (17.3%)
10,500,000 7.000%, 10/01/27 (e)............................. 10,509,765
5,700,000 8.000%, 10/01/27 (e)............................. 5,901,267
-------------
16,411,032
-------------
</TABLE>
See notes to financial statements.
90 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 94
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (CONTINUED)
Government National Mortgage Association (3.1%)
2,920,888 7.5000%, 05/15/26................................ $ 2,986,608
-------------
Total U.S. Government Agencies....................................... 37,826,387
-------------
U.S. TREASURY NOTES (2.2%)
1,000,000 6.875%, 08/31/99 (a)............................. 1,020,710
1,014,863 3.375%, 01/15/07................................. 1,000,574
-------------
Total U.S. Treasury Notes............................................ 2,021,284
-------------
U.S. TREASURY BONDS (5.1%)
700,000 6.2500%, 08/15/23 (a)............................ 701,267
4,000,000 6.5000%, 11/15/26................................ 4,174,600
-------------
Total U.S. Treasury Bonds............................................ 4,875,867
-------------
INVESTMENT COMPANIES (4.0%)
3,748,351 Dreyfus Treasury Cash Management................. 3,748,351
--------------
TOTAL (COST -- $115,765,559) (B) (123.3%)............................ $ 117,100,617
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $94,986,565.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
At October 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION CURRENT UNREALIZED
CONTRACTS CONTRACT TYPE DATE MARKET VALUE APPRECIATION
--------- -------------------------------- ---------- ------------ ------------
<C> <S> <C> <C> <C>
70 U.S. Treasury Bond Future Dec-97 $8,292,813 $5,313
</TABLE>
See notes to financial statements.
ANNUAL REPORT 91
<PAGE> 95
INVESTMENT QUALITY BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
At October 31, 1997, the Fund's open options contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION EXERCISE UNREALIZED
CONTRACTS WRITTEN CONTRACT TYPE DATE PRICE DEPRECIATION
----------------- ------------------------------- ---------- -------- ------------
<C> <S> <C> <C> <C>
20 Call Option U.S. Treasury
10 Year 98Mar Feb-98 $111 $ 0
20 Put Option U.S. Treasury
10 Year 98Mar Feb-98 $111 (925)
------- --------
$ (925)
</TABLE>
(b) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation................................................ $1,360,754
Unrealized depreciation................................................ (25,696)
----------
Net unrealized appreciation............................................ $1,335,058
==========
</TABLE>
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $9,283,125 or 9.8% of net assets.
(d) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
(e) Security was purchased on a delayed delivery basis. Total cost of delayed
delivery transactions is $23,198,319 (Note 2).
See notes to financial statements.
92 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 96
TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
ASSET BACKED SECURITIES (10.4%)
390,000 Capstead Securities Corporation IV, 7.60%,
08/25/07........................................ $ 395,119
29,210 Contimortgage Home Equity, 6.76%, 02/15/11....... 29,365
432,036 Daimler-Benz Vehicle Trust, 5.85%, 07/20/03...... 432,239
3,000,000 Evergreen Funding, 7.03%, 11/15/10 (c) (e)....... 3,000,000
1,900,000 Green Tree Financial Corp., 6.93%, 07/15/28
(a)............................................. 1,946,313
3,500,000 Green Tree Financial Corp., 7.22%, 03/15/28...... 3,599,531
246,776 Merit Securities Corp. 8-A1, 5.876%, 09/28/30
(a) (d)......................................... 246,622
161,680 Nationsbank Auto Owner Trust 96A-A2, 6.13%,
07/15/99........................................ 161,745
161,752 Pacific Southwest 97-1, 6.06%, 06/15/02.......... 161,652
306,940 Student Loan Marketing Ass. 96-4A1, 5.60%,
07/25/04 (a).................................... 307,032
--------------
Total Asset Backed Securities........................................ 10,279,618
--------------
COLLATERIZED MORTGAGE OBLIGATIONS (11.5%)
Corporate (3.9%)
600,000 Merrill Lynch Mortgage Investors, 6.527%,
06/15/06 (a) (d)................................ 608,040
3,252,017 Residential Funding, 7.50%, 11/25/25 (a)......... 3,265,545
--------------
3,873,585
--------------
Federal Home Loan Mortgage Corporation (0.5%)
460,054 6.075%, 06/17/20 (a)............................. 462,791
Federal National Mortgage Association (7.1%)
395,958 6.256%, 05/25/99 (a)............................. 398,207
1,939,243 0.000%, 11/25/26 -- Principal Only (a)........... 1,579,877
4,984,045 6.256%, 04/25/27 (a)............................. 5,006,074
--------------
6,984,158
--------------
Total Collateralized Mortgage Obligations............................ 11,320,534
--------------
CORPORATE BONDS (37.9%)
AIRLINES (0.8%)
750,000 Northwest Airlines Corporation, 8.375%,
03/15/04........................................ 779,063
</TABLE>
See notes to financial statements.
ANNUAL REPORT 93
<PAGE> 97
TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
ENERGY (1.6%)
1,500,000 CAL Energy Company, 9.50%, 09/15/06 (a).......... $ 1,616,250
FINANCE (17.5%)
Banking (0.5%)
475,000 First Nationwide, 9.13%, 11/15/03................ 492,813
Financial (17.0%)
5,000,000 Aeltus Limited 144a, 6.367%, 12/12/08
(a) (c) (d)..................................... 4,997,500
1,000,000 Ares CBO, 7.52%, 11/30/04 (c).................... 1,000,000
1,000,000 Ares CBO, 9.77%, 11/30/04 (c).................... 1,000,000
1,200,000 Contifinanial Corporation, 8.375%, 08/15/03
(a)............................................. 1,257,000
5,000,000 FC CBO, 8.43%, 06/03/09 (a) (c).................. 5,284,375
225,000 Salomon, Inc., 6.625%, 11/30/00.................. 227,250
3,000,000 Salomon, Inc., 6.132%, 07/23/01 (a) (d).......... 2,999,940
--------------
16,766,065
--------------
Total Finance........................................................ 17,258,878
--------------
HEALTH (1.1%)
1,000,000 Tenet Healthcare Corporation, 9.25%, 09/01/02.... 1,095,000
--------------
INDUSTRIAL GOODS AND SERVICES (7.3%)
1,000,000 Calpine Corp., 8.75%, 07/15/07................... 1,002,500
2,050,000 Gulf Canada Resourses Limited, 9.25%, 01/15/04... 2,157,625
1,500,000 Mark IV Industries, 7.50%, 09/01/07 (c).......... 1,503,750
1,000,000 Owens-Ill. Inc., 7.85%, 05/15/04 (a)............. 1,040,000
1,500,000 Ryerson Tull, Inc., 8.50%, 07/15/01.............. 1,554,375
--------------
Total Industrial of Goods and Services............................... 7,258,250
--------------
METALS & STEELS (1.1%)
1,000,000 AK Steel Corp., 9.125%, 12/15/06 (a)............. 1,041,250
MULTIMEDIA (1.0%)
1,000,000 Time Warner Note, 6.10%, 12/30/01 (c)............ 982,500
REAL ESTATE (1.3%)
1,250,000 Kaufman & Bros. Home, 9.625%, 11/15/06 (a)....... 1,306,250
RETAIL & WHOLESALE (1.6%)
1,500,000 Nine West Group, 8.375%, 08/15/05 (c)............ 1,533,750
</TABLE>
See notes to financial statements.
94 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 98
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS (4.6%)
1,000,000 Rogers Cable System, 10.00%, 12/01/07............ $ 1,087,500
3,500,000 TCI Communications, 6.381%, 03/12/01 (a) (d)..... 3,505,460
--------------
Total Telecommunications............................................. 4,592,960
--------------
Total Corporate Bonds................................................ 37,464,151
--------------
U.S. GOVERNMENT AGENCIES (66.5%)
Federal Home Loan Mortgage Corporation (39.3%)
4,000,000 5.500%, 11/03/97................................. 3,998,767
6,000,000 5.400%, 11/14/97................................. 5,988,300
10,200,000 7.000%, 10/01/12 (e)............................. 10,343,412
787,850 8.500%, 04/01/19................................. 824,532
1,127,273 8.500%, 03/01/23................................. 1,190,321
1,259,380 6.587%, 09/15/23 (a)............................. 1,267,251
5,000,000 7.000%, 01/15/27 (e)............................. 5,015,600
6,020,041 7.500%, 08/01/27 (a)............................. 6,151,699
1,968,003 7.500%, 10/01/27................................. 2,011,044
1,980,000 7.500%, 09/01/27................................. 2,023,303
--------------
38,814,229
--------------
Federal National Mortgage Association (22.6%)
2,300,000 5.410%, 11/12/97................................. 2,296,198
1,786,624 6.106%, 03/25/09 (a)............................. 1,794,998
4,000,000 6.000%, 12/25/14 (a)............................. 3,990,320
1,000,000 6.356%, 09/25/22 (a)............................. 1,015,870
4,950,000 6.500%, 10/01/27................................. 4,863,375
5,500,000 7.000%, 10/01/27 (e)............................. 5,505,115
2,800,000 8.000%, 10/01/27 (e)............................. 2,898,868
--------------
22,364,744
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 95
<PAGE> 99
TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT FAIR VALUE
IN LOCAL CURRENCY SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (CONTINUED)
Government National Mortgage Association (4.6%)
988,698 8.0000%, 07/15/27................................ $ 1,025,774
3,439,824 8.0000%, 08/15/27 (a)............................ 3,568,817
--------------
4,594,591
--------------
Total U.S. Government Agencies....................................... 65,773,564
--------------
U.S. TREASURY NOTES (1.0%)
1,014,863 3.375%, 01/15/07 (a)............................. 1,000,574
INVESTMENT COMPANIES (0.4%)
411,372 Dreyfus Treasury Cash Management................. 411,372
--------------
TOTAL (COST -- $125,431,588) (B) (127.7%)............................ $ 126,249,813
==============
</TABLE>
- - ------------
Percentages indicated are based on net assets of $98,862,656.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral.
At October 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF EXPIRATION CURRENT APPRECIATION/
CONTRACTS CONTRACT TYPE DATE MARKET VALUE (DEPRECIATION)
--------- ------------------------------- ---------- ------------ -------------
<C> <S> <C> <C> <C>
110 U.S. Treasury 10 Year Note
Future Dec-97 $12,292,500 $ (48,125)
95 U.S. Treasury Bond Future Dec-97 11,254,531 234,219
----------- -----------
$23,547,031 $ 186,094
</TABLE>
See notes to financial statements.
96 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 100
At October 31, 1997, the Fund's open options contracts were as follows:
<TABLE>
<CAPTION>
NUMBER OF CURRENT UNREALIZED
CONTRACTS EXPIRATION EXERCISE MARKET APPRECIATION/
WRITTEN CONTRACT TYPE DATE PRICE VALUE (DEPRECIATION)
--------- --------------------------- ---------- -------- ------- ------------
<C> <S> <C> <C> <C> <C>
20 Call Option U.S. Treasury
10 Year 98Mar Feb-98 $111 $35,000 $ 1,250
20 Put Option U.S. Treasury
10 Year 98Mar Feb-98 $111 25,625 (1,862)
------ ----------
$60,625 $ (612)
</TABLE>
(b) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.................................................. $912,930
Unrealized depreciation.................................................. (94,705)
--------
Net unrealized appreciation.............................................. $818,225
========
</TABLE>
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $19,301,875 or 19.5% of net
assets.
(d) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
(e) Security was purchased on a delayed delivery basis. Total cost of delayed
delivery transactions is $26,725,013 (Note 2).
See notes to financial statements.
ANNUAL REPORT 97
<PAGE> 101
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
GENERAL OBLIGATIONS (39.9%)
Limited (8.0%)
2,000,000 Massachusetts State, 4.75%, 09/01/98 $ 2,015,940
1,000,000 Massachusetts State, 5.00%, 08/01/04 (FGIC) 1,032,500
--------------
3,048,440
--------------
Unlimited (24.0%)
1,000,000 Dade County FL Municipal, 12.00%, 10/01/01
(FGIC).......................................... 1,273,750
1,000,000 Georgia State , 6.50%, 08/01/99.................. 1,043,750
1,000,000 Lewisville, TX Independent School Dist., 6.25%,
08/15/04 (PSF).................................. 1,082,500
2,000,000 Milwaukee County, Wisconsin, 5.125%, 12/01/97
(MBIA).......................................... 2,002,020
700,000 Minnesota State, 6.80%, 08/01/00, Pre-refunded
08/01/98........................................ 715,617
1,000,000 New York, N.Y.,4.75%, 08/01/98................... 1,006,580
1,000,000 North Slope Boro, Alaska, 8.35%, 06/30/98
(MBIA).......................................... 1,028,980
1,000,000 Virginia State, 5.50%, 12/01/98.................. 1,016,300
--------------
9,169,497
--------------
Student Loans (7.9%)
1,000,000 Maine Edl. Loan Mkt. Corp. Student Loan Rev.,
6.50%, 11/01/97................................. 1,000,000
1,000,000 New England Education Loan Marketing Corp. MA
Student Loan, 5.00%, 07/01/100.................. 1,012,500
1,000,000 S. Carolina State Ed. Assistance Auth. Rev.,
4.75%, 09/01/01................................. 1,008,750
--------------
3,021,250
--------------
Total General Obligations............................................ 15,239,187
--------------
</TABLE>
See notes to financial statements.
98 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 102
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
REVENUE (54.2%)
AIRPORT (9.5%)
1,000,000 Denver CO City & County Airport, 4.80%, 11/15/00
(MBIA).......................................... $ 1,018,750
1,500,000 Houston TX Airport Sys. Rev., 7.75%, 07/01/03
(MBIA).......................................... 1,573,455
1,000,000 Washoe County, NV, Airport Authority, 5.25%,
07/1/00 (MBIA).................................. 1,025,000
--------------
3,617,205
--------------
CORRECTIONS (2.8%)
1,000,000 Ohio State Bldg Authority, 7.35%, 08/01/04,
Pre-refunded 8/1/100 (MBIA)..................... 1,073,750
--------------
EDUCATION (5.5%)
1,000,000 University of Texas, 6.30%, 07/01/01............. 1,073,750
1,000,000 VA State Public School Authority Series C, 5.00%,
08/01/98........................................ 1,008,960
--------------
2,082,710
--------------
ELECTRIC (6.9%)
1,000,000 Colorado Springs CO Utilities, 7.00%, 11/15/21,
Pre-refunded 11/15/01........................... 1,120,000
500,000 San Antonio Electric & Gas, 6.00%, 02/01/98
(FGIC).......................................... 502,750
1,000,000 Platte River Power Authority, 5.00%, 06/01/99
(MBIA).......................................... 1,015,000
--------------
2,637,750
--------------
HEALTH (9.7%)
1,000,000 Missouri State Health & Educ. Facilities, 4.25%,
12/01/99........................................ 1,005,000
1,000,000 California Health Facilities Fing Auth. Rev.,
5.10%, 05/15/02................................. 1,016,250
1,000,000 New York State Dormitory Revenues, 6.00%,
02/15/03........................................ 1,063,750
615,000 Philadelphia, PA Hospitals & Higher Education
Facilities Authority, Temple Univ. Hospital,
5.00%, 11/15/00................................. 621,919
--------------
3,706,919
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 99
<PAGE> 103
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
REVENUE (CONTINUED)
HOUSING (8.1%)
450,000 Alaska State Housing Finance Corp., 4.35%,
12/01/98 (MBIA)................................. $ 452,655
655,000 Maryland State Community Development, 4.45%,
04/01/99........................................ 660,731
2,000,000 Ohio Housing Financial Agency, 4.20%, 09/01/30... 2,000,300
--------------
3,113,686
--------------
LEASE (1.2%)
450,000 Phoenix, AZ Civic Plaza Building Corporate,
4.70%, 07/01/98................................. 452,691
--------------
TRANSPORTATION (4.5%)
1,000,000 Delaware Transportation Auth., 5.80%, 07/01/99... 1,030,000
675,000 New Jersey State Turnpike Auth., 6.00%,
01/01/98........................................ 677,383
--------------
1,707,383
--------------
WATER & SEWER (6.0%)
755,000 Ohio State Water Development Auth., 4.95%,
12/01/98 (MBIA)................................. 764,649
435,000 Oregon Portland Sewer, 6.50%, 06/01/00........... 460,556
1,000,000 Orlando, Florida Utilities Commission, 5.70%,
10/01/04........................................ 1,073,750
--------------
2,298,955
--------------
Total Revenue........................................................ 20,691,049
--------------
VARIABLE RATE DEMAND NOTES (2.6%)
1,000,000 Farmington, NM Pollution Revenue, 4.00% (a),
05/01/24........................................ 1,000,000
INVESTMENT COMPANIES (1.7%)
642,628 Dreyfus Tax Exempt Cash Management Fund.......... 642,628
--------------
TOTAL (COST -- $37,345,282) (b) (98.4%).............................. $37,572,864
==============
</TABLE>
- - ------------
FGIC: Financial Guaranty Insurance Company
MBIA: MBIA Insurance Corp.
PSF: Permanent School Fund
Percentages indicated are based on net assets of $38,176,099.
See notes to financial statements.
100 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 104
(a) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
(b) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $228,030
Unrealized depreciation............................................... (448)
--------
Net unrealized appreciation........................................... $227,582
========
</TABLE>
See notes to financial statements.
ANNUAL REPORT 101
<PAGE> 105
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
GENERAL OBLIGATIONS (44.6%)
Limited (8.7%)
700,000 Clark County Nevada School District, 5.875%,
06/15/13 (MBIA) (a)............................. $ 734,125
1,100,000 Dallas, Texas, 5.90%, 02/15/03................... 1,183,875
2,000,000 Massachusetts State, 5.00%, 08/01/07 (FGIC)...... 2,057,500
1,000,000 Port of Seattle, Washington, 5.25%, 05/01/03..... 1,037,500
--------------
5,013,000
--------------
Unlimited (33.3%)
1,500,000 Charleston County, South Carolina, 5.75%,
06/01/08........................................ 1,618,125
1,200,000 Chicago Metropolitan Water Reclamation District,
Pre-refunded 12/01/09, 6.30%, 12/01/09.......... 1,341,000
1,760,000 Dade County FL, 7.70%, 10/01/08 (AMBAC).......... 2,189,000
765,000 Du Page County, Illinois, 5.60%, 01/01/21........ 808,031
1,000,000 Florida State, Dept. of Transit -- Right of Way,
6.00%, 07/01/07................................. 1,108,750
1,000,000 Fort Worth, TX, Independent School Dist., 0.00%,
02/15/06 (PSF).................................. 676,250
1,000,000 Honolulu, Hawaii, City & County, 5.00%,
10/01/02........................................ 1,027,500
1,000,000 Kingsport Tenn. Pub. Impt., 5.60%, 09/01/03...... 1,056,250
2,000,000 Maryland State, 5.00%, 08/01/07.................. 2,070,000
1,000,000 Mississippi State, 5.80%, 06/01/09............... 1,058,750
1,000,000 New York, N.Y., 4.75%, 08/01/98.................. 1,006,580
1,000,000 Pennsylvania State, 5.20%, 06/15/04 (MBIA)....... 1,042,500
1,000,000 Texas Public Finance Authority, 5.38%,
10/01/03........................................ 1,057,500
1,000,000 Texas State, 5.00%, 08/01/21..................... 956,250
1,000,000 Virginia State, 6.10%, 06/01/06.................. 1,098,750
1,000,000 Washington State, 5.25%, 09/01/05................ 1,047,500
--------------
19,162,736
--------------
</TABLE>
See notes to financial statements.
102 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 106
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
GENERAL OBLIGATIONS (CONTINUED)
Student Loans (2.6%)
1,500,000 South Carolina State Ed. Assistance Auth., 4.75%,
09/01/01........................................ $ 1,513,125
--------------
Total General Obligations............................................ 25,688,861
--------------
REVENUE (42.1%)
AIRPORT (5.3%)
700,000 Dade County FL Aviation -- Miami Intl., 5.75%,
10/01/05 (FSA).................................. 748,125
1,200,000 Los Angeles, CA, City Dept of Airports, 5.50%,
05/15/07 (FGIC)................................. 1,267,500
1,010,000 San Francisco, CA, City & County Airports
Commission International Airport, 5.00%,
05/01/06 (FGIC)................................. 1,032,725
--------------
3,048,350
--------------
EDUCATION (9.3%)
1,000,000 Avon, IN Community School Bldg Corp, 5.25%,
01/01/22 (AMBAC)................................ 978,750
1,250,000 New York State Dorm Authority, 6.125%, 07/01/07
(AMBAC)......................................... 1,368,750
2,810,000 University of Texas Permanent University Fund,
5.90%, 07/01/02 (a)............................. 3,010,213
--------------
5,357,713
--------------
ELECTRIC (5.3%)
300,000 City of Knoxville, Tennessee Gas System, 4.85%,
03/01/06 (a).................................... 301,125
2,000,000 Georgia Municipal Electric Authority, 5.55%,
01/01/07 (FGIC)................................. 2,145,000
575,000 Indiana Muni. Power Agency Power Supply, 5.125%,
01/01/01 (MBIA)................................. 590,094
--------------
3,036,219
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT 103
<PAGE> 107
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
REVENUE (CONTINUED)
HOUSING (4.8%)
500,000 California Housing Finance Authority, 5.20%,
08/01/26 (MBIA)................................. $ 510,000
1,000,000 Idaho Housing and Finance Association, 5.20%,
07/01/27........................................ 1,025,000
1,000,000 Virginia State Housing Development Authority,
6.30%, 07/01/11................................. 1,052,500
170,000 Wisconsin Housing & Economic Development, 5.30%,
11/01/05........................................ 174,463
--------------
2,761,963
--------------
POLLUTION CONTROL (6.4%)
1,400,000 Minnesota Public Facilities, 6.00%, 03/01/07..... 1,552,250
2,000,000 NY State Environmental Facs. Corp.,
5.50%, 6/15/09 (MBIA)........................... 2,105,000
--------------
3,657,250
--------------
TRANSPORTATION (4.5%)
1,000,000 Massachusetts Bay Transportation Authority,
5.60%, 03/01/08................................. 1,066,250
1,465,000 Port Authority New York & New Jersey, 5.80%,
12/01/12........................................ 1,536,419
--------------
2,602,669
--------------
WATER & SEWER (6.5%)
2,000,000 Cleveland Ohio Waterworks, 5.50%, 01/01/08 (MBIA)
(a)............................................. 2,150,000
1,000,000 Ohio State Water Department Authority, 5.70%,
06/01/09 (AMBAC)................................ 1,070,000
500,000 Oregon Portland Sewer, 6.50%, 06/01/00........... 529,375
--------------
3,749,375
--------------
Total Revenue........................................................ 24,213,539
--------------
</TABLE>
See notes to financial statements.
104 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 108
<TABLE>
<CAPTION>
SHARES OR FAIR VALUE
PRINCIPAL AMOUNT SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
SPECIAL TAX (6.4%)
900,000 Arapahoe County, Colorado, Capital Improvement,
6.90%, 08/31/15, Pre-refunded 08/31/05.......... $ 1,056,375
1,000,000 Connecticut State Special Tax Obligation Revenue,
6.25%, 10/01/09, Pre-refunded 10/01/01.......... 1,092,500
1,380,000 Washington, D.C., American Assn. Advancement of
Science, 6.00%, 01/01/08 (AMBAC)................ 1,514,550
--------------
Total Special Tax.................................................... 3,663,425
--------------
VARIABLE RATE DEMAND NOTES (5.0%)
400,000 Farmington, NM Pollution Revenue, 3.70%, 04/01/22
(b)............................................. 400,000
500,000 Georgia Municipal Electric Authority, 3.60%,
06/01/20 (b).................................... 500,000
1,000,000 Louisiana State Offshore, 3.80%, 09/01/08 (b).... 1,000,000
1,000,000 Valdez, AK Marine, 3.80%, 12/01/33 (b)........... 1,000,000
--------------
2,900,000
--------------
INVESTMENT COMPANIES (0.5%)
304,516 Dreyfus Tax Exempt Cash Management Fund.......... 304,516
--------------
TOTAL (COST -- $55,123,700) (C) (98.6%).............................. $56,770,341
==============
</TABLE>
- - ------------
AMBAC: AMBAC Indemnity Corporation
FGIC: Financial Guaranty Insurance Company
MBIA: MBIA Insurance Corp.
PSF: Permanent School Fund
Percentages indicated are based on net assets of $57,578,595.
(a) All or a portion of the security is held by the custodian in a segregated
account as collateral for open futures contracts.
At October 31, 1997, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of Expiration Current Unrealized
Contracts Contract Type Date Market Value Depreciation
- - --------- ------------------------- ---------- ------------ ------------
<C> <S> <C> <C> <C>
20 U.S. Treasury Bond Future Dec-97 $2,369,375 $(19,376)
</TABLE>
(b) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at October 31, 1997.
See notes to financial statements.
ANNUAL REPORT 105
<PAGE> 109
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1997
(c) This represents cost for federal income tax purposes and differs from value
by unrealized appreciation (depreciation) of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.............................................. $1,653,893
Unrealized depreciation.............................................. (7,252)
----------
Net unrealized appreciation.......................................... $1,646,641
==========
</TABLE>
See notes to financial statements.
106 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
1. ORGANIZATION
Payden & Rygel Global Short Bond Fund, Payden & Rygel Global Fixed
Income Fund, Payden & Rygel International Bond Fund, Payden & Rygel
Short Duration Tax Exempt Fund, Payden & Rygel Tax Exempt Bond Fund,
Payden & Rygel U.S. Treasury Fund, Payden & Rygel Limited Maturity
Fund, Payden & Rygel Short Bond Fund, Payden & Rygel Intermediate Bond
Fund, Payden & Rygel Investment Quality Bond Fund (formerly the
Opportunity Fund), Payden & Rygel Market Return Fund, Payden & Rygel
Total Return Fund, Payden & Rygel Global Balanced Fund, Payden & Rygel
International Equity Fund, Payden & Rygel European Growth & Income Fund
and Payden & Rygel Growth & Income Fund (the "Funds") are
non-diversified series of Payden & Rygel Investment Group ("Group"), a
no-load, open-end management investment company organized as a
Massachusetts business trust on January 22, 1992 and registered under
the Investment Company Act of 1940, as amended.
The objective of the Global Short Bond, Global Fixed Income,
International Bond, U.S. Treasury, Limited Maturity, Short Bond,
Intermediate Bond, Investment Quality Bond and Total Return Funds is to
realize a high level of total return consistent with preservation of
capital. The Limited Maturity Fund further seeks to earn a total return
that, over time, is greater than that available from money market
funds. In order to achieve these objectives, each Fund invests
primarily in debt obligations. The Limited Maturity, Short Bond,
Intermediate Bond, Investment Quality Bond and Total Return Funds
invest in debt obligations of the U.S. Treasury, U.S. government
agencies, U.S. dollar-denominated foreign and domestic public
corporations and mortgage-backed securities. The U.S. Treasury Fund
primarily invests in U.S. Treasury securities guaranteed by the full
faith and credit of the United States Government.
The Global Short Bond, Global Fixed Income and International Bond Funds
invest primarily in U.S. and foreign government notes and bonds and
U.S. and foreign corporate debt securities. The Global Short Bond,
Global Fixed Income, International Bond and Total Return Funds can also
have substantial investments in foreign currency contracts. The
objective of the Short Duration Tax Exempt and Tax Exempt Bond Funds is
to earn federal tax-free income by investing in debt obligations which
are exempt from federal income tax and consistent with preservation of
capital. The objective of the Market Return Fund is to provide a total
return in excess of the Standard & Poor's 500 Stock Index. To achieve
this objective, the Market Return Fund invests primarily in
equity-based investments, such as stock index futures contracts and
equity swap contracts, as well as in fixed income securities.
ANNUAL REPORT 107
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
The objective of the Global Balanced Fund is to realize a high level of
total return consistent with preservation of capital. The Global
Balanced Fund can also have investments in foreign currency contracts.
This Fund invests in common stocks, bonds and money market instruments
of both domestic and foreign issuers. The objective of the
International Equity Fund is long-term capital appreciation. This Fund
invests in equity securities (common and preferred stock) of issuers
whose corporate headquarters are outside the United States ("foreign
equities").
The Growth & Income Fund, also known as the "Dogs of the Dow," seeks to
provide growth of capital and some current income. To achieve these
objectives the Growth & Income Fund normally invests approximately half
of its assets in the ten stocks in the Dow Jones Industrial Average
with the highest dividend yields. The remaining assets are invested in
securities intended to replicate the total return of the Standard &
Poor's 500 Stock Price Index ("S&P 500 Index"), normally Standard &
Poor's Depository Receipts or additional common stocks.
The European Growth & Income Fund normally invests its assets in common
stocks of approximately ten issuers located in each of France, Germany,
the Netherlands and the United Kingdom. In each country, the Fund
selects the ten stocks with the highest dividend yield. These stocks
come from among the thirty issuers with the largest market
capitalizations which are included in each country's leading stock
index. The Fund, also known as the "Euro Dogs" Fund, follows investment
objectives and policies that are analogous to the Group's Growth &
Income Fund.
There can, however, be no assurance that any of the Funds' investment
objectives will be achieved.
The Funds offer both Class A and Class B shares. 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. Effective December 30, 1997, the
Class A shares of each Fund will be renamed the Class R shares, and the
Class B shares will be renamed the Class S shares.
108 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 112
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Funds:
Securities Valuation
Domestic and foreign fixed income securities and other assets for which
market quotations are readily available (other than obligations with
remaining maturities of 60 days or less) are valued on the basis of
quotations obtained from dealers or pricing services 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 the institution with which the Fund entered into the transaction in
the case of other securities. Investments in investment companies are
valued at their net asset values as reported by such companies.
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. Non-U.S. dollar securities are translated
into U.S. dollars using the spot exchange rate at the close of the
London market. The differences between cost and market of investments
are reflected as either unrealized appreciation or depreciation.
Equity securities listed or traded on any domestic (U.S.) securities
exchange are valued at the last sale price or, if there have been no
sales during the day, at the last bid prices. Securities traded only on
the over-the-counter market are valued at the latest bid prices.
Foreign equity securities are valued based upon the last sale price on
the foreign exchange or market on which they are principally traded as
of the close of the appropriate exchange or, if there have been no
sales during the day, at the last bid prices.
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 and 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.
ANNUAL REPORT 109
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
Foreign Currency Translation
The accounting records of the Funds are maintained in U.S. dollars. The
Global Short Bond, Global Fixed Income, International Bond, Global
Balanced and Total Return Funds may purchase debt obligations that are
payable in a foreign currency, and the Global Balanced, International
Equity and European Growth & Income Funds may purchase equity
securities that are payable in a foreign currency. For these Funds,
investment securities, other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the current
exchange rate. Purchases and sales of securities, income receipts and
expense payments are translated into U.S. dollars at the rate on the
dates of the transactions.
Each of these Funds isolates that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuation arising from changes in market prices of securities
held.
Reported net realized foreign exchange gains or losses arise from sales
and maturities of securities, purchases and sales of foreign
currencies, currency gains or losses realized between the trade and
settlement dates of securities transactions, and the difference between
the amount of interest or expenses recorded on each of these Fund's
books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from
changes in the value of assets and liabilities, including investments
in securities, resulting from changes in the exchange rates.
Repurchase Agreements
Any of the Funds may enter into repurchase agreements (agreements to
purchase U.S. Treasury notes and bills, subject to the seller's
agreement to repurchase them at a specified time and price) with
well-established registered securities dealers or banks. Repurchase
agreements are the equivalent of loans by the Funds. With respect to
such agreements, it is each 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, accrued interest, is at least
equal to the amount to be repaid to each Fund under each agreement.
Options Transactions
When any of the Funds (except the U.S. Treasury Fund which does not
invest in any option transactions) writes a covered call or put option,
an amount equal to the premium received is included in that 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
110 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 114
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. As writer of an option, the Fund
has no control over whether the underlying securities are subsequently
sold (call) or purchased (put) and, as a result, bears the market risk
of an unfavorable change in the price of the security underlying the
written option.
When any of the Funds (except the U.S. Treasury Fund which does not
invest in any option transactions) purchases a call or put option, an
amount equal to the premium paid is included in that 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 a Fund enters
into a closing sale transaction, a gain or loss is realized. If a Fund
exercises a call the cost of the security acquired is increased by the
premium paid for the call. If a 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 option techniques utilized are to hedge against changes in interest
rates, foreign currency exchange rates or securities prices in order to
establish more definitely the effective return on securities or
currencies held or intended to be acquired by a Fund, to reduce the
volatility of the currency exposure associated with investment in non-
U.S. securities, or as an efficient means of adjusting exposure to the
bond, equity and currency markets and not for speculation.
FUTURES CONTRACTS
Any Fund (except the U.S. Treasury 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 or foreign currency at a fixed price on a
future date. Upon entering into such a contract, a 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,
that 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 that Fund. When the contract is closed,
that 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 Funds invest in futures contracts
to hedge against anticipated future changes in interest or exchange
rates or security prices. The potential risk to
ANNUAL REPORT 111
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
the Funds is that the change in value of the underlying securities may
not correlate to the change in value of the contracts.
The Market Return, Total Return, Global Balanced, Growth & Income,
European Growth & Income and International Equity Funds 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
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. Each Fund
invests in these futures contracts to permit a 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 risk to a 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 Market Return, Total Return, Global Balanced, Growth & Income,
European Growth & Income and International Equity Funds 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. A Fund will
typically pay a floating rate of interest and receive the total return
of a specified equity index. A Fund usually enters into such
transactions on a "net" basis, with the Fund receiving or paying as the
case may be, only the net 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 that Fund.
These Funds invest in swap transactions to permit the Funds to meet
their 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 a Fund is that
the swap position may correlate imperfectly with the markets or the
asset or liability being hedged.
FORWARD CURRENCY CONTRACTS
The Global Short Bond, Global Fixed Income, International Bond, Total
Return, European Growth & Income, Global Balanced and International
Equity Funds each may enter into forward foreign currency exchange
contracts for the purchase or sale of a specific foreign currency at a
fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counter parties to meet the
terms of their contracts and from unanticipated movements in the value
of a foreign
112 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 116
currency relative to the U.S. dollar. These Funds enter into forward
contracts as a hedge against specific transactions or portfolio
positions to protect against adverse currency movements. The forward
foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded
for financial statement purposes as unrealized until the contract
settlement date, at which time a 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.
DELAYED DELIVERY TRANSACTIONS
Any of the Funds may purchase securities on a when issued or delayed
delivery basis and sell securities on a delayed delivery basis. These
transactions involve a commitment by a Fund to purchase or sell
securities for a predetermined price or yield with payment and delivery
taking place more than three days in the future, or after a period
longer than the customary settlement period for that type of security.
No interest will be earned by a Fund on such purchases until the
securities are delivered; however, the market value may change prior to
delivery.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income and net realized gains on foreign
currency transactions are declared and paid monthly, except for those
of the International Bond Fund which are paid quarterly, 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 each 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.
Each 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 foreign currency transactions and futures
ANNUAL REPORT 113
<PAGE> 117
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
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 each Fund's tax return and, consequently,
the character of distributions to shareholders reported in the
financial highlights may differ from that reported to shareholders for
Federal income tax purposes. Distributions which exceed net investment
income and net realized gains for financial reporting purposes but not
for tax purposes, if any, are shown as distributions in excess of net
investment income and net realized gains in the accompanying
statements. Return of capital distributions and net investment losses
for tax purposes are reclassed to paid in capital.
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 charged to each series as incurred. Fund expenses not specific to
any class will be allocated between the classes based upon net assets
of each class. Class-specific expenses will be charged to each class as
incurred.
114 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 118
3. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments (excluding short-term investments
and long-term U.S. Government securities) for the period ended October
31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
Global Short Bond Fund.................. $ 373,655,971 $ 220,500,261
Global Fixed Income Fund................ 1,144,686,670 1,125,853,382
International Bond Fund................. 4,495,621 39,232,196
Global Balanced Fund.................... 18,707,504 10,776,987
International Equity Fund............... 18,534,888 5,600,972
European Growth & Income Fund........... 13,768,893 309,442
Growth & Income Fund.................... 126,726,370 1,387,153
Market Return Fund...................... 15,071,037 3,975,667
Limited Maturity Fund................... 58,595,614 3,000,000
Short Bond Fund......................... 85,955,237 53,998,067
U.S. Treasury Fund...................... 0 0
Intermediate Bond Fund.................. 105,175,139 60,375,139
Investment Quality Bond Fund............ 228,390,505 136,138,779
Total Return Fund....................... 202,609,297 88,878,444
Short Duration Tax Exempt Fund.......... 18,404,481 18,355,415
Tax Exempt Fund......................... 23,250,630 20,034,152
</TABLE>
Purchases and sales of long-term U.S. Government securities for the
period ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Global Short Bond Fund.................... $ 76,575,141 $ 39,838,211
Global Fixed Income Fund.................. 531,239,438 615,916,451
International Bond Fund................... 1,963,319 1,522,768
Global Balanced Fund...................... 8,303,325 6,772,764
International Equity Fund................. 0 0
European Growth & Income Fund............. 0 0
Growth & Income Fund...................... 0 0
Market Return Fund........................ 2,947,936 5,382,193
Limited Maturity Fund..................... 61,782,609 59,655,820
Short Bond Fund........................... 114,395,102 137,227,563
U.S. Treasury Fund........................ 32,312,606 44,436,394
Intermediate Bond Fund.................... 24,452,561 38,594,485
Investment Quality Bond Fund.............. 47,121,241 54,660,743
Total Return Fund......................... 989,360 0
Short Duration Tax Exempt Fund............ 0 0
Tax Exempt Fund........................... 0 0
</TABLE>
ANNUAL REPORT 115
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
The Global Balanced Fund's activity in written options for the year
ended October 31, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
CONTRACTS PREMIUM
--------- ---------
<S> <C> <C>
Options outstanding at beginning of period...... 0 $ 0
Options sold.................................... 38 29,008
Options canceled in closing transactions........ (38) (29,008)
Options expired prior to exercise............... 0 0
-------- --------
Options outstanding at end of period............ 0 $ 0
</TABLE>
The Total Return Fund's activity in written options for the year ended
October 31, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
CONTRACTS PREMIUM
--------- ---------
<S> <C> <C>
Options outstanding at beginning of period...... 0 $ 0
Options sold.................................... 40 60,950
Options canceled in closing transactions........ 0 0
Options expired prior to exercise............... 0 0
-------- --------
Options outstanding at end of period............ 40 $60,950
</TABLE>
The Investment Quality Fund's activity in written options for the year
ended October 31, 1997 was as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS
CONTRACTS PREMIUM
--------- ---------
<S> <C> <C>
Options outstanding at beginning of period...... 0 $ 0
Options sold.................................... 40 60,638
Options canceled in closing transactions........ 0 0
Options expired prior to exercise............... 0 0
-------- --------
Options outstanding at end of period............ 40 $60,638
</TABLE>
None of the other Funds had activity in written options for the year
ended October 31, 1997.
4. UNAMORTIZED ORGANIZATION COSTS
The organization costs incurred on behalf of the Funds listed below are
being reimbursed to Payden & Rygel and are being amortized on a
straight-line basis over
116 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 120
a period not exceeding five years. The organization costs and the
amounts reimbursed as of October 31, 1997 are as follows:
<TABLE>
<CAPTION>
CUMULATIVE AMORTIZED
ORGANIZATION ORGANIZATION
COSTS EXPENSES
------------ ------------
<S> <C> <C>
Global Short Bond Fund...................... $ 2,047 $ 1,058
International Bond Fund..................... 5,322 4,154
Global Balanced Fund........................ 4,063 1,349
International Equity Fund................... 3,799 1,280
European Growth & Income Fund............... 4,958 500
Growth & Income Fund........................ 11,447 3,393
Market Return Fund.......................... 49,138 26,132
U.S. Treasury Fund.......................... 3,926 3,527
Total Return Fund........................... 3,255 1,127
</TABLE>
Any redemption by Payden & Rygel of its initial investment of $100,000
will reduce the reimbursement by a prorata portion of any of the then
unamortized organization costs.
5. RELATED PARTY TRANSACTIONS
Investment advisory services are provided to the Funds by Payden &
Rygel. Under the terms of the investment advisory agreement Payden &
Rygel is entitled to receive fees monthly, computed on the average
daily net assets of each of the Funds separately at an annualized rate.
The rate for the Global Short Bond, Global Fixed Income and
International Bond Funds is .30% on net assets up to $2 billion,
decreasing to .25% on net assets over $2 billion. The rate for the
Short Duration Tax Exempt and Tax Exempt Bond Funds is .32% on net
assets up to $500 million, decreasing in increments to .25% on net
assets over $1 billion. The rate for the U.S. Treasury, Limited
Maturity, Short Bond, Intermediate Bond, Investment Quality Bond,
Market Return and Total Return Funds is .28% on net assets up to $1
billion, decreasing to .25% on net assets over $1 billion. The rate for
the Global Balanced Fund is 0.50% on net assets up to $1 billion and
0.40% on net assets over $1 billion. The rate for the International
Equity is 0.60% on net assets up to $1 billion and 0.45% on net assets
over $1 billion. The rate for the Growth & Income Fund is 0.50% on net
assets up to $2 billion and 0.30% on net assets over $2 billion. The
rate for the European Growth & Income Fund is 0.50% on net assets up to
$2 billion and 0.40% on net assets over $2 billion.
ANNUAL REPORT 117
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
Payden & Rygel has voluntarily agreed to permanently waive 0.20% of its
fee for advisory services for the Growth & Income Fund and 0.10% of its
fee for advisory services for the European Growth & Income Fund through
at least October 31, 1997. In addition, Payden & Rygel has agreed to
guarantee that, for so long as it acts as investment adviser to a Fund,
the expenses of the Fund attributable to Class 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 the
percentage indicated below of that Fund's average daily net assets on
an annualized basis. In addition, Payden & Rygel has voluntarily agreed
to temporarily limit each Fund's total expenses, including advisory
fees, to the percentage indicated below of that Fund's average daily
net assets on an annualized basis through October 31, 1997 (exclusive
of interest, taxes, portfolio transaction blue sky fees, 12b-1 plan
fees [if any such plan is adopted in the future] and extraordinary
expenses).
<TABLE>
<CAPTION>
VOLUNTARY
EXPENSE EXPENSE
GUARANTEE LIMIT
--------- ---------
<S> <C> <C>
Global Short Bond Fund.......................... 0.70% 0.45%
Global Fixed Income Fund........................ 0.70% n/a
International Bond Fund......................... 0.70% n/a
Global Balanced Fund............................ 0.85% 0.70%
International Equity Fund....................... 1.05% 0.90%
European Growth & Income Fund................... 0.90% 0.70%
Growth & Income Fund............................ 0.80% 0.54%
Market Return Fund.............................. 0.60% 0.45%
Limited Maturity Fund........................... 0.60% 0.30%
Short Bond Fund................................. 0.60% 0.40%
U.S. Treasury Fund.............................. 0.60% 0.45%
Intermediate Bond Fund.......................... 0.60% 0.45%
Investment Quality Bond Fund.................... 0.60% 0.45%
Total Return Fund............................... 0.60% 0.45%
Short Duration Tax Exempt Fund.................. 0.60% 0.45%
Tax Exempt Bond Fund............................ 0.60% 0.45%
</TABLE>
Each Fund remains liable to Payden & Rygel for expenses subsidized in
any fiscal year so long as any 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 limit (whichever is in effect at the
time of reimbursement). The deferred expense subsidies, as identified
in the statements of assets and liabilities, represent the
118 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 122
cumulative amount of expenses subsidized for the Funds and will be
recognized as net expense in the statements of operations as expense
previously deferred in future periods, if expense limits permit.
Payden & Rygel 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 October 31, 1997, will be allocated to all
series of the Group that are included in the initial offering of Class
B shares and amortized as a class specific expense over a three year
period.
Effective May 30, 1997, Payden & Rygel Distributors, a subsidiary of
Payden & Rygel which serves as the distributor for the Funds, entered
into an agreement with Bank of America providing for the sale of Class
B Shares of certain of the Funds to customers of Bank of America.
However, as of October 31, 1997, no Class B Shares have been sold to
the public through this arrangement.
For the Global Balanced and International Equity Funds, Payden & Rygel
has entered into a sub-advisory agreement with Scottish Widows
Investment Management ("Sub-advisor"). The Sub-Advisor is a wholly
owned subsidiary of Scottish Widows Fund and Life Assurance Society, a
mutual company chartered in 1815. Under terms of the sub-advisor
agreement, the Sub-Advisor receives fees monthly from Payden & Rygel at
a rate of 0.40% on the first $1 billion of average daily net assets and
0.30% on the average daily net assets over $1 billion. In the case of
the Global Balanced Fund, fees are based on the average daily net
assets allocated to the Sub-Advisor. The Sub-Advisor's fee does not
represent a separate or additional charge against the Funds.
Under the distribution agreement with the Group, Payden & Rygel
Distributors is not entitled to receive any fees from the Group.
Treasury Plus, Inc., a wholly owned subsidiary of Payden & Rygel,
serves as administrator to the Group. Under the terms of the
administration agreement, Treasury Plus, Inc. receives fees monthly,
computed on the average daily net assets of the Group at an annualized
rate of .06%.
Investors Fiduciary Trust Company ("IFTC"), a Missouri trust company,
serves as transfer agent to the Funds. Under the terms of the transfer
agency agreement, IFTC is entitled to receive fees based upon a
specified amount per shareholder with specified minimum-per-Fund
amounts and surcharges, plus certain out-of-pocket expenses. IFTC also
serves as fund accountant. Under the terms of the fund
ANNUAL REPORT 119
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
accounting agreement, IFTC receives fees based on specified
minimum-per-Group amounts, plus certain out-of-pocket expenses.
All expenses incurred by the Funds are paid directly by Payden & Rygel
subject to subsequent reimbursement by the Funds. For Funds which have
not fully reimbursed Payden & Rygel for expenses paid on their behalf
as of October 31, 1997, as identified in the Statements of Assets and
Liabilities as deferred expense subsidy, the cumulative amounts of
expenses paid by Payden & Rygel and the reimbursement of expenses by
the Funds are as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL OF CUMULATIVE TOTAL OF
EXPENSES PAID BY REIMBURSEMENT
PAYDEN & RYGEL OF EXPENSES
------------------- -------------------
<S> <C> <C>
Global Balanced Fund........... $ 64,910 $ 44,034
International Equity Fund...... 30,017 27,444
European Growth & Income....... 54,069 19,900
Market Return Fund............. 172,042 49,100
U.S. Treasury Fund............. 207,775 199,588
Investment Quality Fund........ 309,331 291,413
</TABLE>
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 Funds for serving
as officers and/or trustees of the Group.
6. FEDERAL INCOME TAXES
At October 31, 1997, the following Funds had capital loss carryforwards
in the amounts indicated for Federal income tax purposes. These
carryforwards are available to offset future capital gains, if any.
<TABLE>
<CAPTION>
LOSS LOSS LOSS LOSS
CARRY- CARRY- CARRY- CARRY-
FORWARDS FORWARDS FORWARDS FORWARDS
EXPIRING EXPIRING EXPIRING EXPIRING
IN 2002 IN 2003 IN 2004 IN 2005
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Global Short Bond Fund........ $37,169
Global Fixed Income Fund...... $4,954,175
European Growth & Income
Fund....................... 6,752
Limited Maturity Fund......... $ 1,971 64,303 61,717
Short Bond Fund............... 341,923 6,293
U.S. Treasury Fund............ 121,452 25,368
Tax Exempt Bond Fund.......... 764,165 $92,036 460,399
</TABLE>
120 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 124
The Growth & Income Fund designates 94.53% of distributions eligible
for the dividends received deductions for corporations.
The European Growth & Income Fund elects to pass on the benefits of the
foreign tax credit to its shareholders for the year ended October 31,
1997.
7. FUND TERMINATION
On December 16, 1997, the Board of Trustees approved the closing of the
Payden & Rygel International Bond Fund, anticipated to be effective on
or about January 31, 1998, at which time all portfolio holdings will be
liquidated, expenses owed to service providers will be paid, and a
final distribution of net investment income and net realized capital
gains will be made. Remaining organizational expenses will be waived by
the Advisor.
8. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED)
The Group designates the following exempt-interest income for the
taxable year ended October 31, 1997:
<TABLE>
<CAPTION>
EXEMPT-INTEREST
EXEMPT-INTEREST DIVIDENDS
DIVIDENDS PER SHARE
---------------- ----------------
<S> <C> <C>
Short Duration Tax Exempt Fund....... $1,330,765 $ 0.38
Tax Exempt Bond Fund................. 2,313,809 0.44
</TABLE>
The amounts noted above include exempt-interest income from alternative
minimum tax paper in the amounts indicated below:
<TABLE>
<CAPTION>
EXEMPT-INTEREST INCOME
FROM ALTERNATIVE
MINIMUM TAX PAPER
----------------------
<S> <C>
Short Duration Tax Exempt Fund................ $153,173
Tax Exempt Bond Fund.......................... 94,250
</TABLE>
ANNUAL REPORT 121
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
The percentage breakdown of the exempt-interest income by state for the
Fund's taxable year ended October 31, 1997 was as follows:
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
FUND BOND FUND
-------------- ----------
<S> <C> <C>
Alabama........................ 0.8% 0.0%
Alaska......................... 2.7 0.8
Arizona........................ 1.5 0.0
California..................... 2.4 13.9
Colorado....................... 5.1 1.4
Connecticut.................... 0.0 2.1
Delaware....................... 1.9 0.0
District of Columbia........... 0.0 0.2
Florida........................ 3.5 2.1
Georgia........................ 3.5 5.2
Hawaii......................... 0.0 1.9
Idaho.......................... 0.0 1.1
Illinois....................... 4.3 8.0
Indiana........................ 0.0 3.2
Louisiana...................... 0.1 1.6
Maine.......................... 0.7 0.0
Maryland....................... 4.6 2.8
Massachusetts.................. 7.5 4.1
Michigan....................... 0.8 0.0
Minnesota...................... 2.4 0.0
Mississippi.................... 0.0 2.3
Missouri....................... 2.9 0.0
Nevada......................... 3.4 1.6
New Jersey..................... 2.2 0.0
New York....................... 10.2 9.3
North Carolina................. 0.2 0.1
North Dakota................... 7.3 0.0
Ohio........................... 0.0 6.3
Oregon......................... 2.8 0.9
Pennsylvania................... 1.2 3.6
Puerto Rico.................... 0.0 2.3
</TABLE>
122 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 126
<TABLE>
<CAPTION>
SHORT DURATION
TAX EXEMPT TAX EXEMPT
FUND BOND FUND
-------------- ----------
<S> <C> <C>
South Carolina................. 0.7 4.0
Tennessee...................... 0.8 1.5
Texas.......................... 8.9 11.1
Utah........................... 2.0 0.0
Virginia....................... 6.3 4.9
Washington..................... 2.2 3.3
Wisconsin...................... 7.0 0.4
Wyoming........................ 0.1 0.0
TOTAL....................... 100% 100%
</TABLE>
ANNUAL REPORT 123
<PAGE> 127
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
GLOBAL SHORT
BOND FUND
=============================
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(a)
=========== ============
<S> <C> <C>
Net asset value -- beginning of period.............................. $ 10.07 $ 10.00
---------- ----------
Income (loss) from investment activities:
Net investment income............................................. 0.58 0.05
Net realized and unrealized gains (losses)........................ 0.11 0.06
---------- ----------
Total from investment activities............................. 0.69 0.11
---------- ----------
Distributions to shareholders:
From net investment income........................................ (0.59) (0.04)
From net realized gains...........................................
---------- ----------
Total distributions to shareholders.......................... (0.59) (0.04)
---------- ----------
Net asset value -- end of period.................................... $ 10.17 $ 10.07
========== ==========
Total return........................................................ 7.02% 1.10%*
========== ==========
Ratios/supplemental data:
Net assets, end of period (000)................................... $ 220,865 $ 28,913
Ratio of expenses to average net assets........................... 0.45% 0.45%**
Ratio of net investment income to average net assets.............. 4.84% 4.86%**
Ratio of expenses to average net assets prior to subsidies and
waivers........................................................ 0.53% 2.31%**
Ratio of net investment income to average net assets prior to
subsidies and waivers.......................................... 4.76% 3.00%**
Portfolio turnover rate........................................... 219% 0%**
- - ------------
(a) The Fund commenced operations on September 18, 1996.
* Not annualized
** Annualized
</TABLE>
124 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 128
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME FUND
===========================================================================
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994 1993
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
$ 10.35 $ 10.32 $ 9.77 $ 10.62 $ 9.96
---------- ---------- ---------- ---------- ----------
1.03 0.54 0.89 0.44 0.46
(0.16) 0.19 0.53 (0.65) 0.69
---------- ---------- ---------- ---------- ----------
0.87 0.73 1.42 (0.21) 1.15
---------- ---------- ---------- ---------- ----------
(1.06) (0.70) (0.87) (0.42) (0.46)
(0.22) (0.03)
---------- ---------- ---------- ---------- ----------
(1.06) (0.70) (0.87) (0.64) (0.49)
---------- ---------- ---------- ---------- ----------
$ 10.16 $ 10.35 $ 10.32 $ 9.77 $ 10.62
========== ========== ========== ========== ==========
8.84% 7.41% 15.10% (2.09)% 11.88%
========== ========== ========== ========== ==========
$ 535,644 $ 651,165 $ 540,041 $ 430,210 $ 296,958
0.49% 0.53% 0.50% 0.55% 0.70%
5.69% 5.67% 8.94% 4.24% 4.22%
0.49% 0.53% 0.50% 0.55% 0.68%
5.69% 5.67% 8.94% 4.24% 4.24%
289% 176% 227% 348% 253%
</TABLE>
ANNUAL REPORT 125
<PAGE> 129
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
INTERNATIONAL BOND FUND
==========================================
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(c)
=========== =========== ============
<S> <C> <C> <C>
Net asset value -- beginning of period................... $ 10.39 $ 10.04 $ 10.00
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income.................................. 0.57 0.03 0.15
Net realized and unrealized gains (losses)............. (0.32) 0.42 0.09
---------- ---------- ----------
Total from investment activities.................. 0.25 0.45 0.24
---------- ---------- ----------
Distributions to shareholders:
From net investment income............................. (0.47) (0.03) (0.15)
From net realized gains................................ -- (0.01) (0.04)
In excess of net realized gains........................ -- (0.06) (0.01)
---------- ---------- ----------
Total distributions to shareholders............... (0.47) (0.10) (0.20)
---------- ---------- ----------
Net asset value -- end of period......................... $ 10.17 $ 10.39 $ 10.04
========== ========== ==========
Total return............................................. 2.51% 4.47% 2.43%*
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)........................ $23,698 $18,364 $ 19.194
Ratio of expenses to average net assets................ 0.70% 0.70% 0.70%**
Ratio of net investment income to average net assets... 5.55% 5.61% 5.24%**
Ratio of expenses to average net assets prior to
subsidies and waivers............................... 0.75% 0.98% 1.64%**
Ratio of net investment income to average net assets
prior to subsidies and waivers...................... 5.50% 5.33% 4.30%**
Portfolio turnover rate................................ 201% 217% 97%**
Average commissions.................................... -- -- --
- - ------------
(c) The Fund commenced operations on April 1, 1995.
(d) The Fund commenced operations on December 9, 1996.
(e) The Fund commenced operations on June 27, 1997.
(f ) The Fund commenced operations on November 1, 1996.
* Not annualized
** Annualized
*** Represents the dollar amount of commissions paid on portfolio transactions divided by the total
number of shares purchased and sold for which commissions were charged.
</TABLE>
126 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 130
<TABLE>
<CAPTION>
GLOBAL EUROPEAN
BALANCED INTERNATIONAL GROWTH & GROWTH &
FUND EQUITY FUND INCOME FUND INCOME FUND
============ ============ ============ ===========
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997(d) 1997(d) 1997(e) 1997(f)
============ ============ ============ ===========
<S> <C> <C> <C> <C>
$ 10.00 $ 10.00 $ 10.00 $ 10.00
---------- ---------- ---------- ---------
0.05 (0.28) (0.04) 0.17
0.90 1.04 0.23 2.74
---------- ---------- ---------- ---------
0.95 0.76 0.19 2.91
---------- ---------- ---------- ---------
(0.05) -- -- (0.14)
(0.11) (0.01) -- --
-- -- -- --
---------- ---------- ---------- ---------
(0.16) (0.01) 0.00 (0.14)
---------- ---------- ---------- ---------
$ 10.79 $ 10.75 $ 10.19 $ 12.77
========== ========== ========== =========
9.49%* 7.59%* 1.90%* 29.19%
========== ========== ========== =========
$ 10,312 $ 14,403 $ 13,608 $ 150,944
0.70% 0.90%** 0.69%** 0.54%**
3.32%** 0.92%** 1.72%** 1.60%**
1.64% 1.57%** 2.48%** 0.89%**
2.38%** 0.25%** (0.07)%** 1.25%**
211%** 66%** 9%** 2%**
$ 0.0353*** $ 0.0253*** $ 0.0354*** $ 0.0300***
</TABLE>
ANNUAL REPORT 127
<PAGE> 131
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
MARKET RETURN FUND
=============================
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
1997 1996(g)
=========== ============
<S> <C> <C>
Net asset value -- beginning of period.............................. $ 10.86 $10.00
---------- ---------
Income (loss) from investment activities:
Net investment income............................................. 0.63 0.50
Net realized and unrealized gains (losses)........................ 2.64 0.86
---------- ---------
Total from investment activities............................. 3.27 1.36
---------- ---------
Distributions to shareholders:
From net investment income........................................ (0.63) (0.50)
From net realized gains........................................... (0.70)
---------- ---------
Total distributions to shareholders.......................... (1.33) (0.50)
---------- ---------
Net asset value -- end of period.................................... $ 12.80 $10.86
========== =========
Total return........................................................ 31.74% 14.06%*
========== =========
Ratios/supplemental data:
Net assets, end of period (000)................................... $20,195 $5,789
Ratio of expenses to average net assets........................... 0.45% 0.00%**
Ratio of net investment income to average net assets.............. 5.36% 5.95%**
Ratio of expenses to average net assets prior to subsidies and
waivers........................................................ 0.96% 4.14%**
Ratio of net investment income to average net assets prior to
subsidies and waivers.......................................... 4.85% 1.81%**
Portfolio turnover rate........................................... 140% 146%**
Average commissions............................................... $0.0300***
- - ------------
(g) The Fund commenced operations on December 1, 1995.
(h) The Fund commenced operations on May 1, 1994.
* Not annualized
** Annualized
*** Represents the dollar amount of commissions paid on portfolio transactions divided by the total
number of shares purchased and sold for which commissions were charged.
</TABLE>
128 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 132
<TABLE>
<CAPTION>
LIMITED MATURITY FUND
============================================================
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(h)
=========== =========== =========== ============
<S> <C> <C> <C> <C>
$ 10.06 $ 10.06 $ 10.00 $ 10.00
---------- ---------- ---------- ----------
0.54 0.53 0.56 0.19
-- -- 0.07 (0.01)
---------- ---------- ---------- ----------
0.54 0.53 0.63 0.18
---------- ---------- ---------- ----------
(0.54) (0.53) (0.57) (0.18)
-- -- -- --
---------- ---------- ---------- ----------
(0.54) (0.53) (0.57) (0.18)
---------- ---------- ---------- ----------
$ 10.06 $ 10.06 $ 10.06 $ 10.00
========== ========== ========== ==========
5.46% 5.41% 6.43% 1.84%*
========== ========== ========== ==========
$ 152,429 $50,771 $18,414 $ 14,248
0.30% 0.30% 0.33% 0.41%**
5.52% 5.45% 5.59% 4.74%**
0.52% 0.62% 0.83% 2.92%**
5.30% 5.13% 5.09% 2.23%**
135% 217% 166% 86%**
-- -- -- --
</TABLE>
ANNUAL REPORT 129
<PAGE> 133
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
U.S. TREASURY FUND
============================================
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995(i)
=========== =========== ============
<S> <C> <C> <C>
Net asset value -- beginning of period.......... $ 10.54 $ 10.61 $ 10.00
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income......................... 0.60 0.58 0.53
Net realized and unrealized gains (losses).... 0.02 (0.04) 0.61
---------- ---------- ----------
Total from investment activities......... 0.62 0.54 1.14
---------- ---------- ----------
Distributions to shareholders:
From net investment income.................... (0.60) (0.58) (0.53)
From net realized gains....................... -- (0.03) --
---------- ---------- ----------
Total distributions to shareholders...... (0.60) (0.61) (0.53)
---------- ---------- ----------
Net asset value -- end of period................ $ 10.56 $ 10.54 $ 10.61
========== ========== ==========
Total return.................................... 6.10% 5.20% 11.61%*
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)............... $15,479 $22,114 $ 10,894
Ratio of expenses to average net assets....... 0.45% 0.45% 0.45%**
Ratio of net investment income to average net
assets..................................... 5.49% 5.59% 6.31%**
Ratio of expenses to average net assets prior
to subsidies and waivers................... 0.63% 0.78% 1.84%**
Ratio of net investment income to average net
assets prior to subsidies and waivers...... 5.31% 5.26% 4.92%**
Portfolio turnover rate....................... 160% 152% 87%**
- - ------------
(d) The Fund commenced operations on December 9, 1996.
(i) The Fund commenced operations on January 1, 1995.
(j) The Fund commenced operations on September 1, 1994.
* Not annualized
** Annualized
</TABLE>
130 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 134
<TABLE>
<CAPTION>
TOTAL RETURN
SHORT BOND FUND FUND
============================================================ ============
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995 1994(j) 1997(d)
=========== =========== =========== ============ ============
<S> <C> <C> <C> <C> <C>
$ 9.97 $ 10.04 $ 9.68 $10.00 $ 10.00
---------- ---------- ---------- --------- ----------
0.58 0.54 0.54 0.34 0.46
(0.05) (0.06) 0.36 (0.32) 0.23
---------- ---------- ---------- --------- ----------
0.53 0.48 0.90 0.02 0.69
---------- ---------- ---------- --------- ----------
(0.58) (0.54) (0.54) (0.34) (0.44)
-- (0.01) -- -- --
---------- ---------- ---------- --------- ----------
(0.58) (0.55) (0.54) (0.34) (0.44)
---------- ---------- ---------- --------- ----------
$ 9.92 $ 9.97 $ 10.04 $ 9.68 $ 10.25
========== ========== ========== ========= ==========
5.52% 4.86% 9.56% 0.21%* 7.10%*
========== ========== ========== ========= ==========
$94,256 $97,966 $19,157 $2,592 $ 98,863
0.40% 0.40% 0.40% 0.48%** 0.45%**
6.00% 5.67% 5.72% 4.47%** 6.21%**
0.49% 0.57% 1.03% 4.56%** 0.69%**
5.91% 5.50% 5.09% 0.39%** 5.97%**
208% 212% 170% 187%** 206%**
</TABLE>
ANNUAL REPORT 131
<PAGE> 135
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
===========================================
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995
=========== =========== ===========
<S> <C> <C> <C>
Net asset value -- beginning of period........... $ 9.60 $ 9.85 $ 9.30
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income.......................... 0.56 0.56 0.57
Net realized and unrealized gains (losses)..... 0.11 (0.17) 0.55
---------- ---------- ----------
Total from investment activities.......... 0.67 0.39 1.12
---------- ---------- ----------
Distributions to shareholders:
From net investment income..................... (0.56) (0.56) (0.57)
From net realized gains........................ -- (0.08) --
---------- ---------- ----------
Total distributions to shareholders....... (0.56) (0.64) (0.57)
---------- ---------- ----------
Net asset value -- end of period................. $ 9.71 $ 9.60 $ 9.85
========== ========== ==========
Total return..................................... 7.26% 4.06% 12.43%
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)................ $80,766 $52,767 $34,391
Ratio of expenses to average net assets........ 0.45% 0.45% 0.45%
Ratio of net investment income to average net
assets...................................... 5.96% 5.90% 6.10%
Ratio of expenses to average net assets prior
to subsidies and waivers.................... 0.55% 0.58% 0.68%
Ratio of net investment income to average net
assets prior to subsidies and waivers....... 5.86% 5.77% 5.87%
Portfolio turnover rate........................ 192% 196% 189%
- - ------------
(k) The Fund commenced operations on January 1, 1994.
* Not annualized
** Annualized
</TABLE>
132 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 136
<TABLE>
<CAPTION>
INTERMEDIATE
BOND FUND INVESTMENT QUALITY BOND FUND
============ ============================================================
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1994(k) 1997 1996 1995 1994(k)
============ =========== =========== =========== ============
<S> <C> <C> <C> <C> <C>
$ 10.00 $ 9.81 $ 9.96 $ 9.09 $10.00
---------- ---------- ---------- ---------- -----------
0.35 0.58 0.63 0.57 0.37
(0.70) 0.22 (0.17) 0.87 (0.91)
---------- ---------- ---------- ---------- ---------
(0.35) 0.80 0.46 1.44 (0.54)
---------- ---------- ---------- ---------- ---------
(0.35) (0.60) (0.61) (0.57) (0.37)
-- -- -- -- --
---------- ---------- ---------- ---------- ---------
(0.35) (0.60) (0.61) (0.57) (0.37)
---------- ---------- ---------- ---------- ---------
$ 9.30 $ 10.01 $ 9.81 $ 9.96 $ 9.09
========== ========== ========== ========== =========
(3.52)%* 8.44% 4.86% 16.39% (5.49)%*
========== ========== ========== ========== =========
$ 14,312 $94,987 $32,304 $25,822 $3,030
0.46%** 0.45% 0.00% 0.45% 0.49%**
5.39%** 6.03% 6.41% 6.20% 5.25%**
2.03%** 0.53% 0.64% 1.11% 4.52%**
3.82%** 5.95% 5.77% 5.55% 1.22%**
358%** 317% 197% 252% 513%**
</TABLE>
ANNUAL REPORT 133
<PAGE> 137
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SHORT DURATION TAX EXEMPT FUND
===========================================
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1997 1996 1995
=========== =========== ===========
<S> <C> <C> <C>
Net asset value -- beginning of period........... $ 10.01 $ 10.08 $ 9.93
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income.......................... 0.38 0.38 0.42
Net realized and unrealized gains (losses)..... 0.07 (0.06) 0.15
---------- ---------- ----------
Total from investment activities.......... 0.45 0.32 0.57
---------- ---------- ----------
Distributions to shareholders:
From net investment income..................... (0.38) (0.38) (0.42)
From net realized gains........................ -- (0.01) --
---------- ---------- ----------
Total distributions to shareholders....... (0.38) (0.39) (0.42)
---------- ---------- ----------
Net asset value -- end of period................. $ 10.08 $ 10.01 $ 10.08
========== ========== ==========
Total return..................................... 4.55% 3.28% 5.88%
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)................ $38,176 $36,336 $16,019
Ratio of expenses to average net assets........ 0.45% 0.45% 0.45%
Ratio of net investment income to average net
assets...................................... 3.75% 3.81% 4.12%
Ratio of expenses to average net assets prior
to subsidies and waivers.................... 0.62% 0.70% 0.91%
Ratio of net investment income to average net
assets prior to subsidies and waivers....... 3.58% 3.56% 3.66%
Portfolio turnover rate........................ 57% 35% 80%
- - ------------
(j) The Fund commenced operations on September 1, 1994.
(l) The Fund commenced operations on December 21, 1993.
* Not annualized
** Annualized
</TABLE>
134 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 138
<TABLE>
<CAPTION>
SHORT
DURATION TAX
EXEMPT FUND TAX EXEMPT BOND FUND
============ ============================================================
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1994(j) 1997 1996 1995 1994(l)
============ =========== =========== =========== ============
<S> <C> <C> <C> <C> <C>
$ 10.00 $ 9.47 $ 9.59 $ 8.90 $ 10.00
---------- ---------- ---------- ---------- ----------
0.04 0.44 0.45 0.46 0.33
(0.07) 0.24 (0.12) 0.69 (1.10)
---------- ---------- ---------- ---------- ----------
(0.03) 0.68 0.33 1.15 (0.77)
---------- ---------- ---------- ---------- ----------
(0.04) (0.44) (0.45) (0.46) (0.33)
-- -- -- -- --
---------- ---------- ---------- ---------- ----------
(0.04) (0.44) (0.45) (0.46) (0.33)
---------- ---------- ---------- ---------- ----------
$ 9.93 $ 9.71 $ 9.47 $ 9.59 $ 8.90
========== ========== ========== ========== ==========
(0.35)%* 7.33% 3.52% 13.25% (7.85)%*
========== ========== ========== ========== ==========
$ 20,150 $57,579 $49,862 $40,052 $ 25,474
0.45%** 0.45% 0.45% 0.45% 0.50%**
3.20%** 4.60% 4.73% 4.97% 4.47%**
2.87%** 0.59% 0.61% 0.74% 1.07%**
0.78%** 4.46% 4.57% 4.69% 3.90%**
0%** 42% 23% 42% 98%**
</TABLE>
ANNUAL REPORT 135
<PAGE> 139
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Payden & Rygel Investment Group
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of Payden & Rygel Investment Group,
including Payden & Rygel Global Short Bond Fund, Payden & Rygel Global Fixed
Income Fund, Payden & Rygel International Bond Fund, Payden & Rygel Global
Balanced Fund, Payden & Rygel International Equity Fund, Payden & Rygel European
Growth & Income Fund, Payden & Rygel Growth & Income Fund, Payden & Rygel Market
Return Fund, Payden & Rygel Limited Maturity Fund, Payden & Rygel Short Bond
Fund, Payden & Rygel U.S. Treasury Fund, Payden & Rygel Intermediate Bond Fund,
Payden & Rygel Investment Quality Bond Fund, Payden & Rygel Total Return Fund,
Payden & Rygel Short Duration Tax Exempt Fund and Payden & Rygel Tax Exempt Bond
Fund (the "Funds"), as of October 31, 1997, the related statements of operations
for the period then ended, and the statements of changes in net assets and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the Funds' custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Funds at October
31, 1997, the results of their operations, the changes in their net assets, and
the financial highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
December 9, 1997
136 PAYDEN & RYGEL INVESTMENT GROUP
