<PAGE> 1
As filed with the Securities and Exchange Commission on
June 27, 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. 30 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 33 [X]
___________________________________
THE PAYDEN & RYGEL INVESTMENT GROUP
(formerly P & R Investment Trust)
(Exact Name of Registrant as Specified in Charter)
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(213) 625-1900
(Registrant's Telephone Number, Including Area Code)
JOAN A. PAYDEN
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(213) 625-1900
(Name and Address of Agent for Service)
Copy to: Michael Glazer
Paul, Hastings, Janofsky & Walker
555 S. Flower St., Los Angeles, California 90071
______________________________________
Approximate Date of Proposed Public Offering:
As soon as practicable following effective date.
_____________________________________
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (b)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii), of Rule 485.
[ ] This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered under the Securities Act of 1933 an indefinite number of shares of
beneficial interest. Registrant filed a Notice under such Rule for its fiscal
year ended October 31, 1996 on December 31, 1996.
<PAGE> 2
THE PAYDEN & RYGEL INVESTMENT GROUP
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
N-1A Location in
Item No. Item Registration Statement
- -------- ---- ----------------------
Part A: Information Required in Prospectus
------------------------------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Funds in Review
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> 3
<TABLE>
<CAPTION>
Part B: Information Required in
Statement of Additional Information
-----------------------------------
<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>
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.
-ii-
<PAGE> 4
PAYDEN & RYGEL
Fixed Income Funds
Limited Maturity Fund
Short Bond Fund
U.S. Treasury Fund
Intermediate Bond Fund
Investment Quality Bond Fund
Total Return 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
International Bond Fund
Global Balanced Fund
International Equity Fund
European Growth & Income Fund
PROSPECTUS
June 27, 1997
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Funds in Review........................................................................ 1
Expense Information ................................................................... 4
Financial Highlights................................................................... 7
Net Asset Value........................................................................ 25
Dividends, Distributions and Taxes..................................................... 25
Investment Objectives and Policies .................................................... 27
Investment Practices................................................................... 38
Management of the Funds................................................................ 54
Shareholder Services................................................................... 58
Redemption of Shares................................................................... 61
How to Purchase Shares................................................................. 62
</TABLE>
<PAGE> 6
Payden & Rygel Investment Group
333 South Grand Avenue
Los Angeles, California 90071
(800) 5-PAYDEN
(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
sixteen distinct portfolios with separate investment objectives (each a "Fund").
Information about the investment objectives of the Funds, the types of
securities in which each Fund may invest, and applicable investment policies and
restrictions, is set forth in this Prospectus. There can be no assurance that
the Funds' investment objectives will be achieved. Because the market value of
each Fund's investments will change, the net asset value per share of the Funds
also will vary.
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Funds. 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 June 27, 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) 5-PAYDEN (800-572-9336).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THE SHARES FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus should be read and retained for reference to information about
the Funds.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 27, 1997.
<PAGE> 7
FUNDS IN REVIEW
This summary is designed to provide a brief overview of each of the Funds
including their investment objectives. A much more detailed discussion of each
Fund's objectives and investment policies begins on page 27. Pages 58-64 have
complete information on how to purchase, redeem and exchange shares.
FUND DESCRIPTIONS
Fixed Income Funds
Each Fixed Income Fund invests in debt obligations which pay principal and
interest in U.S. dollars and which 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. However, at any time, the
Total Return Fund may also 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. Treasury Fund invests primarily in U.S. Treasury bills, notes and
bonds. Most investments mature in less than ten years and average portfolio
maturity is generally less than 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.
1
<PAGE> 8
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 non-investment grade debt. Securities below investment
grade, commonly referred to as "junk bonds," are speculative and subject to
greater market fluctuations and risk of loss of income and principal than higher
rated bonds. The Fund is not constrained with respect to its average maturity.
Tax Exempt Funds
The Short Duration Tax Exempt Fund and the Tax Exempt Bond Fund invest 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 maturity of between five and
ten years.
Equity Funds
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 non-investment grade debt. Securities below
investment grade, commonly referred to as "junk bonds," are speculative and
subject to greater market fluctuations and risk of loss of income and principal
than higher rated bonds.
Global Funds
2
<PAGE> 9
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 invest 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 will
normally have an average portfolio maturity of one to three years. The Global
Fixed Income Fund will normally have an average maturity of no more than ten
years.
The International Bond Fund invests in the same types of debt obligations as the
Global Fixed Income Fund, except they are primarily not denominated in U.S.
dollars. The Fund's average portfolio maturity will not exceed 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 will be 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 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.
3
<PAGE> 10
The Growth & Income, International Equity and European Growth & Income Funds
invest, 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 International Bond Funds will purchase debt obligations that are
payable in foreign currencies. The acquisition of securities issued by foreign
governments and foreign companies and denominated in foreign currencies involves
investment risks that are different in some respects from those incurred by a
fund that invests only in debt obligations of U.S. governmental entities and
domestic companies, including differences in reporting standards; adverse
changes in investment, exchange or tax control regulations; political
instability; changes in exchange rates; greater portfolio volatility; additional
transaction costs; less government regulation of securities markets, brokers and
issuers; possible difficulty in obtaining and enforcing judgments in foreign
courts; and imposition of restrictions on foreign investments.
INVESTMENT ADVISER 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
Two classes of shares of each Fund are offered through Payden & Rygel
Distributors with no sales charge for either class. In general, the minimum
initial investment is $5,000, and the minimum additional investment is $1,000.
Tax-sheltered Retirement Plans and the Automated Investment Programs require
different minimum investments. See "Shareholder Services" and "How to Purchase
Shares." Class B Shares are subject to Shareholder Service Plan fees of 0.25% of
average daily net assets. Class A Shares do not participate in the Plan and do
not pay these fees. Shares of each Fund may be exchanged for Class A or Class B
Shares of any other Fund or for the other class of shares of the Fund.
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
4
<PAGE> 11
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 A Shares, as a percentage of average net assets for the fiscal year
ended October 31, 1996. For Class B Shares, as an estimated percentage of
average net assets for the fiscal year ended October 31, 1997. Except as
otherwise indicated, after reimbursement of Advisory fees and Other expenses.)
<TABLE>
<CAPTION>
Class A Shares Class B Shares
====================================== ==========================================
Advisory Total Fund Other Expenses Total Fund
Fees Other Expenses Advisory Fees (estimated)* Expenses
------------- ----- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Funds Expenses
Limited Maturity Fund 0.28% 0.02% 0.30% 0.28% 0.27% 0.55%
Short Bond Fund 0.28% 0.12% 0.40% 0.28% 0.37% 0.65%
U.S. Treasury Fund 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
Intermediate Bond Fund 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
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%
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 0.31% 0.22% 0.53% 0.30% 0.65% 0.95%
International Bond Fund 0.35% 0.35% 0.70% 0.30% 0.65% 0.95%
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% 0.30% 0.70% 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 0.20% of its advisory fee for the
Growth & Income Fund and 0.10% of its advisory fee for the European Growth &
Income Fund through at least October 31, 1997. In addition, the Adviser has
guaranteed that, for so long as it 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
5
<PAGE> 12
listed below of the Fund's average daily net assets on an annualized basis. In
addition, the Adviser has voluntarily agreed to temporarily limit each Fund's
expense ratio on an annualized basis through October 31, 1997 (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.
<TABLE>
<CAPTION>
Fund Expense Limits
- -------------------
Class A Shares Class B Shares
============================ ============================
Current Current
Voluntary Voluntary
Expense Expense Expense Expense
Fixed Income Funds Guarantee Limit Guarantee Limit
- ------------------ --------- ----- --------- -----
<S> <C> <C> <C> <C>
Limited Maturity Fund 0.60% 0.30% 0.85% 0.55%
Short Bond Fund 0.60% 0.40% 0.85% 0.65%
U.S. Treasury Fund 0.60% 0.45% 0.85% 0.70%
Intermediate Bond Fund 0.60% 0.45% 0.85% 0.70%
Investment Quality Bond Fund 0.60% 0.45% 0.85% 0.70%
Total Return Fund 0.60% 0.45% 0.85% 0.70%
Tax Exempt Funds
- ----------------
Short Duration Tax Exempt Fund 0.60% 0.45% 0.85% 0.70%
Tax Exempt Bond Fund 0.60% 0.45% 0.85% 0.70%
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%
International Bond 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>
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 A Shares of the Funds
for the fiscal year ended October 31, 1996, before reimbursement by the Adviser,
were as follows: Limited Maturity Fund, 0.62%; Short Bond Fund, 0.57%; U.S.
Treasury Fund, 0.78%; Intermediate Bond Fund, 0.58%; Investment Quality Bond
Fund, 0.64%; Short Duration Tax
6
<PAGE> 13
Exempt Fund, 0.70%; Tax Exempt Bond Fund, 0.61%; Market Return Fund, 4.14%;
Global Short Bond Fund, 2.31%; Global Fixed Income Fund, 0.53%; and
International Bond Fund, 0.98%. Actual expenses for Class A Shares of the Total
Return, Global Short Bond, International Equity, European Growth & Income,
Global Balanced and Growth & Income Funds for the fiscal year ended October 31,
1997, before reimbursement by the Adviser, are estimated to be 1.0% of average
daily net assets (annualized). No Class B Shares were sold during the fiscal
year ended October 31, 1996.
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.
<TABLE>
<CAPTION>
Expenses Per $1,000 Investment
- ------------------------------
Class A Shares Class B 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. Treasury 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
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 $19 $9 $27
Market Return Fund $5 $15 $25 $57 $7 $23 $40 $89
Global Funds
- ------------
Global Short Bond Fund $5 $15 $7 $23
Global Fixed Income Fund $5 $17 $30 $67 $10 $31 $53 $118
International Bond Fund $7 $22 $39 $87 $10 $31 $53 $118
Global Balanced Fund $7 $22 $10 $31
International Equity Fund $9 $29 $12 $37
European Growth & Income Fund $7 $22 $10 $31
</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
7
<PAGE> 14
The following financial highlights are included to assist shareholders in
evaluating the performance of the Funds since their commencement of operations.
The information set forth in these tables as of April 30, 1997, is unaudited.
The remainder of the information set forth in these tables has been derived from
financial statements and financial highlights audited by Deloitte & Touche LLP,
independent auditors, whose report thereon was unqualified. All such information
should be read in conjunction with the Funds' financial statements and notes
thereto, which appear in the 1996 Annual Report to Shareholders and the 1997
Semi-Annual Report to Shareholders incorporated by reference in the Statement of
Additional Information. Class B Shares were not sold during the periods.
8
<PAGE> 15
PAYDEN & RYGEL
LIMITED MATURITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $10.06 $10.00 $10.00
----- ---- -----
Income (loss) from investment activities:
Net investment income 0.53 0.56 0.19
Net realized and unrealized gains (losses) 0.07 (0.01)
----- ---- -----
Total from investment activities 0.53 0.63 0.18
----- ---- -----
Distributions to shareholders:
From net investment income (0.53) (0.57) (0.18)
----- ---- -----
Total distributions to shareholders (0.53) (0.57) (0.18)
----- ---- -----
Net asset value, end of period $10.06 $10.06 $10.00
----- ---- -----
Total return 5.41% 6.43% 1.84% (b)
Ratios/supplemental data:
Net assets at end of period (000) $50,771 $18,414 $14,248
Ratio of expenses to average net assets 0.30% 0.33% 0.41% (c)
Ratio of net investment income to average net assets 5.45% 5.59% 4.74% (c)
Ratio of expenses to average net assets prior to subsidies 0.62% 0.83% 2.92% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.13% 5.09% 2.23% (c)
Portfolio turnover rate 216.68% 166.07% 86.35% (c)
</TABLE>
(a) The Fund commenced operations on May 1, 1994.
(b) Not annualized
(c) Annualized
9
<PAGE> 16
PAYDEN & RYGEL
SHORT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
----- ---- -----
<S> <C> <C> <C>
Net asset value, beginning of period $10.04 $9.68 $10.00
----- ---- -----
Income (loss) from investment activities:
Net investment income 0.54 0.54 0.34
Net realized and unrealized gains (losses) (0.06) 0.36 (0.32)
----- ---- -----
Total from investment activities 0.48 0.90 0.02
----- ---- -----
Distributions to shareholders:
From net investment income (0.54) (0.54) (0.34)
From net realized gains (0.01)
----- ---- -----
Total distributions to shareholders (0.55) (0.54) (0.34)
----- ---- -----
Net asset value, end of period $9.97 $10.04 $9.68
----- ---- -----
Total return 4.86% 9.56% 0.21% (b)
Ratios/supplemental data:
Net assets at end of period (000) $97,966 $19,157 $2,592
Ratio of expenses to average net assets 0.40% 0.40% 0.48% (c)
Ratio of net investment income to average net assets 5.67% 5.72% 4.47% (c)
Ratio of expenses to average net assets prior to subsidies 0.57% 1.03% 4.56% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.50% 5.09% 0.39% (c)
Portfolio turnover rate 212.44% 170.27% 186.85% (c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
10
<PAGE> 17
PAYDEN & RYGEL
U.S. TREASURY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Year Ended
October 31, Period Ended
1996 October 31, 1995 (a)
---- --------------------
<S> <C> <C>
Net asset value, beginning of period $10.61 $10.00
------ ------
Income (loss) from investment activities:
Net investment income 0.58 0.53
Net realized and unrealized gains (losses) (0.04) 0.61
------ ------
Total from investment activities 0.54 1.14
------ ------
Distributions to shareholders:
From net investment income (0.58) (0.53)
From net realized gains (0.03) ____
------ ------
Total distributions to shareholders (0.61) (0.53)
------ ------
Net asset value, end of period $10.54 $10.61
====== ======
Total return 5.20% 11.61% (b)
Ratios/supplemental data:
Net assets at end of period (000) $22,114 $10,894
Ratio of expenses to average net assets 0.45% 0.45% (c)
Ratio of net investment income to average net assets 5.59% 6.31% (c)
Ratio of expenses to average net assets prior to subsidies 0.78% 1.84% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.26% 4.92% (c)
Portfolio turnover rate 151.83% 87.10% (c)
</TABLE>
(a) The Fund commenced operations on January 1, 1995.
(b) Not annualized
(c) Annualized
11
<PAGE> 18
PAYDEN & RYGEL
INTERMEDIATE BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $9.85 $9.30 $10.00
------ ------ -------
Income (loss) from investment activities:
Net investment income 0.56 0.57 0.35
Net realized and unrealized gains (losses) (0.17) 0.55 (0.70)
Total from investment activities 0.39 1.12 (0.35)
------ ------ -------
Distributions to shareholders:
From net investment income (0.56) (0.57) (0.35)
From net realized gains (0.08)
------ ------ -------
Total distributions to shareholders (0.64) (0.57) (0.35)
------ ------ -------
Net asset value, end of period $9.60 $9.85 $9.30
====== ====== ======
Total return 4.06% 12.43% -3.52% (b)
Ratios/supplemental data:
Net assets at end of period (000) $52,767 $34,391 $14,312
Ratio of expenses to average net assets 0.45% 0.45% 0.46% (c)
Ratio of net investment income to average net assets 5.90% 6.10% 5.39% (c)
Ratio of expenses to average net assets prior to subsidies 0.58% 0.68% 2.03% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.77% 5.87% 3.82% (c)
Portfolio turnover rate 195.63% 189.00% 358.23% (c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
12
<PAGE> 19
PAYDEN & RYGEL
INVESTMENT QUALITY BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $9.96 $9.09 $10.00
------ ------ -------
Income (loss) from investment activities:
Net investment income 0.63 0.57 0.37
Net realized and unrealized gains (losses) (0.17) 0.87 (0.91)
------ ------ -------
Total from investment activities 0.46 1.44 (0.54)
------ ------ -------
Distributions to shareholders:
From net investment income (0.61) (0.57) (0.37)
------ ------ -------
Total distributions to shareholders (0.61) (0.57) (0.37)
------ ------ -------
Net asset value, end of period $9.81 $9.96 $9.09
====== ====== =======
Total return 4.86% 16.39% -5.49% (b)
Ratios/supplemental data:
Net assets at end of period (000) $32,304 $25,822 $3,030
Ratio of expenses to average net assets 0.00% 0.45% 0.49% (c)
Ratio of net investment income to average net assets 6.41% 6.20% 5.25% (c)
Ratio of expenses to average net assets prior to subsidies 0.64% 1.11% 4.52% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.77% 5.55% 1.22% (c)
Portfolio turnover rate 196.78% 252.09% 513.35% (c)
</TABLE>
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
13
<PAGE> 20
PAYDEN & RYGEL
TOTAL RETURN FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
April 30,
1997 (a)
--------
<S> <C>
Net asset value, beginning of period $10.00
Income (loss) from investment activities:
Net investment income 0.20
Net realized and unrealized gains (losses) (0.17)
Total from investment activities 0.03
Distributions to shareholders:
From net investment income (0.16)
Total distributions to shareholders (0.16)
Net asset value, end of period $9.87
Total return 0.31% (b)
Ratios/supplemental data:
Net assets at end of period (000) $12,583
Ratio of expenses to average net assets 0.45% (c)
Ratio of net investment income to average net assets 6.06% (c)
Ratio of expenses to average net assets prior to subsidies 1.45% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.06% (c)
Portfolio turnover rate 292.49% (c)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
14
<PAGE> 21
PAYDEN & RYGEL
SHORT DURATION TAX EXEMPT FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $10.08 $9.93 $10.00
------ ----- ------
Income (loss) from investment activities:
Net investment income 0.38 0.42 0.04
Net realized and unrealized gains (losses) (0.06) 0.15 (0.07)
------ ----- ------
Total from investment activities 0.32 0.57 (0.03)
------ ----- ------
Distributions to shareholders:
From net investment income (0.38) (0.42) (0.04)
From net realized gains (0.01)
------ ----- ------
Total distributions to shareholders (0.39) (0.42) (0.04)
------ ----- ------
Net asset value, end of period $10.01 $10.08 $9.93
====== ===== ======
Total return 3.28% 5.88% -0.35% (b)
Ratios/supplemental data:
Net assets at end of period (000) $36,336 $16,019 $20,150
Ratio of expenses to average net assets 0.45% 0.45% 0.45% (c)
Ratio of net investment income to average net assets 3.81% 4.12% 3.20% (c)
Ratio of expenses to average net assets prior to subsidies 0.70% 0.91% 2.87% (c)
Ratio of net investment income to average net assets prior
to subsidies 3.56% 3.66% 0.78% (c)
Portfolio turnover rate 34.72% 79.81% 0.00% (c)
</TABLE>
(a) The Fund commenced operations on September 1, 1994.
(b) Not annualized
(c) Annualized
15
<PAGE> 22
PAYDEN & RYGEL
TAX EXEMPT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Year Ended Ended
October 31, October 31, October 31,
1996 1995 1994 (a)
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period $9.59 $8.90 $10.00
------ ----- ------
Income (loss) from investment activities:
Net investment income 0.45 0.46 0.33
Net realized and unrealized gains (losses) (0.12) 0.69 (1.10)
------ ----- ------
Total from investment activities 0.33 1.15 (0.77)
------ ----- ------
Distributions to shareholders:
From net investment income (0.45) (0.46) (0.33)
------ ----- ------
Total distributions to shareholders (0.45) (0.46) (0.33)
------ ----- ------
Net asset value, end of period $9.47 $9.59 $8.90
====== ===== ======
Total return 3.52% 13.25% -7.85% (b)
Ratios/supplemental data:
Net assets at end of period (000) $49,862 $40,052 $25,474
Ratio of expenses to average net assets 0.45% 0.45% 0.50% (c)
Ratio of net investment income to average net assets 4.73% 4.97% 4.47% (c)
Ratio of expenses to average net assets prior to subsidies 0.61% 0.74% 1.07% (c)
Ratio of net investment income to average net assets prior
to subsidies* 4.57% 4.69% 3.90% (c)
Portfolio turnover rate 23.04% 41.87% 97.53% (c)
(a) The Fund commenced operations on December 21, 1993.
(b) Not annualized
(c) Annualized
</TABLE>
16
<PAGE> 23
PAYDEN & RYGEL
GROWTH & INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
April 30,
1997 (a)
--------
<S> <C>
Net asset value, beginning of period $10.00
Income (loss) from investment activities:
Net investment income 0.08
Net realized and unrealized gains (losses) 1.29
Total from investment activities 1.37
Distributions to shareholders:
From net investment income (0.08)
Total distributions to shareholders (0.08)
Net asset value, end of period $11.29
Total return 13.69% (b)
Ratios/supplemental data:
Net assets at end of period (000) $81,567
Ratio of expenses to average net assets 0.53% (c)
Ratio of net investment income to average net assets 1.66% (c)
Ratio of expenses to average net assets prior to subsidies 0.90% (c)
Ratio of net investment income to average net assets prior
to subsidies 1.29% (c)
Portfolio turnover rate 4.89% (c)
</TABLE>
(a) The Fund commenced operations on November 1, 1996.
(b) Not annualized
(c) Annualized
17
<PAGE> 24
PAYDEN & RYGEL
MARKET RETURN FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
October 31, 1996 (a)
--------------------
<S> <C>
Net asset value, beginning of period $10.00
------
Income (loss) from investment activities:
Net investment income 0.50
Net realized and unrealized gains (losses) 0.86
------
Total from investment activities 1.36
------
Distributions to shareholders:
From net investment income (0.50)
------
Total distributions to shareholders (0.50)
------
Net asset value, end of period $10.86
======
Total return 14.06% (b)
Ratios/supplemental data:
Net assets at end of period (000) $5,789
Ratio of expenses to average net assets 0.00% (c)
Ratio of net investment income to average net assets 5.95% (c)
Ratio of expenses to average net assets prior to subsidies 4.14% (c)
Ratio of net investment income to average net assets prior
to subsidies 1.81% (c)
Portfolio turnover rate 146.31% (c)
</TABLE>
(a) The Fund commenced operations on December 1, 1995
(b) Not annualized
(c) Annualized
18
<PAGE> 25
PAYDEN & RYGEL
GLOBAL SHORT BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
April 30, Period Ended
1997 October 31, 1996 (a)
---- --------------------
<S> <C> <C>
Net asset value, beginning of period $10.07 $10.00
Income (loss) from investment activities:
Net investment income 0.50 0.05
Net realized and unrealized gains (losses) (0.18) 0.06
Total from investment activities 0.32 0.11
Distributions to shareholders:
From net investment income (0.29) (0.04)
Total distributions to shareholders (0.29) (0.04)
Net asset value, end of period $10.10 $10.07
Total return 3.25% (b) 1.10% (b)
Ratios/supplemental data:
Net assets at end of period (000) $ 153,877 $28,913
Ratio of expenses to average net assets 0.45% (c) 0.45% (c)
Ratio of net investment income to average net assets 4.95% (c) 4.86% (c)
Ratio of expenses to average net assets prior to subsidies 0.54% (c) 2.31% (c)
Ratio of net investment income to average net assets prior
to subsidies 4.86% (c) 3.00% (c)
Portfolio turnover rate 218.34% (c) 0.00% (c)
</TABLE>
(a) The Fund commenced operations on September 18, 1996.
(b) Not annualized
(c) Annualized
19
<PAGE> 26
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
October 31, October 31, October 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $10.32 $9.77 $10.62
------ ----- ------
Income from investment activities:
Net investment income 0.54 0.89 0.44
Net realized and unrealized gains (losses) 0.19 0.53 (0.65)
------ ----- ------
Total from investment activities 0.73 1.42 (0.21)
------ ----- ------
Distributions to shareholders:
From net investment income (0.70) (0.87) (0.42)
From net realized gains (0.22)
------ ----- ------
Total distributions to shareholders (0.70) (0.87) (0.64)
------ ----- ------
Net asset value, end of period $10.35 $10.32 $9.77
====== ===== ======
Total return 7.41% 15.10% -2.09%
Ratios/supplemental data:
Net assets at end of period (000) $651,165 $540,041 $430,210
Ratio of expenses to average net assets 0.53% 0.50% 0.55%
Ratio of net investment income to average net assets 5.67% 8.94% 4.24%
Portfolio turnover rate 175.68% 226.72% 348.12%
</TABLE>
(b) Not annualized
(c) Annualized
20
<PAGE> 27
PAYDEN & RYGEL
GLOBAL FIXED INCOME FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended 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 252.97% 53.98% (c)
</TABLE>
(a) The Fund commenced operations on September 1, 1992.
(b) Not annualized
(c) Annualized
21
<PAGE> 28
PAYDEN & RYGEL
INTERNATIONAL BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period
Year Ended Ended
October 31, October 31,
1996 1995 (a)
---- --------
<S> <C> <C>
Net asset value, beginning of period $10.04 $10.00
------- -------
Income (loss) from investment activities:
Net investment income 0.03 0.15
Net realized and unrealized gains (losses) 0.42 0.09
------- -------
Total from investment activities 0.45 0.24
------- -------
Distributions to shareholders:
From net investment income (0.03) (0.15)
From net realized gains (0.07) (0.04)
In excess of net realized gains (0.01)
------- -------
Total distributions to shareholders (0.10) (0.20)
------- -------
Net asset value, end of period $10.39 $10.04
======= =======
Total return 4.47% 2.43% (b)
Ratios/supplemental data:
Net assets at end of period (000) $18,364 $19,194
Ratio of expenses to average net assets 0.70% 0.70% (c)
Ratio of net investment income to average net assets 5.61% 5.24% (c)
Ratio of expenses to average net assets prior to subsidies 0.98% 1.64% (c)
Ratio of net investment income to average net assets prior
to subsidies 5.33% 4.30% (c)
Portfolio turnover rate 216.80% 96.62% (c)
</TABLE>
(a) The Fund commenced operations on April 1, 1995.
(b) Not annualized
(c) Annualized
22
<PAGE> 29
PAYDEN & RYGEL
GLOBAL BALANCED FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
April 30,
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) (0.03)
Total from investment activities 0.02
Distributions to shareholders:
From net investment income (0.01)
Total distributions to shareholders (0.01)
Net asset value, end of period $10.01
Total return 0.22% (b)
Ratios/supplemental data:
Net assets at end of period (000) $10,393
Ratio of expenses to average net assets 0.69% (c)
Ratio of net investment income to average net assets 3.67% (c)
Ratio of expenses to average net assets prior to subsidies 1.87% (c)
Ratio of net investment income to average net assets prior
to subsidies 2.49% (c)
Portfolio turnover rate 186.95% (c)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
23
<PAGE> 30
PAYDEN & RYGEL
INTERNATIONAL EQUITY FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Period Ended
April 30,
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) 0.17
Total from investment activities 0.22
Distributions to shareholders:
From net investment income (0.01)
Total distributions to shareholders (0.01)
Net asset value, end of period $10.21
Total return 2.18% (b)
Ratios/supplemental data:
Net assets at end of period (000) $8,800
Ratio of expenses to average net assets 0.89% (c)
Ratio of net investment income to average net assets 1.35% (c)
Ratio of expenses to average net assets prior to subsidies 2.12% (c)
Ratio of net investment income to average net assets prior
to subsidies 0.12% (c)
Portfolio turnover rate 60.56% (c)
</TABLE>
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
24
<PAGE> 31
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 B Shares than for Class A 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 Bond, International Equity, European Growth
& Income, Global Balanced and Growth & Income Funds which declare and distribute
dividends quarterly. Class B dividends will normally be lower than Class A
dividends. Any net realized capital gains from the sale of portfolio securities
will be distributed no less frequently than once yearly. Dividend and capital
gain distributions of each Fund will be paid in the form of additional shares of
the Fund at the net asset value on the ex-dividend date unless the shareholder
elects to have them paid in cash by completing an appropriate request form.
25
<PAGE> 32
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 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 of reducing the per share net asset
value of the investor's shares by the per share amount of the dividends or
distributions.
26
<PAGE> 33
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
sixteen series of shares, all of which are sold through this prospectus. Each
series of shares has two classes, Class A and Class B. The Board of Trustees may
establish additional series or classes of shares in the future. As of June 19,
1997, Tessera, Inc. held 26% of the outstanding shares of the Limited Maturity
Fund; Washington Suburban Sanitary Commission held 30% of the outstanding shares
of the Total Return Fund; Scottish Widows Investment Management held 26% of the
outstanding shares of the International Equity Fund; Lon V. Smith Foundation
held 32% of the outstanding shares of the Global Balanced Fund; Bert Bell NFL
Retirement Plan held 55% of the Intermediate Bond Fund; Dan Murphy Foundation
held 46% and L. Horvitz held 27%, respectively, of the U.S. Treasury Fund; and
the Consuelo Zobel Alger Foundation held 74% of the outstanding shares of the
International Bond Fund.
VOTING
Shareholders have the right to vote in the election of Trustees and on any and
all matters on which they may be entitled to vote by law or the provisions of
the Declaration of Trust. Shares entitle their holders to one vote per share
(with proportionate voting for fractional shares). Shareholders will vote in the
aggregate and not by series or class except as otherwise required by law or when
the Board of Trustees of the Group determines that a matter to be voted on
affects only the interest of a particular series or class. Voting rights are not
cumulative, and accordingly the holders of more than 50% of the shares of the
Group may elect all of the Trustees. The Group is not required to hold regular
annual meetings of shareholders and does not intend to do so except when
required by law. The Declaration of Trust provides that the holders of not less
than two-thirds of the outstanding shares of the Group may remove a person
serving as Trustee at a shareholder meeting called by written request of the
holders of not less than 10% of the outstanding shares of any series.
INVESTMENT OBJECTIVES AND POLICIES
FIXED INCOME FUNDS
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The Payden & Rygel Fixed Income Funds are designed to seek income and capital
gains where appropriate. The Funds which invest in intermediate 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, intermediate, and long-term debt obligations depend on a
variety of factors, including the general conditions of the money and bond
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. Debt obligations with longer maturities tend to produce
higher yields and are generally subject to potentially greater capital
appreciation and depreciation than obligations with shorter maturities and lower
yields. The market prices of debt obligations usually vary depending upon
available yields. An increase in interest rates will generally reduce the value
of such portfolio investments, and a decline in interest rates will generally
increase the value of such portfolio investments. The ability of a Fund to
achieve its investment objective also depends on the continuing ability of the
issuers of the debt securities in which the Fund invests to meet their
obligations for the payment of interest and principal when due.
The 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.
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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. Treasury Fund seeks to realize a high level of total return consistent
with preservation of capital. It primarily invests in U.S. Treasury securities
guaranteed by the full faith and credit of the United States Government. The
Fund will invest at least 65% of its net assets in obligations issued by the
U.S. Treasury and guaranteed by the full faith and credit of the U.S.
government. In addition, the Fund may invest up to 35% of its total assets in
securities issued by U.S. government agencies and instrumentalities which may or
may not be supported by the full faith and credit of the U.S. government; the
Fund will invest in such securities only when the Adviser is satisfied that the
credit risk is minimal. The Fund will generally invest in U.S. Treasury
securities with maturities ranging from one day to ten years. Average portfolio
maturity, under normal market conditions, is generally less than five years.
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.
The Investment Quality Bond Fund (formerly called 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,
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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
to the Statement of Additional Information.
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 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.
From time to time, the Fund may invest more than 25% of its total assets in tax
exempt debt obligations issued by the state of California and other governmental
authorities, agencies and instrumentalities located in California. In such
event, the Fund's ability to meet its objective may be subject to political,
economic, regulatory or other developments which constrain the taxing and
spending authority of California issuers or otherwise affect the ability of
California issuers to pay interest or repay principal.
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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.
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 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.
The Fund currently anticipates that under normal market conditions approximately
50% of its total assets will be invested in common stocks known as the "Dow
Dogs" as described below (the "Dow Dogs Portfolio"). During each month, the
common stocks purchased by the Fund for the Dow Dogs Portfolio will be comprised
of the ten common stocks included in the Dow Jones Industrial Average1 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 will hold for
approximately one year all common stocks purchased for the Dow Dogs Portfolio
during a month, including common stocks that may no longer be among the Dow
Dogs, except to the extent that stocks must be sold to satisfy redemption
requests or to rebalance the Fund as described below.
- --------
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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Each month, the Adviser will rebalance a portion of the Fund's investments.
Stocks in the Dow Dogs Portfolio which were purchased approximately one year
earlier and which are no longer among the Dow Dogs will be sold. Additional
stocks in the Dow Dogs 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 Dow
Dogs) so that, under normal market conditions after the entire rebalancing
process is completed, approximately 50% of the rebalanced Fund assets will
consist of the Dow Dogs Portfolio (approximately 5% per common stock). The
balance of the Fund's assets will be invested primarily in SPDRs or a
substantial number of additional common stocks that the Adviser believes would
closely replicate the performance of the S&P 500 Index.
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 Corporation, which is
not a sponsor of or in any way affiliated with the Fund, chooses the 500 stocks
included in the Index based on market value and industry diversification. The
stocks listed in the S&P 500 Index comprise approximately 75% of the total
market capitalization within the publicly traded U.S. equity markets.
The 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,
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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 the appendix
to the Statement of Additional Information.
The Adviser believes that investment in stock index futures and equity swap
contracts, when combined with a fixed income portfolio, will permit the 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.
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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 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 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 three 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
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approval, at least 65% of the Global Fixed Income Fund's total assets are
invested in debt securities of issuers located in at least three countries, one
of which may be the United States. 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 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 will consist of: (1) debt obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities; (2) debt
obligations issued or guaranteed by a foreign sovereign government or one of its
agencies, authorities, instrumentalities or political subdivisions, including
foreign states, provinces or municipalities; (3) debt obligations issued or
guaranteed by supranational organizations such as the World Bank, Asian
Development Bank, European Investment Bank and European Economic 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 International Bond Fund seeks to realize a high level of total return
consistent with preservation of capital. It invests in the same types of
securities and other investments and has the same high quality credit guidelines
as the Global Fixed Income and Global Short Bond Funds with the exception that
(1) under normal market conditions, as a fundamental policy which cannot be
changed without shareholder approval, at least 65% of the Fund's total assets
are invested in debt securities of issuers located in at least three countries
other than the United States, and (2) the Fund invests primarily in securities
that are not denominated in U.S. dollars. The Fund's average portfolio maturity
will not exceed ten years. Under normal market conditions, (1) the Fund invests
no more than 35% of its assets in U.S. dollar denominated securities, and (2) at
least 65% of net assets are invested in securities with more than one year to
maturity. However for temporary defensive or emergency purposes, the Fund may
invest without limit in U.S. debt securities. In addition, the International
Bond Fund generally has more exposure to foreign currency exchange rates than
the Global Fixed Income and Global Short Bond Funds, which may cause greater
share price volatility.
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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 will invest its assets in common stocks
of approximately forty issuers located in France, Germany, the Netherlands and
the United Kingdom, which have the largest market capitalization among countries
in the Morgan Stanley Capital International ("MSCI") Europe Regional Index.
During each month, the Fund will purchase 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 will hold for approximately one year all stocks
purchased during a month, including stocks that may no longer be among those
with the highest dividend rates of the thirty largest 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-advisor will rebalance the Fund's investments. Stocks of
issuers in each such country which were purchased approximately one year earlier
and which are no longer among those with the highest dividend rates of the
thirty largest stocks in the country's index will be 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 will hold
approximately 2.5% of its assets in each stock. In addition, the Fund will
invest 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
outside the United States ("foreign equities"). Under normal market conditions,
the International Equity Fund's assets will be invested in securities of issuers
in at least five different countries.
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Under normal circumstances, the Fund will invest 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 the universe of countries that are not in the
MSCI World Index. These countries are sometimes referred to as emerging markets,
which may include developing countries or countries with new or developing
capital markets.
In seeking to achieve the Fund's investment objective, the Sub-adviser will seek
to invest in companies that it believes are well managed as evidenced by the
following:
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 AND/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 will normally be 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 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
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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 will be invested in both dollar and
non-dollar denominated debt securities. Dollar denominated securities will have
the same investment parameters as the Investment Quality Bond Fund. Non-dollar
debt securities will follow the investment guidelines of the Global Fixed Income
Fund. Neither allocation will be restricted as to the final maturity of a
specific investment. However, the money market allocation will generally have an
average maturity of less than one year. The equity allocation may invest in
companies headquartered in both the United States and foreign countries. At
least 65% of the equity allocation will be 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
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<PAGE> 45
The Adviser and Sub-adviser utilize various investment techniques in managing
each Fund's portfolio, including the following:
U.S. GOVERNMENT AND AGENCY OBLIGATIONS. Each Fund may invest in obligations
issued by the U.S. Treasury and in securities issued or guaranteed by U.S.
Government sponsored enterprises and federal agencies. These securities include
Treasury bills, which mature in one year or less, Treasury notes and bonds that
mature in 2 to 30 years, and agency issues, which may have maturities from one
day to 40 years. Securities are generally not callable and normally have
interest rates that are fixed for the life of the security.
MONEY MARKET FUNDS. To maintain liquidity, each Fund may invest in unaffiliated
money market funds. Under normal circumstances, money market investment of the
Short Duration Tax Exempt and Tax Exempt Bond Funds will be in federal tax-free
mutual funds. No money market fund investment by a Fund will be in excess of 3%
of the total assets of the money market fund. The Funds do not anticipate
investing more than 15% of their respective net assets in money market funds. An
investment in a money market mutual fund by a Fund will involve payment by the
Fund of its pro rata share of advisory and administrative fees charged by such
money market fund.
MONEY MARKET OBLIGATIONS. Each Fund may invest in U.S. dollar denominated bank
certificates of deposit, bankers acceptances, commercial paper and other
short-term debt obligations of U.S. and foreign issuers, including U.S.
Government and agency obligations. All money market obligations will be
considered high quality, meaning that the security will be rated in one of the
two highest categories for short-term securities by at least two nationally
recognized rating services (or by one if only one rating service has rated the
security) or, if unrated, will be judged to be of equivalent quality by the
Adviser or Sub-adviser.
CORPORATE DEBT SECURITIES. Each Fund, other than the U.S. Treasury Fund, may
invest in U.S. dollar denominated corporate bonds, debentures, notes and other
similar debt instruments of domestic and foreign corporations which, at the time
of purchase, are rated investment grade by at least one of the established
rating agencies or, if unrated, are determined to be of comparable quality by
the Adviser 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.
However, 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 "junk bonds" are often 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. The
market prices of these securities may fluctuate more than investment grade
securities and may decline significantly in periods of general economic
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<PAGE> 46
difficulty. The market for such securities may be thinner and less active than
for higher-rated securities, which may adversely affect the prices at which
these securities can be sold and may create difficulty in valuing such
securities. In addition, adverse publicity and investor perceptions about junk
bonds, whether or not based on fundamental analysis, may tend to decrease the
market value and liquidity of such securities. Legislation has been and could be
adopted limiting the use, or tax and other advantages, of junk bonds, which
could adversely affect their value.
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.
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.
The Total Return, Global Fixed Income, Global Short Bond, Global Balanced and
International Bond Funds may also invest in foreign mortgage-related securities.
Payments made on the underlying mortgages and passed through to a Fund will
represent both regularly scheduled principal and interest payments as well as
prepayments of principal. Investing in such obligations involves special risks
as a result of prepayments (which may require the Fund to reinvest the proceeds
at a lower rate), the illiquidity of certain of such securities and the possible
default by insurers or guarantors. The Tax Exempt Funds invest in municipal debt
obligations issued to provide financing for residential housing mortgages to
targeted groups.
ASSET BACKED RECEIVABLES. With the exception of the U.S. Treasury, 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.
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
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<PAGE> 47
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. The Total Return, Growth & Income, European
Growth & Income, Global Balanced 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.
Warrants give the holder the right to purchase a specified number of shares of
the underlying stock at any time at a fixed price, but do not pay a fixed
dividend. Investment in warrants involve certain risks, including the possible
lack of a liquid market for resale, potential price fluctuations as a result of
speculation or other factors, and the failure of the price of the underlying
security to reach or have reasonable prospects of reaching a level at which the
warrant can be prudently exercised (in which event the warrant may expire
without being exercised, resulting in a loss of the Fund's entire investment in
the warrant). As a matter of operating policy, the Fund will not invest more
than 5% of its total assets in warrants.
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<PAGE> 48
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Limited Maturity, Short Bond,
Intermediate Bond, Investment Quality Bond, Total Return 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.
The Global Fixed Income, Global Short Bond, Global Balanced, Total Return,
Market Return and International Bond Funds may invest in securities payable in a
foreign currency. These Funds are restricted to investment in non-U.S. dollar
obligations rated at least AA at the time of purchase by at least one of the
rating agencies.
TAX EXEMPT OBLIGATIONS. 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.
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
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<PAGE> 49
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. Any Equity Fund and 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. 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.
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 funds generally have
substantial assets and low operating expenses, investment in such a fund by the
Funds will involve a duplication of expenses, as it will require payment by the
Fund of its pro rata share of advisory and administrative fees charged by the
Fund.
Although equity securities have a history of long term growth in value, their
prices fluctuate based on changed 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.
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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 March, 1997 of 1.1 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.
The administrator of the SPDR program, the American Stock Exchange, receives a
fee to cover its costs of about 0.20% per year. This fee is deducted from the
dividends paid to SPDR investors. Investors in Fund shares will incur not only
the operational costs of the Fund, but will also incur the expenses deducted by
the administrator of the SPDR program.
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, Global Short Bond 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
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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
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 futures contract provides for the delivery by one party and the
purchase by another party of a specified quantity of a financial instrument at a
specified future date and price. Although the value of a futures contract may be
a function of the value of certain specified securities, no physical delivery of
these securities is made. Such futures contracts are derivative instruments
which may be traded on U.S. exchanges or with broker-dealers which maintain
futures markets. Upon entering into a futures contract, the Fund will be
required to deposit with its custodian in a segregated account in the name of
its futures broker a specified
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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 RATE SECURITY STOCK INDEX
INDICES CURRENCY SECURITIES
------- -------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income Funds Yes Yes No No Yes
(except Total Return)
Tax Exempt Funds Yes Yes No No Yes
Total Return Fund Yes Yes No Yes Yes
Market Return Fund Yes Yes Yes Yes Yes
Growth & Income Fund No Yes Yes No Yes
Global Fixed Income, Global Short Bond, Yes Yes No Yes Yes
International Bond 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. The Funds, 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
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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 Equity Fund, the European Growth & Income Fund and
the Global Balanced Fund 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 (price change plus dividends) of a specified equity
index (such as the S&P 500 Index). If the total return on the equity index is
negative for the contract period, the Fund will pay its counterparty the amount
of the loss in the value of the notional amount plus interest at the floating
rate. From time to time, the Fund may wish to cancel an equity swap contract in
order to reduce its equity exposure. Although the swap contract may be sold back
to the Fund's counterparty, it may be more advantageous to enter into a swap
contract in which the Fund would reduce its equity exposure by agreeing to
receive a floating rate of interest and pay the change in the index. This is
sometimes called a "reverse equity swap contract" and would only be entered into
to reduce equity exposure. The Funds will not 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. The Equity Funds and 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
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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,
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 Funds would ordinarily
invest directly. Investments in such pooled vehicles should enhance the
geographical diversification of the portfolio's assets, thereby reducing the
risks associated with investing in certain smaller foreign markets. Investments
by the Global Balanced, European Growth & Income and International Equity Funds
in such vehicles should also provide increased liquidity and lower transaction
costs 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 intend 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 MSCI. 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 and Market Return Funds
and the Global Funds normally conducts its foreign currency exchange
transactions either on a spot (cash) basis at the spot rate prevailing in the
foreign currencies or on a forward basis. Under normal circumstances, the
Adviser expects that the Funds will enter into forward currency contracts
(contracts to purchase or sell a specified currency at a specified future date
and price). No Fund will generally enter into a forward contract with a term of
greater than one year. Although forward contracts are used primarily to protect
the Funds from adverse currency movements, they may also be used to increase
exposure to a currency, and involve the risk that anticipated currency movements
will not be accurately predicted and a Fund's total return will be adversely
affected as a result. No Fund enters into forward currency contracts for
speculative purposes. Open positions in forward contracts are covered by the
segregation with the Group's Custodian of cash, U.S. Government securities or
other high grade debt obligations and are marked-to-market daily.
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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
There is no guarantee that any Fund will accomplish its objective. In addition,
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 Fund, has been classified as "non-diversified". As provided
in the 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.
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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. The Funds are not money market
funds and are not appropriate for those whose primary objective is stability of
principal. The value of the portfolio securities of each Fund will fluctuate
based upon market conditions.
In general, 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. However, at any
time, each of the Total Return and Market Return Funds may invest up to 25% of
its assets in debt rated below investment grade, or in 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
to the Statement of Additional Information.
FOREIGN INVESTMENTS
Each of the Funds, other than the U.S. Treasury, 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, the Total
Return and Market Return Funds and 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. The Global Funds allow investors to diversify their
portfolios by investing in various companies
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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 securities. It may also be more
difficult to obtain and enforce judgments against foreign entities.
The International Equity, Global Balanced and Total Return Funds may invest a
portion of their assets in securities of issuers organized in emerging markets,
which may include developing countries or countries with new or developing
capital markets. The considerations noted above 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. Securities of issuers located in these countries
tend to have volatile prices and may offer significant potential for loss as
well as gain.
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. The Global Fixed Income, Global Short Bond, Total Return,
Market Return, Global Balanced and International Bond Funds will, when deemed
appropriate by the Adviser, hedge this currency exposure in order to protect the
Fund's share price.
The International Equity, European Growth & 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."
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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 the Global Funds, the Board of Trustees will promptly review the
policies of the Funds to determine whether significant changes in their
portfolios are appropriate.
The Adviser undertakes several measures in seeking to preserve investors'
principal in the Global Fixed Income, Global Short Bond, Global Balanced and
International Bond 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.
Second, the Adviser actively manages the maturity of the portfolios of each of
the Global Short Bond, Global Fixed Income, Global Balanced and International
Bond 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
Global Fixed Income, Global Short Bond, Total Return, Market Return, Global
Balanced and International Bond Funds' exposure to foreign currency exchange
risks. An increase in value of a foreign currency relative to the U.S. dollar
(the "weakening" of the dollar) increases the U.S. dollar value of securities
denominated in that foreign currency. Conversely, a decline in the value of a
foreign currency relative to the U.S. dollar (the "strengthening" of the dollar)
causes a decline in the U.S. dollar value of these securities. The Adviser seeks
to use combinations of forward foreign currency contracts, foreign currency
futures contracts and options on futures contracts, options on foreign
currencies, and currency swap agreements to offset the impacts of such
movements. The Global Fixed Income, Total Return, Market Return and Global Short
Bond Funds will generally hedge a greater proportion of their foreign currency
exchange risk than the International Bond and Global Balanced Funds. These
investment techniques involve certain risks described under "Investment
Practices" above.
OPTIONS AND FUTURES CONTRACTS
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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, 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 securities of any one
or more issuers conducting their principal business activities in the same
industry, provided that (1) there is no limitation with respect to U.S.
Government obligations and repurchase obligations secured by such obligations,
(2) wholly owned finance companies will be considered to be in the industries of
their parents, (3) SPDRs will be divided according to the industries of their
underlying common stocks, and (4) utilities will be divided according to
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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 the
Fixed Income Funds, Global Short Bond, Global Fixed Income and International
Bond 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, the Limited Maturity, Short
Bond, Intermediate, Investment Quality Bond and Total 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 securities of any one
or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to U.S.
Government obligations and repurchase obligations secured by such obligations,
(b) wholly owned finance companies will be considered to be in the industries of
their parents, and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and telephone will each be
considered a separate industry). Each foreign government and supranational
organization is considered to be an industry.
PORTFOLIO TURNOVER. Securities may be sold without regard to the length of time
held. The portfolio turnover of each Fund may be higher than that of other
mutual funds with less aggressive trading strategies, which would, in turn,
increase each Fund's transaction costs. No Fund can accurately predict its
future annual portfolio turnover rate; however, although it could vary
substantially, it will generally not exceed 300% for the Global and
International Bond Funds, 100% for the Tax Exempt Funds and for the Growth &
Income, European Growth & Income and International Equity Funds, and 200% for
the other Funds. To the extent that short-term trading results in the
realization of short-term capital gains, shareholders will be taxed on such
gains at ordinary income tax rates.
MANAGEMENT OF THE FUNDS
The business of the Group is managed under the direction of its Board of
Trustees, which establishes the Group's policies and supervises and reviews the
management of the Funds. Information about the Trustees and the Group's
executive officers may be found in the Statement of Additional Information.
INVESTMENT ADVISER
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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, International Bond Fund and Global Short Bond
Fund); the Short Maturity Group (Limited Maturity Fund, Short Bond Fund, U.S.
Treasury Fund, Market Return Fund, and Intermediate Bond Fund); the Bond
Strategy Group (Investment Quality Bond Fund and Total Return Fund); and the
Equity Strategy Group (Growth & Income Fund, European Growth & Income Fund,
International Equity Fund and Global Balanced Fund).
The Adviser receives a monthly fee from each Fund at the following annual rates:
the Limited Maturity, Short Bond, U.S. Treasury, 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, Global Fixed Income and International Bond
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
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$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; and the
European Growth & Income Fund, 0.50% of the first $2 billion of average daily
net assets of the portfolio, and 0.40% thereafter.
For the fiscal year which ended October 31, 1996, the Adviser earned a fee from
each Fund as follows: Limited Maturity, Short Bond, U.S. Treasury, 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, 0.30%; Global Fixed
Income Fund 0.31%; International Bond Fund, 0.35%. The other Funds were 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.
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.
ADMINISTRATOR AND TRANSFER AGENT
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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
127 West 10th Street, 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.
SHAREHOLDER SERVICE PLAN
The Board of Trustees has adopted a Shareholder Service Plan with respect to
Class B shares of the Funds and of the other portfolios of the Group. Under the
Plan, the Class B shares of the Funds pay the Distributor an annual fee of up to
0.25% of the average daily net assets of the Funds attributable to the Class B
shares for services provided by the Distributor, broker-dealers and other
service organizations to the beneficial owners of Class B shares. Such support
services include establishing and maintaining accounts and records relating to
clients; assisting clients in processing purchase, exchange and redemption
requests and account designations; preparing tax reports and forms; forwarding
shareholder communications from the Funds; and responding to client inquiries
concerning their investments.
Services provided under the Shareholder Service Plan are not primarily intended
to result in the sale or distribution of Class B Shares of the Funds. The Plan
is a "compensation" plan, which means that the fees paid to the broker-dealers
and other service organizations for services rendered are payable even if the
amounts paid exceed their actual expenses. If in any month the Distributor is
due more fees for shareholder services than are immediately payable
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because of the expense limitations under the Plan, the unpaid amount is carried
forward from month to month while the Plan is in effect until such time when it
may be paid. However, no carried forward amount will be payable beyond the
fiscal year in which the amount was incurred, and no interest, carrying or other
finance charge is borne by the Class B Shares with respect to any amount carried
forward.
PERFORMANCE INFORMATION
The Funds may, from time to time, include the yield and total return for shares
in advertisements or reports to shareholders or prospective investors. Yield and
total return are calculated separately for Class A and Class B Shares. Yield
will be quoted using the SEC definition, which is the annualized net investment
income per share during a particular 30-day (or one month) period. Quotations of
average annual total return will be expressed in terms of the average annual
compounded rate of return of a hypothetical investment in a Fund over specified
periods.
OFFERING
Copies of the Group's 1996 Annual Report to Shareholders and 1997 Semi-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 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 currently waives the Fiduciary
Administration Fees charged by IFTC associated with such plans.
EXCHANGE PRIVILEGE
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The Group currently consists of sixteen investment portfolios with varying
investment objectives or policies, and other investment portfolios may be
created. Shares of a Fund may be exchanged for Class A or Class B 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) 5-PAYDEN (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."
The Exchange Privilege may be modified or discontinued by the Group at any time
upon 60 days' notice to shareholders. The Group also reserves the right to limit
the number of exchanges a shareholder may make in any year to avoid excessive
Fund expenses. The Exchange Privilege is only available in states where the
exchange may be legally made.
TELEPHONE PRIVILEGE
Shareholders may exchange or redeem shares by telephone if they have elected
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
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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 Fund 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 right to modify or terminate the
checkwriting privilege upon 30 days prior written notice to shareholders.
AUTOMATED INVESTMENT PROGRAMS
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
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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:
o The shareholder's financial institution must be a member of the
Automated Clearing House System.
o 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.
o An account with the Group must be established before the Electronic
Investment Plan goes into effect.
o The Electronic Investment Plan will automatically terminate if all
shares are redeemed.
o 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 Fund 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 Fund 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 Group's Funds may call the
Group at (213) 625-1900, or (800) 5-PAYDEN, or write to Payden & Rygel
Investment Group, 333 South Grand Avenue, Los Angeles, CA 90071.
REDEMPTION OF SHARES
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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) 5-PAYDEN, 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,
but may take up to seven days. Telephone redemptions may be difficult to
implement during periods of drastic economic or market changes, which may result
in an unusually high volume of telephone calls.
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 initial and additional 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
o Complete Application
o Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
P.O. Box 419318
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Kansas City, MO 64141-6318
BY FEDERAL FUNDS WIRE
o Complete application and mail to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318
O 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) 5-PAYDEN, to advise
of any purchases by wire.
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
The minimum initial and additional investments per Fund for each type of account
are as follows:
<TABLE>
<CAPTION>
ACCOUNT TYPE Initial Subsequent
------------ ------- ----------
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>
ADDITIONAL INVESTMENTS
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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 shares if
information provided in the client application proves to be incorrect in any
material manner.
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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
127 West 10th Street
Kansas City, Missouri 64105
AUDITORS
Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402
COUNSEL
Paul, Hastings, Janofsky and Walker LLP
555 South Flower Street
Los Angeles, California 90071
June 27, 1997
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<PAGE> 72
PAYDEN & RYGEL INVESTMENT GROUP
PAYDEN & RYGEL LIMITED MATURITY FUND
PAYDEN & RYGEL SHORT BOND FUND
PAYDEN & RYGEL U.S. TREASURY FUND
PAYDEN & RYGEL INTERMEDIATE BOND FUND
PAYDEN & RYGEL INVESTMENT QUALITY BOND FUND
PAYDEN & RYGEL TOTAL RETURN 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 INTERNATIONAL BOND FUND
PAYDEN & RYGEL GLOBAL BALANCED FUND
PAYDEN & RYGEL EUROPEAN GROWTH & INCOME FUND
PAYDEN & RYGEL INTERNATIONAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
June 27, 1997
The Payden & Rygel Limited Maturity Fund ("Limited Maturity Fund"), Payden &
Rygel Short Bond Fund ("Short Bond Fund"), Payden & Rygel U.S. Treasury Fund
("Treasury Fund"), Payden & Rygel Intermediate Bond Fund ("Intermediate Fund"),
Payden & Rygel Investment Quality Bond Fund ("Investment Quality Bond Fund"),
Payden & Rygel Total Return Fund ("Total Return 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 International
Bond Fund ("International Bond 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 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 June 27, 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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<PAGE> 73
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................................................................... 3
FUNDAMENTAL AND OPERATING POLICIES.................................................................... 31
PORTFOLIO TRANSACTIONS................................................................................ 33
VALUATION OF PORTFOLIO SECURITIES..................................................................... 35
FUND PERFORMANCE...................................................................................... 35
TAXATION.............................................................................................. 38
MANAGEMENT OF THE GROUP............................................................................... 44
PURCHASES AND REDEMPTIONS............................................................................. 50
OTHER INFORMATION..................................................................................... 51
APPENDIX A - DESCRIPTION OF RATINGS .................................................................. 57
</TABLE>
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<PAGE> 74
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 investment value. To the extent the market price of the underlying common
stock approaches or
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<PAGE> 75
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. GOVERNMENT OBLIGATIONS
U.S. Government obligations are debt securities issued by the U.S. Treasury.
They are direct obligations of the U.S. Government and differ mainly in the
lengths of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES
U.S. Government Agency securities are issued or guaranteed by U.S. Government
sponsored enterprises and federal agencies. These include securities issued by
the Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Bank, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury, and others only by the credit of the instrumentality, which may
include the right of the issuer to borrow from the Treasury.
FOREIGN GOVERNMENT OBLIGATIONS
Foreign government obligations are debt securities issued or guaranteed by a
supranational organization or a foreign sovereign government or one of its
agencies, authorities, instrumentalities or political subdivisions, including a
foreign state, province or municipality.
BANK OBLIGATIONS
Bank obligations include certificates of deposit, bankers' acceptances, and
other debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction.
The Funds will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, the bank is a member of the Federal
Deposit Insurance Corporation, and (iii) in the case of foreign banks, the
security is, in the opinion of Payden & Rygel, of an investment quality
comparable with other debt
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<PAGE> 76
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:
o 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, each of the Total Return and Market Return Funds may
invest up to 25% of its total debt assets in debt rated below
investment grade by one of the established rating agencies, or
if not rated, determined to be of comparable quality by the
Adviser. 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. Except for the 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.
o 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.
o Finally, the Adviser may use interest rate and bond index
futures and options on futures contracts, options on
securities, and interest rate swaps to effect a change in the
Funds' exposure to interest rate changes. These investment
techniques involve certain risks described below.
There is, of course, no guarantee these investment strategies will accomplish
the Funds' objectives. A description of the rating standards used by Standard &
Poor's Corporation, Moody's Investor Services, Inc., and Fitch Investor Services
is set forth in Appendix A to this Statement of Additional Information. Ratings
represent only the opinions of such organizations of the quality of the
securities which they undertake to rate, are general and are not absolute
standards of quality.
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<PAGE> 77
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 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 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 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.
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<PAGE> 78
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 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
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<PAGE> 79
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, partnerships,
trusts and special purpose entities.
ASSET BACKED RECEIVABLES
The Funds may purchase asset-backed securities including, but not limited to,
Certificates for Automobile Receivables ("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. The Growth & Income and International
Equity Funds do not invest in these securities.
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 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
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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
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
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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 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
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Growth & Income Fund invests only in securities of issuers located in France,
Germany, the Netherlands and the United Kingdom.
Pacific Basin Western Europe North America
- ------------- -------------- -------------
Australia Austria Canada
Japan Belgium United States
New Zealand Denmark
Finland
France
Germany
Ireland
Italy
Netherlands
Norway
Spain
Sweden
Switzerland
United Kingdom
Each of the International Equity and Global Balanced Funds may invest up to 20%
of it's total assets in emerging market countries, which may include developing
countries or countries with new or developing capital markets.
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.
BRADY BONDS
In March, 1989, then Treasury Secretary Brady announced a new strategy for
dealing with a debt crisis in many emerging markets. The Brady Plan comprised
debt and debt service reduction for the debtor nations in exchange for
International Monetary Fund ("IMF") - based economic reform. The Plan broke with
previous debt restructuring efforts by recognizing that many debtor nations
would not be able to repay their creditors in full. Under the Brady framework,
creditor banks agreed to reduce their claims in exchange for new bonds which
have credit enhancements.
To date seven countries have completed Brady packages: Mexico, Venezuela,
Uruguay, Costa Rica, the Philippines, Argentina, and Nigeria. Brazil is in the
process of securing wide creditor approvals for a Brady Plan. Other possible
candidates for a Brady Plan in the near future include Ecuador, the Dominican
Republic, Panama, and Poland. Not all major emerging market debt is the result
of Brady restructuring - Chile and Morocco have elected to service their
rescheduled commercial bank debt as a
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demonstration of their commitment to pay their debt in full. Columbia and
Hungary avoided formal debt rescheduling through voluntary refinancings by their
bank creditors.
A Brady package may involve interest reduction features in the form of Par Bonds
and Front-Loaded Interest Reduction Bonds ("FLIRBs"). Par Bonds are exchanged
for existing debt at face value, but the interest rate is cut and fixed at a
below market rate. Par Bonds generally mature in 25-30 years from the date of
issuance and credit enhancements generally include collateral for principal
(U.S. Treasury zero coupon bonds) and several interest coupons. Mexican,
Venezuelan, and Nigerian Par Bonds include separable "value recovery rights"
based on future oil export volumes and international oil prices on a given date.
This may entitle the bond holder to additional payments if oil exports earnings
grow in real terms beyond agreed-on futures levels. FLIRBs have low fixed
interest rate coupons in the beginning that step up gradually over 5 to 7 years
to market levels. This feature is the cause of the bonds common name - "step up
bonds". The step-up bond's principal is not collateralized and interest
collateral remains in place only until the coupon "steps up" to market levels.
Step-ups are typically 15 to 17 year maturities.
A Brady package may involve principal reduction. Debt principal is reduced by a
negotiated discount, but the coupon floats at a market level of LIBOR + 13/16%.
Discount bonds also have U.S. Treasury zero coupon bonds as the collateral for
principal and interest payments. Discount bonds typically have 30-year
maturities, and have been accepted at 30-35% discounts from the original debt
face value which they replaced.
A Brady package may involve additional lending, in the form of New Money and
Debt Conversion Bonds ("DCBs"). The creditor agrees to provide new loans (via
New Money Bonds) in return for the right to transform existing bank loans into
DCBs. The amount of New Money Bonds is calculated as an agreed upon percentage
of the banks' existing loan exposure subject to conversion to DCBs. New Money
Bonds and DCBs generally have floating coupons of LIBOR + 7/8% and 15-18 year
amortization schedules. There is no collateral.
MUNICIPAL SECURITIES
Each of the Short Duration and Tax Exempt Bond Funds invest primarily in a
non-diversified portfolio of debt obligations issued by state and local
governments, territories and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities which provide interest
income that, in the opinion of bond counsel to the issuer at the time of
original issuance, is exempt from federal income taxes ("municipal securities").
Municipal securities include both notes (which have maturities of less than one
year) and bonds (which have maturities of one year or more) that bear fixed or
variable rates of interest. Under normal market conditions, as a fundamental
policy which cannot be changed without shareholder approval, at least 80% of the
Fund's assets will be invested in municipal debt securities.
In general, "municipal securities" debt obligations are issued to obtain funds
for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith,
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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:
o 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.
o 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.
o Finally, the Adviser may use interest rate and municipal bond
index futures and options on futures contracts, options on
securities, and interest rate swaps to effect a change in a
Fund's exposure to interest rate changes. These investment
techniques involve certain risks described below.
There is, of course, no guarantee these investment strategies will accomplish a
Fund's objective. See Appendix A for further information regarding the ratings
referred to above.
Securities of issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency
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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.
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
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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) 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
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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
Each Fund may purchase long-term fixed rate municipal debt obligations that have
been coupled with an option granted by a third party financial institution
allowing the Fund at specified intervals to tender (or "put") such debt
obligations to the institution and receive the face value. These third party
puts are available in many different forms, and may be represented by custodial
receipts or trust certificates and may be combined with other features such as
interest rate swaps. The financial institution granting the option does not
provide credit enhancement. If there is a default on, or significant downgrading
of, the bond or a loss of its tax-exempt status, the put option will terminate
automatically. The risk to the Fund will then be that of holding a long-term
bond.
These investments may require that a Fund pay a tender fee or other fee for the
features provided. In addition, a Fund may acquire "stand-by commitments" from
banks or broker dealers with respect to the municipal securities held in its
portfolios. Under a stand-by commitment, a bank or broker/dealer agrees to
purchase at a Fund's option a specific municipal security at a specific price on
a specific date. A Fund may pay for a stand-by commitment either separately, in
cash, or in the form of a higher price paid for the security. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity.
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RISKS OF INVESTING IN CALIFORNIA MUNICIPAL DEBT OBLIGATIONS
From time to time, each Fund may invest more than 25% of its assets in
obligations issued by the State of California and other governmental
authorities, agencies and instrumentalities located in California. In such
event, investment in a Fund may be subject to greater risk and market
fluctuations than an investment in a portfolio of securities representing a
broader range of investment alternatives. Further, in such event a Fund will be
affected by any political, economic, regulatory or other developments which
constrain the taxing and spending authority of California issuers to pay
interest or repay principal. The following summary of some of such developments
is based upon information derived from public documents related to securities
offerings of California State and municipal issuers, independent municipal
credit reports and historically reliable sources, but has not been independently
verified by the Fund's advisor.
California encompasses a relatively large geographic region and has a wealthy,
diverse economy. Its economy is the largest among the 50 states and one of the
largest in the world. The State's population of over 32 million represents over
12% of the total United States population. Total employment is about 14 million;
the fastest growing sectors are expected to be services, trade and
electronics-related manufacturing sectors.
The positive news on the employment front is that California has regained all of
the jobs lost in the past few years. Downsizing in defense-related jobs is
ending while strong growth has occurred business services, motion pictures and
television, entertainment and international trade. While the current 6.8%
unemployment rate remains above the national average of 5.2%, the jobless rate
is at the lowest level since mid-1990. The jobless rate is higher than the
national average primarily due to labor force expansion from net in-migration
last year.
Because of the economy's strength, tax revenues are running ahead of
expectations. In the first three months of fiscal 1997, the state collected $400
million more than the budget projection. Despite the fiscal 1996 operating
surplus, California's General Fund reserve is minimal at $300 million. It
represents only 0.6% of the state's $47 billion General Fund budget for fiscal
1997.
The reserve is expected to remain thin. California's long-term structural budget
problems include expanding education and prison spending, demands for
infrastructure spending and reductions in federal support for healthcare. K-14
spending requirements, the largest single expenditure in the budget, are
expected to increase 9.3% annually over the next two years. Justice/correctional
spending is estimated to grow 5.4% annually over this same time period, even
though the inmate population has not grown as fast as previously estimated.
The anticipated decline in State spending on welfare in the next two years
reflects fewer caseloads because of improved economic conditions. The full
impact of the new federal welfare reform on California is not yet known at this
time. Based on its current caseload, California expects to receive $1.4 billion
more federal funds under the new "Temporary Assistance for Needy Families"
(TANF) than under the existing "Aid to Families with Dependent Children" (AFDC)
over the next six years. However, this projection does not assume any recession
scenario and the resulting higher number of welfare applicants. History has
shown that welfare caseloads can increase as much as ten percent during a
recession. Therefore, the extra $1.4 billion may very well be absorbed by an
increased caseload in the event of a recession.
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Finally, as a means of restoring California's competitiveness, the State granted
a 5% corporate income tax reduction, beginning in January 1997. In the next two
years, the legislation analyst's office projects that revenues will be reduced
by $375 million.
Although California's financial reserve is weak, its net tax-supported debt
level at 2.8% is only moderately higher than the national median at 2.1%.
Further, the State reduced its use of short-term debt financing to the lowest
level in years. In the 1996-1997 budget, debt financing only included the
issuance of $3 billion revenue anticipation notes, which was a significant
improvement from the $7 billion outstanding short-term debt in prior years.
The improvement in California's economy led S&P to upgrade the State's general
obligation credit one notch to A+ in September 1996, and Fitch had raised its
rating to A+ in February 1996. Moody's has maintained its A1 rating. The State
needs to show progress in correcting its structural budget imbalances before a
double-A rating is likely.
One of the issues concerning the financial strength of local governments in
California is that the State has shifted some expenditure responsibilities to
local governments in order to balance its budget, which could impact these other
entities negatively. Counties, in particular, are vulnerable because they are
responsible for large health, welfare and correctional programs and must fund a
large portion of these programs themselves.
Los Angeles County, the nation's largest county, is a prime example of this
financial difficulty. The County has struggled with severe budget deficits for
four years due to the 1990 recession, revenue diversions by the State and the
lack of adequate funding for health care. These factors were compounded by the
County's inability to make substantial changes in their expenditures and its
reliance on debt financings. The County's budget has stabilized over the past
year, but much remains to be done. In Los Angeles, the economic recovery has a
positive effect on expenditures because there are fewer welfare caseloads, but
the primary source of tax receipts, property taxes, has lagged because of
continued weakness in the real estate market.
A number of voter initiatives to limit taxes may reduce the financial
flexibility of both state and local governments. Certain of the securities in
which the Funds invest may be obligations of issuers that rely as a source of
revenue, in whole or in part, directly or indirectly, on real property taxes,
which are limited by an amendment to the State Constitution known as
"Proposition 13." Briefly, Article XIIIA of the California Constitution limits
to 1% of full cash value the rate of ad valorem property taxes on real property
and generally restricts the assessed valuation of property to increases of up to
two percent per year, except upon new construction or change of ownership
(subject to a number of exemptions). Taxing entities may, however, raise ad
valorem taxes above the 1% limit to pay debt service on voter-approved bonded
indebtedness.
The application of Proposition 62 further limits the ability of California
cities to enact taxes. Proposition 62 seeks to enforce a two-thirds voter
approval for special taxes to include all forms of local government and to
create a new simple-majority requirement for voter approval of general taxes. In
September 1995, the California Supreme Court upheld the constitutionality of
Proposition 62, creating uncertainty as to the legality of certain local taxes
enacted by non-charter cities in California without voter approval. It is not
possible to predict the impact of the decision.
Yet another shadow was cast on municipal debt in California with the passage of
Proposition 218 in the November 1996 election. This new measure makes it more
difficult for local governments to raise
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revenues by 1) restricting local governments' ability to charge property-related
fees, 2) limiting special assessments, which are placed on property tax bills,
3) requiring a majority vote approval for general tax increases and a two-thirds
approval for special tax increases and 4) mandating that all new or increased
local taxes implemented since January 1995 must be approved by a majority vote.
Not only does Proposition 218 have the potential to reduce revenues to local
governments, but will also increase their costs to comply with the measure.
Local government general funds may be impaired over time. One important fact for
bondholders is that all taxes, assessments, rates and fees levied before the
November 6 effective date are exempted from the provisions of the proposition
due to the U.S. Constitution's protection of contracts.
Certain securities in which the Funds invest may be obligations of issuers which
rely in whole or in part on state revenues for payment of such obligations. Such
state revenues are affected by economic activity within the State as well as by
an appropriation limit in the state constitution on the spending authority of
state and local government entities.
The application and interpretation of a number of the foregoing provisions of
the state constitution and laws are currently and will probably continue to be
the subject of numerous lawsuits in the California courts. It is not possible to
predict the outcome of litigation of the ultimate scope and impact of such
provisions, their implementing legislation and regulations. However, the outcome
of such litigation, legislation and regulations could substantially impact local
property tax collection and the ability of state agencies, local governments and
districts to make future payments on outstanding debt obligations.
OPTIONS AND FUTURES CONTRACTS
The Funds may purchase and sell ("write") both put options and call options on
securities, securities indices and (in the case of the Total Return, Market
Return and Global Funds) foreign currencies, enter into interest rate and index
futures contracts and (in the case of the Total Return, Market Return and 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
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be. The writer of an option on an index is obligated upon exercise of the option
to pay the difference between the cash value of the index and the exercise price
multiplied by a specified multiplier for the index option.
A Fund will write call options and put options only if they are "covered." In
the case of a call option on a security, the option is covered if the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount are
placed in a segregated account with the Group's Custodian) upon conversion or
exchange of other securities held by the Fund. A call option on an index is
covered if the Fund maintains with its Custodian cash or cash equivalents equal
to the contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written, and the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written, provided the
difference is maintained by the Fund in cash or cash equivalents in a segregated
account with its Custodian. A put option on a security or an index is covered if
the Fund maintains cash or cash equivalents equal to the exercise price in a
segregated account with its Custodian. A put option is also covered if the Fund
holds a put on the same security or index as the put written, and the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the Fund in cash or cash equivalents in a
segregated account with its Custodian.
If an option written by a Fund expires unexercised, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by a Fund expires unexercised, the Fund realizes a capital loss
equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (i.e., of the
type, traded on the same exchange, with respect to the same underlying security
or index, and with the same exercise price and expiration date). A Fund will
realize a capital gain from a closing purchase transaction if the cost of the
closing option is less than the premium received from writing the option; if it
is more, the Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Fund will realize a capital gain; if it is less, the Fund will realize a
capital loss. The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset of the
Fund. The premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is marked to market
daily and is valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available, at the mean
between the last bid and asked prices.
FOREIGN CURRENCY OPTIONS
Each of the Total Return, Market Return and 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
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the strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Currency options
traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of a Fund to reduce foreign currency risk using such options.
COMBINATIONS OF OPTIONS
As indicated in the Prospectus, the Funds may employ certain combinations of put
and call options. A "straddle" involves the purchase of a put and call option on
the same security with the same exercise prices and expiration dates. A
"strangle" involves the purchase of a put option and a call option on the same
security with the same expiration dates but different exercise prices. A
"collar" involves the purchase of a put option and the sale of a call option on
the same security with the same expiration dates but different exercise prices.
A "spread" involves the sale of a put option and the purchase of a call option
on the same security with the same or different expiration dates and different
exercise prices.
RISKS ASSOCIATED WITH OPTIONS
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
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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.
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
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which is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. The Funds expect to earn interest
income on their initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on which it is
traded. Each day a Fund pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or loan by
a Fund but is instead a settlement between the Fund and the futures commission
merchant of the amount one would owe the other if the futures contract expired.
In computing daily net asset value, the Funds will mark to market their open
futures positions.
Each Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, a Fund realizes a capital loss. Conversely, if an offsetting sale price is
more than the original purchase price, a Fund realizes a capital gains; if it is
less, a Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
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
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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 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
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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 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
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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 the other counterparty,
which in turn makes fixed rate payments to the first counterparty. Interest
payments are determined by applying the respective interest rates to an agreed
upon amount, referred to as the "notional principal amount." In most such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate, which is the offered rate for short-term eurodollar deposits
between major international banks. As there is no exchange of principal amounts,
an interest rate swap is not an investment or a borrowing. 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
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equal to the difference between any higher actual level of interest rates in the
future and a specified strike (or "cap") level. The cap buyer purchases
protection for a floating rate move above the strike. An interest rate floor is
the right to receive periodic cash payments over the life of the floor equal to
the difference between any lower actual level of interest rates in the future
and a specified strike (or "floor") level. The floor buyer purchases protection
for a floating rate move below the strike. The strikes are typically based on
the three-month LIBOR (although other indices are available) and are measured
quarterly. Rights arising pursuant to both caps and floors are exercised
automatically if the strike is in the money. Caps and floors eliminate the risk
that the buyer fails to exercise an in-the-money option.
RISKS ASSOCIATED WITH SWAPS
The risks associated with interest rate and currency swaps and interest rate
caps and floors are similar to those described above with respect to dealer
options. In connection with such transactions, a Fund relies on the other party
to the transaction to perform its obligations pursuant to the underlying
agreement. If there were a default by the other party to the transaction, the
Fund would have contractual remedies pursuant to the agreement, but could incur
delays in obtaining the expected benefit of the transaction or loss of such
benefit. In the event of insolvency of the other party, the Fund might be unable
to obtain its expected benefit. In addition, while each Fund will seek to enter
into such transactions only with parties which are capable of entering into
closing transactions with the Fund, there can be no assurance that a Fund will
be able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter into
other transactions at a time when doing so might be advantageous.
FOREIGN CURRENCY TRANSACTIONS
Precise matching of the amount of forward currency contracts and the value of
securities denominated in such currencies of each of the Total Return 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
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the expense of such purchase) if the market value of the security is less than
the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Fund is obligated to deliver.
If a Fund retains a portfolio security and engages in an off-setting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of a foreign currency
and the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
Each Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, each Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Use of forward currency
contracts to hedge against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result from an increase in the value of that currency.
Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
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
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<PAGE> 100
borrowings) of 300% of the amount borrowed. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, a Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. To avoid the
potential leveraging effects of a Fund's borrowings, additional investments will
not be made while borrowings are in excess of 5% of the Fund's total assets.
Money borrowed will be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased. The Funds also may be
required to maintain minimum average balances in connection with any such
borrowings or to pay a commitment or other fee to maintain a line of credit,
either of which would increase the cost of borrowing over the stated interest
rate.
RISKS OF FOREIGN INVESTING
There are special risks in investing in any foreign securities in addition to
those relating to investments in U.S. securities.
POLITICAL AND ECONOMIC FACTORS
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States.
Governments in certain foreign countries continue to participate to a
significant degree, 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
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<PAGE> 101
periods customary in the United States.
Transactions in options on securities, futures contracts and futures options may
not be regulated as effectively on foreign exchanges as similar transactions in
the United States, and may not involve clearing mechanisms and related
guarantees. The value of such positions also could be adversely affected by the
imposition of different exercise terms and procedures and margin requirements
than in the United States. Foreign security trading practices, including those
involving securities settlement where Fund assets may be released prior to
payment, may expose a Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer.
The value of the Funds' portfolio positions may also be adversely impacted by
delays in the Funds' ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.
LEGAL AND REGULATORY MATTERS
Certain foreign countries may have less supervision of securities markets,
brokers and issuers 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 companiess 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.
30
<PAGE> 102
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.
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
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<PAGE> 103
meeting of shareholders if the holders of more than 50% of the outstanding
shares are present in person or by proxy or (2) more than 50% of the Fund's
outstanding shares. Operating policies are subject to change by the Board of
Trustees without shareholder approval. Any investment restriction which involves
a maximum percentage of securities or assets will not be considered to be
violated unless an excess occurs immediately after, and is caused by, an
acquisition of securities or assets of, or borrowings by, the Fund.
FUNDAMENTAL POLICIES
As a matter of fundamental policy, a Fund may not:
(1) BORROWING. Borrow money, except as a temporary measure for extraordinary or
emergency purposes or for the clearance of transactions, and then only in
amounts not exceeding 30% of its total assets valued at market (for this
purpose, reverse repurchase agreements and delayed delivery transactions covered
by segregated accounts are not considered to be borrowings).
(2) COMMODITIES. Purchase or sell commodities or commodity contracts, except
that (i) a Fund other than the Treasury Fund may enter into financial and
currency futures contracts and options on such futures contracts, (ii) a Fund
other than the U.S. Treasury, Short Duration Tax Exempt and Tax Exempt Bond Fund
may enter into forward foreign currency exchange contracts (the Funds do not
consider such contracts to be commodities), and (iii) a Fund other than the U.S.
Treasury Fund may invest in instruments which have the characteristics of both
futures contracts and securities.
(3) LOANS. Make loans, except that (I) a Fund may purchase money market
securities and enter into repurchase agreements, (ii) a Fund may acquire bonds,
debentures, notes and other debt securities, and (iii) a Fund other than the
U.S. Treasury Fund may lend portfolio securities in an amount not to exceed 30%
of its total assets (with the value of all loan collateral being "marked to
market" daily at no less than 100% of the loan amount).
(4) MARGIN. Purchase securities on margin, except that (I) a Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) a Fund other than the U.S. Treasury Fund may make margin deposits in
connection with futures contracts and options on futures contracts.
(5) MORTGAGING. Mortgage, pledge, hypothecate or in any manner transfer any
security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in amounts not
exceeding 30% of the Fund's total assets valued at market at the time of the
borrowing.
(6) ASSETS INVESTED IN ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 5% of the value
of its total assets would be invested in the securities of any one issuer (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(7) SHARE OWNERSHIP OF ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 10% of the
outstanding voting securities of any issuer would be held by the Fund (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(8) REAL ESTATE. Purchase or sell real estate (although it may purchase
securities secured by real estate
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<PAGE> 104
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, Global Short Bond and International 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) The 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 securities, which are traded in the
over-the-counter markets, but the price paid by a Fund usually
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<PAGE> 105
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>
Fiscal Year Ended October 31
============================
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Investment Quality Bond Fund $ 0 $ 0 $ 5,980
Short Duration Tax Exempt Fund 0 0 760
Tax Exempt Bond Fund 0 2,300 5,760
Market Return Fund 0 0 13,894
Global Fixed Income Fund 2,973 40 300
</TABLE>
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.
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<PAGE> 106
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 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
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<PAGE> 107
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
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
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<PAGE> 108
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 A Shares, the one-year and since inception total return for each of
the Funds through October 31, 1996 (except as otherwise noted) were as follows:
<TABLE>
<CAPTION>
Annualized
Return Since
1 Year Inception Inception Date
------ --------- --------------
<S> <C> <C> <C>
Limited Maturity Fund 5.42% 5.47% May 1, 1994
Short Bond Fund 4.88% 5.10% January 1, 1994
U.S. Treasury Fund 5.22% 9.15% January 1, 1995
Intermediate Bond Fund 4.07% 4.37% January 1, 1994
Investment Quality Bond Fund 4.89% 5.17% January 1, 1994
Total Return Fund n/a *0.31%+ December 9, 1996
Short Duration Tax Exempt Fund 3.29% 4.04% September 1, 1994
Tax Exempt Bond Fund 3.53% 2.74% December 21, 1993
Growth & Income Fund n/a 13.69%*+ November 1, 1996
Market Return Fund n/a 14.06% * December 1, 1995
Global Short Bond Fund n/a 4.38%*+ September 18, 1996
Global Fixed Income Fund 7.43% 7.63% September 1, 1992
International Bond Fund 4.48% 4.36% April 1, 1995
Global Balanced Fund n/a 0.22%*+ December 9, 1996
International Equity Fund n/a 2.18%*+ December 9, 1996
* Unannualized
+ As of April 30, 1997
</TABLE>
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<PAGE> 109
In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns for each class of shares reflecting the simple change
in value of an investment over a stated period of time. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken down
into their components of income, capital (including capital gains and changes in
share price) and currency returns in order to illustrate the relationship of
these factors and their contributions to total return. Total returns, yields and
other performance information maybe quoted numerically, or in a table, graph or
similar illustration.
TAXATION
Each Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, a Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); (b) derive in each taxable year less than
30% of its gross income from the sale or other disposition of certain assets
held less than three months, namely (1) stocks or securities, (2) options,
futures, or forward contracts (other than those on foreign currencies), and (3)
foreign currencies (or options, futures, and forward contracts on foreign
currencies) not directly related to its business of investing in stocks or
securities; (c) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of a Fund's assets is
represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer limited for the purposes of this calculation to an amount not
greater than 5% of the value of a Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment companies)
(the "Diversification Test"); and (d) distribute at least 90% of its investment
company taxable income (which includes dividends, interest and net short-term
capital gains in excess of any net long-term capital losses) each taxable year.
The Treasury Department is authorized to promulgate regulations under which
gains from foreign currencies (and options, futures, and forward contracts on
foreign currency) would constitute qualifying income for purposes of the
Qualifying Income Test only if such gains are directly relating to investing in
stocks or securities. To date, such regulations have not been issued.
In addition, no definitive guidance currently exists with respect to the
classification of interest rate swaps and cross-currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, a Fund will limit its positions in swaps to transactions for
the purpose of hedging against either interest rate or currency fluctuation
risks, and will treat swaps as excluded assets for purposes of determining
compliance with the Diversification Test.
As a regulated investment company, a Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (any
net long-term capital gains in excess of
38
<PAGE> 110
the sum of net short-term capital losses and capital loss carryovers from the
prior eight years) designated by the Fund as capital gain dividends, if any,
that it distributes to shareholders. Each Fund intends to distribute to its
shareholders substantially all of its investment company taxable income monthly
and any net capital gains annually. Investment company taxable income or net
capital gains not distributed by a Fund on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid the tax, a Fund must distribute during each calendar year an
amount at least equal to the sum of (1) 98% of its ordinary income (with
adjustments) for the calendar year and foreign currency gains or losses for the
twelve month period ending on October 31 of the calendar year, (2) at least 98%
of its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the Fund in
October, November, or December of that year to shareholders of record on a date
in such a month and paid by a Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid application of the excise tax, the Funds intend to make their
distributions in accordance with the calendar year distribution requirement.
DISTRIBUTIONS
The Short Duration 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 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.
39
<PAGE> 111
Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a Fund, may result in "straddles"
for U.S. federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the
investment company taxable income or net capital gain for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
The 30% limit on gains from the disposition of certain options, futures, and
forward contracts held less than three months and the qualifying income and
diversification requirements applicable to the Fund's assets may limit the
extent to which a Fund will be able to engage in transactions in options,
futures contracts or forward contracts.
SALES OF SHARES
Upon disposition of shares of a Fund (whether by redemption, sale or exchange),
a shareholder will realize a gain or loss. Such gain or loss will be capital
gain or loss if the shares are capital assets in the shareholder's hands, and
will be long-term or short-term generally depending upon the shareholder's
holding period for the shares. Any loss realized on a disposition will be
disallowed by "wash sale" rules to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before and ending 30 days
after the disposition. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
BACKUP WITHHOLDING
A Fund may be required to withhold for U.S. federal income taxes 31% of all
taxable distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification number or to make required certifications,
or who have been notified by the Internal Revenue Service that they are subject
to backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. federal tax liability.
40
<PAGE> 112
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 it (subject to limitations) as a foreign tax credit
against his or her U.S. federal income tax liability. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Each
shareholder will be notified within 60 days after the close of a Fund's taxable
year whether the foreign taxes paid by the Fund will "pass-through" for that
year. Absent the Fund making the election to "pass through" the foreign source
income and foreign taxes, none of the distributions may be treated as foreign
source income for purposes of the foreign tax credit calculation.
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
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.
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-
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<PAGE> 113
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.
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
42
<PAGE> 114
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.
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<PAGE> 115
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
President, Trustee
*Lynda L. Faber Trustee Senior Vice President, Payden & Rygel
*John Paul Isaacson Trustee Executive Vice President, Payden & Rygel
*Christopher N. Orndorff Trustee Vice President, Payden & Rygel
J. Clayburn La Force Trustee Dean Emeritus, The John E. Anderson Graduate
P.O. Box 1009 School of Management at University of California,
Pauma Valley, CA 92061 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, Automobile
2601 South Figueroa Street Club of Southern California
Los Angeles, CA 90007
Dennis C. Poulsen Trustee Chairman of Board since 1997; previously,
3900 South Workman Mill Road President and Chief Executive Officer, Rose Hills
Whittier, CA 90601 Company
Stender E. Sweeney Trustee Private Investor since 1994; previously, Vice
Times Mirror Square President, Finance, Times Mirror Company
Fifth Floor
Los Angeles, CA 90053
W.D. Hilton, Jr. Trustee Managing Trustee, NGC Settlement Trust;
310 East Interstate 30, Suite 285 previously, Chief Financial Officer, Texas
Garland, TX 75043 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
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<PAGE> 116
is President and Chief Executive Officer.
Trustees other than those affiliated with the Adviser or Sub-adviser 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, 1996, 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 Group Upon Group Complex
Name from Group Expenses Retirement Paid to Trustee
- ---- ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Dennis Poulsen $18,500 None N/A $18,500
James Clayburn La Force $18,500 None N/A $18,500
Stender Sweeney $18,500 None N/A $18,500
W.D. Hilton $18,500 None N/A $18,500
Thomas V. McKernan, Jr. $18,500 None N/A $18,500
</TABLE>
<TABLE>
<CAPTION>
Officers:
<S> <C> <C>
Position with Principal Occupations
Name the Group During Past Five Years
Shirley T. Hosoi Vice President, Chief Chief Operating Officer, Payden
Operating Officer &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
</TABLE>
45
<PAGE> 117
<TABLE>
<S> <C> <C>
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
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
March 31, 1997, its staff consisted of 83 employees, 25 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 $3 billion invested globally.
The Adviser's focus is the management of fixed income securities in both the
domestic and global markets. These include securities that have absolute or
average maturities out to five years with a bias toward very high quality and
liquidity. Portfolios are actively managed according to client approved
guidelines and benchmarks. Payden & Rygel also utilizes futures and options
strategies, primarily as defensive measures to control interest rate and
currency volatility.
The Adviser provides investment management services to the Funds pursuant to an
Investment Management Agreement with the Group dated as of June 24, 1992 as
amended on June 14, 1994 with respect to Class B shares of the Group. The
Agreement provides that the Adviser will pay all expenses incurred in connection
with managing the ordinary course of a Fund's business, except the following
expenses, which are paid by each Fund: (i) the fees and expenses incurred by a
Fund in connection with the management of the investment and reinvestment of the
Fund's assets; (ii) the fees and expenses of Trustees who are not affiliated
persons of the Adviser; (iii) the fees and expenses of the Trust's Custodian,
Transfer Agent, Fund Accounting Agent and Administrator; (iv) the charges and
expenses of legal counsel and independent accountants for the 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
46
<PAGE> 118
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.
<TABLE>
<CAPTION>
Fiscal Year Ending October 31
=======================================================
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Limited Maturity Fund $ 7,360 $ 44,030 $ 104,879
Short Bond Fund 4,974 27,936 150,282
U.S. Treasury Fund * 13,233 49,630
Intermediate Bond Fund 14,006 71,012 111,179
Investment Quality Bond Fund 5,115 23,790 83,067
Short Duration Tax Exempt Fund 6,145 51,350 89,100
Tax Exempt Bond Fund 60,945 99,303 159,206
Market Return Fund * * 8,031
Global Short Bond Fund * * 7,843
Global Fixed Income Fund 1,216,816 1,533,836 1,982,809
International Bond Fund * 25,948 65,046
* Fund had not commenced operations
</TABLE>
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.
47
<PAGE> 119
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 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.
ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Treasury Plus, Incorporated, a wholly owned subsidiary of the Adviser serves as
Administrator to the Fund. Under its Administration Agreement with the Group,
the Administrator has agreed to prepare periodic reports to regulatory
authorities, maintain financial accounts and records of the Fund, transmit
communications by the Fund to shareholders of record, make periodic reports to
the Board of Trustees regarding Fund operations, and overview the work of the
fund accountant and transfer agent.
Investors Fiduciary Trust Company ("IFTC") provides fund accounting and transfer
agency services to the Group. IFTC calculates daily expense accruals and net
asset value per share of the Funds, issues and redeems Fund shares, maintains
shareholder accounts and prepares annual investor tax statements.
The liability provisions of the Group's agreements with Treasury Plus and IFTC
are similar to those of the Investment Management Agreement discussed above. In
addition, the Group has agreed to indemnify IFTC against certain liabilities.
The respective agreements may be terminated by either party on 90 days notice.
The Administrator has agreed that, if in any fiscal year the expenses borne by
the Fund exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares of the Fund are registered or qualified
for sale to the public, it will reimburse the Fund for a portion of such excess
expenses, which portion is determined by multiplying the excess expenses by the
ratio of (i) the
48
<PAGE> 120
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
==========================================================
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Limited Maturity Fund $ 2,250 $ 12,864 $ 22,883
Short Bond Fund 1,572 7,884 32,665
U.S. Treasury Fund * 4,476 10,950
Intermediate Bond Fund 4,317 20,487 24,631
Investment Quality Bond Fund 1,600 6,731 18,435
Short Duration Tax Exempt Fund 1,610 14,771 17,181
Tax Exempt Bond Fund 16,708 25,275 30,854
Market Return Fund * * 1,721
Global Short Bond Fund * * 1,569
Global Fixed Income Fund 353,701 386,974 397,116
International Bond Fund * 5,469 11,676
* Fund had not commenced operations
</TABLE>
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.
SHAREHOLDER SERVICE PLAN
Pursuant to the Shareholder Service Plan, each Fund will pay the Distributor for
expenses incurred in connection with non-distribution shareholder services
provided by the Distributor to securities broker-dealers and other securities
professionals ("Service Organizations") with respect to Class B shares of a
Fund, and to the beneficial owners of such shares, and for fees paid by the
Distributor to such Service Organizations for the provision of support services
to their clients who are beneficial owners of Class B shares ("Clients").
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<PAGE> 121
Support services provided pursuant to the Shareholder Service Plan include (a)
establishing and maintaining accounts and records relating to Clients who invest
in Class B shares; (b) aggregating and processing purchase, exchange and
redemption requests for Class B shares from Clients and placing net purchase and
redemption orders with respect to such shares; (c) investing, or causing to be
invested, the assets of Clients' accounts in Class B shares pursuant to specific
or pre-authorized instructions; (d) processing dividend and distribution
payments from the Group on behalf of Clients; (e) providing information
periodically to Clients showing their positions in Class B shares; (f) arranging
for bank wires; (g) responding to Client inquiries relating to the services
performed by Service Organizations; (h) providing sub-accounting services with
respect to Class B shares beneficially owned by Clients or the information to
the Group necessary for sub-accounting services; (i) preparing any necessary tax
reports or forms on behalf of Clients; (j) if required by law, forwarding
shareholder communications from a Fund to Clients; and (k) assisting Clients in
changing dividend options, account designations and addresses.
The Shareholder Service Plan continues in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the Board
of Trustees of the Group, including a majority of the Trustees who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Independent Trustees"), cast in person at a
meeting called for the purpose of voting on such continuance. The Plan may be
amended at any time by the Board of Trustees, provided that any material
amendments of the terms of the Plan will become effective only upon the approval
by a majority of the Board and a majority of the Independent Trustees pursuant
to a vote cast in person at a meeting called for the purpose of voting on the
Plan.
No Plan fees were paid for any Fund during the fiscal year ended October 31,
1996.
PURCHASES AND REDEMPTIONS
Certain managed account clients of the Adviser may purchase shares of the Fund.
To avoid the imposition of duplicative fees, the Adviser may be required to make
adjustments in the management fees charged separately by the Adviser to these
clients to offset the generally higher level of management fees and expenses
resulting from a client's investment in the Fund.
The Funds reserve the right to suspend or postpone redemptions during any period
when: (a) trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, or that Exchange is closed for other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.
Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of its net assets during any 90-day period for any one shareholder. Each Fund
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Fund in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder would incur
transaction costs upon the disposition of the securities received in the
distribution.
Due to the relatively high cost of maintaining smaller accounts, each Fund
reserves the right to redeem
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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 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 sixteen series of shares: Global
Fixed Income Fund, Global Short Bond Fund, International 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. Treasury
Fund, Growth & Income Fund, Market Return Fund, Total Return Fund, Global
Balanced Fund, European Growth & Income Fund and International Equity 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 June 19, 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, 25.9%; Directors Guild of America, Los Angeles, CA 90071, 10.4%;
Northwest Building Corporation, Seattle, WA 98104, 5.2%; Infirmary Health
Systems Inc., Mobile, AL 36633, 5.5%; Jicarrila Apache Tribe, Dulce, NM 87528,
96%; Bert Bell NFL Retirement Plan, Brooklyn, NY 11231, 10.9%; Center Theatre
Group, Los Angeles, CA 90012, 5.3%; Indian River Memorial Hospital, Vero Beach,
FL 32960, 5.2%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Short Bond Fund: University & Community College System
of Nevada, Reno, NV 89512, 20.3%; Michigan Conference of Teamsters Welfare Fund,
Detroit, MI 48216, 20.9%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding
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shares of the U.S. Treasury Fund: Dan Murphy Foundation, Los Angeles
CA 90016, 46.1%; L. Horvitz, Moreland Hills, OH 44122, 26.8%; Carol Ann Leif,
Beverly Hills, CA 90210, 15.1%.
As of June 19, 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, 54.5%; Lon V. Smith Foundation, Beverly Hills, CA 90210,
10.7%; Children's Memorial Hospital Pension, Chicago, IL 60675, 9.2%; North
Hills Passavant, Philadelphia, PA 19182, 5.7%; Passavant Hospital Pension,
Philadelphia, PA 19182, 5.5%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Investment Quality Bond Fund: Amateur Athletic
Foundation, Los Angeles, CA 90018, 11.6%; World Cup USA 1994, Inc., Los Angeles,
CA 90067, 8.5%; FMTC Premier Trust, N. Quincy, MA 02171, 12.8%; Dan Murphy
Foundation, Los Angeles, CA 90016, 16.4%; Southern California Presbyterian Homes
Operating Fund, Glendale, CA 91202, 7.4%; House Ear Institute Endowment, Los
Angeles, CA 90057, 5.1%; Washington Suburban Sanitary Commission, Laurel, MD
20702, 14.9%..
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Short Duration Tax Exempt Fund: Ronald Bension, La
Canada, CA 91011, 12.7%; Carol Ann Leif, Beverly Hills, CA 90210, 17.9%;
Wertheimer Family Trust, Santa Monica, CA 90402, 5.3%; Beverly Haas, Los
Angeles, CA 90027, 5.3%; Casey Myers Trusts, Beverly Hills, CA 90210, 15.4%;
Lynne K. Wasserman, Beverly Hills, CA 90210, 7.5%.
As of June 19, 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, 19.1%; Wertheimer Family Trust, Santa Monica, CA 90402, 14.0%;
Clack & Co., Spokane, WA 99202, 9.2%; Charles S. Paul Living Trust, Los Angeles,
CA 90077, 6.8%.
As of June 19, 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, 24.7%; Dan Murphy Foundation, Los Angeles, CA 90016, 14.2%;
Payden and Rygel II, Los Angeles, CA 90071, 10.3%; Beverly Haas, Los Angeles, CA
90027, 7.1%; Roth Family Foundation, Beverly Hills, CA 90210, 5.7%; Payden &
Rygel, Los Angeles, CA 90071, 17.3; Payden & Rygel 401K Plan, Los Angeles, CA
90071, 7.9%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Global Short Bond Fund: University and Community
College System of Nevada, Reno, NV 89512, 5.4%; University of Notre Dame du Lac,
Notre Dame, IN 46556, 5.5%; Annuity Board of the Southern Baptist Convention,
Dallas, TX 75221, 16.7%; Kaiser Permanente Retirement Plan, Los Angeles, CA
90071, 16.9%; Hoag Memorial Hospital Board, Los Angeles, CA 90051, 10.9%; Grey
Advertising, Inc., New York, NY 10017, 5.2%; Joint Industry Board of the
Electrical Industry, Flushing, NY 11365, 16.7%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding
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shares of the Global Fixed Income Fund: UniHealth, Pittsburgh, PA
15230, 8.7%; City of St. Louis, St. Louis MO, 63103, 5.9%; Sheinberg Family
Trust, Beverly Hills, CA 90210, 5.6%; Federated Dept. St. Inc., Brooklyn, NY
12131, 5.3%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the International Bond Fund: Alger Foundation, New York,
NY 10286, 74.3%; Liz Claiborne Profit Sharing, North Bergen, NJ 07047, 17.1%;
Liz Claiborne Foundation, North Bergen, NJ 07047, 5.1%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the International Equity Fund: Scottish Widows Investment
Management, Scotland, 21.7%; Dan Murphy Foundation, Los Angeles, CA 90016,
10.8%; Teague Family Trust #2, Palos Verdes, CA 90274, 8.7%; Teague Family Trust
#1, Palos Verdes, CA 90274, 7.6%; Carol Ann Leif, Beverly Hills, CA 90210, 6.0%;
Lynne K. Wasserman, Beverly Hills, CA 90210, 5.4%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Growth and Income Fund: Lon V. Smith Foundation,
Beverly Hills, CA 90210, 5.4%.
As of June 19, 1997, the following persons held of record more than 5% of the
outstanding shares of the Total Return Fund: Fluor Master Retirement Trust,
Nashville, TN 37211, 5.0%; Rose Hills Memorial Park, Calabasas, CA 91302,
8.9%;Walt Disney Disability Trust, Burbank, CA 91521, 24.1%; Washington Suburban
Sanitary Commission, Laurel, MD 20702, 30.1%; Amateur Athletic Foundation, Los
Angeles, CA 90018, 14.5%.
As of June 19, 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, 31.7%; Scottish Widows Investment Management, Edenburgh,
Scotland, 19.3%; Payden & Rygel II, Los Angeles, CA 90071, 12.3%; Dan Murphy
Foundation, Los Angeles, CA 90016, 9.6%; Carol Ann Leif, Beverly Hills, CA
90210, 8.7%; Casey Myers Trusts, Beverly Hills, CA 90210, 5.8%.
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 Market Return
Fund, 10%; and Global Balanced Fund, 12%.
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
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<PAGE> 125
obligations and thus should be considered remote.
The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will any
officer or Trustee be personally liable to the Group or its shareholders except
by reason of his own bad faith, willful misfeasance, gross negligence in the
performance of his duties or reckless disregard of his obligations and duties.
With these exceptions, the Declaration of Trust provides that a Trustee or
officer of the Group is entitled to be indemnified against all liabilities and
expenses, including reasonable accountants' and counsel fees, incurred by the
Trustee or officer in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee or officer.
CLASS B SHARES
The 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. The Plan provides that Class A and Class B shares will be identical
in all respects except as follows: (a) the designation of each class of shares
of a Fund; (b) the exclusive right of Class B shares to vote on matters related
to the Shareholder Service Plan; (c) the impact of the disproportionate payments
made under the Plan; (d) the incremental transfer agency costs attributable to 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
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.
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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 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' 1996 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. The Funds' 1997
Semi-Annual Report to Shareholders accompanies this Statement of Additional
Information. The financial statements in such Semi-Annual Report are
incorporated in this Statement of Additional Information by reference.
Additional copies of the Funds' 1996 Annual Report to Shareholders and the
Funds' 1997 Semi-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.
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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
referred to in the Prospectus and Statement of Additional Information.
Moody's Investors Service, Inc.
The purpose of Moody's ratings is to provide investors with a single system of
gradation by which the relative investment qualities of bonds may be rated.
BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements, may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds rated Baa are considered as medium grade obligations. They
are neither highly protected nor poorly secured. Interest payments and security
appear adequate for the present but certain protective elements may appear
lacking or unreliable.
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.
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.
Rating Refinements: Moody's may apply numerical modifiers, 1, 2, and 3
in each generic rating classification from Aa through B in its bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
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COMMERCIAL PAPER
Prime-1: Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: (a) leading market positions in well established industries;(b)
high rates of return on funds employed; (c) Conservative capitalization
structures with moderate reliance on debt and annual asset protection; (d) broad
margins in earnings coverage of fixed financial charges and high internal cash
generation; and (e) well established access to a range of financial markets and
assured sources of alternate liquidity.
Standard & Poor's Corporation
A Standard & Poor's debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligors such as guarantors, insurers, or lessees. The
ratings are based on current information furnished by the issuer or obtained by
Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings are based, in varying
degrees, on the following considerations: (a) likelihood of default-capacity and
willingness of the obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation; (b) nature of and
provisions of the obligation; and (c) protection afforded by, and relative
position of, the obligation in the event of bankruptcy and other laws affecting
creditors' rights.
BONDS
AAA: Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is considered to have adequate capacity to pay
interest and repay principal. Adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
principal than higher rated bonds.
BB and B: Bonds rated BB and B are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. While such bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
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.
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COMMERCIAL PAPER
A-1: This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
Fitch Ratings
Fitch investment grade bond ratings provide a guide to investors in determining
the credit risk associated with a particular security. The ratings represent
Fitch's assessment of the issuer's ability to meet the obligations of a specific
debt issue or class of debt in a timely manner. The rating takes into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current and prospective financial condition and
operating performance of the issuer and any guarantor, as well as the economic
and political environment that might affect the issuer's future financial
strength and credit quality. Fitch ratings do not reflect any credit enhancement
that may be provided by insurance policies or financial guarantees unless
otherwise indicated.
BONDS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated
"F-1 +".
A: Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Debt rated BBB is considered to be of satisfactory credit quality.
Ability to pay interest and principal is adequate. Adverse changes in economic
conditions and circumstances are more likely to impair timely payment than
higher rated bonds.
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.
COMMERCIAL PAPER
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely
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payment. Those issues regarded as having the strongest degree of assurance of
repayment are denoted with a plus (+) sign designation.
IBCA, Limited
IBCA analyzes credit quality of short term debt (maturities of one year or
less).
A: An issuer of impeccable financial condition, with a consistent
record of above average performance.
B: An issuer with a sound risk profile and without significant
problems. The issuer's performance has generally been in line with or better
than that of its peers.
C: An issuer which has an adequate risk profile but possesses one or
more troublesome aspects, giving rise to the possibility of risk developing, or
which has generally failed to perform in line with its peers.
In addition, ratings of "A/B" and "B/C" may be assigned.
Thompson Bank Watch
Thompson Bank Watch ratings are based upon a qualitative and quantitative
analysis of all segments of the organization, including holding company and
operating subsidiaries.
ISSUER RATINGS
Thompson Bank Watch assigns only one Issuer Rating to each company, based on
consolidated financials. While the rating is blended to be equally applicable to
all operating entities of the organization, there may, in certain cases, be more
liquidity and/or credit risk associated with doing business with one segment of
the company as opposed to another (i.e., holding company vs. subsidiary).
Bank Watch Issuer Ratings are not merely an assessment of the likelihood of
receiving payment of principal and interest on a timely basis. It is also
important to recognize that the ratings incorporate our opinion of the
vulnerability of the company to adverse developments, which may impact the
market's perception of the company, thereby affecting the marketability of its
securities.
Bank Watch Issuer Ratings are assigned using an intermediate time horizon.
RATING DEFINITIONS
A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B: Company is financially very solid with a favorable track record
and no readily apparent
60
<PAGE> 132
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.
61
<PAGE> 133
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, 1996, Statements of Operations for the periods
ended October 31, 1996, Statements of Changes in Net Assets
for the periods ended October 31, 1996 and October 31, 1995,
Schedules of Portfolio Investments as of October 31, 1996,
related notes, and Independent Auditor's Report, with respect
to the Funds are incorporated by reference in Part B, and
filed herewith as Exhibit 19.5 in accordance with Section
303(b) of Regulation S-T.
Registrant's unaudited Statements of Assets and Liabilities as
of April 30, 1997, Statements of Operations for the periods
ended April 30, 1997, Statements of Changes in Net Assets for
the periods ended April 30, 1997, and Schedules of Portfolio
Investments as of April 30, 1997, with respect to the Funds
are incorporated by reference in Part B, and filed herewith as
Exhibit 19.6 in accordance with Section 303(b) of Regulation
S-T.
(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).
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<PAGE> 134
(1.7) Amendment No. 6 to the Master Trust Agreement (g).
(1.8) Amendment No. 7 to the Master Trust Agreement (h).
(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).
(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).
(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
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<PAGE> 135
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).
(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) 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).
(5.14) Form of Subadvisory Agreement between Payden & Rygel and
Scottish Widows Investment Management Limited with respect
to the European Growth & Income Fund (t).
(5.15) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding European
Growth & Income Fund to the Agreement.
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<PAGE> 136
(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.
(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) Opinion of Counsel (b).
(11) Not applicable.
(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) None.
(16) Total return calculations (o).
(17) Financial Data Schedule.
(18) Multiple Class Plan (l).
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<PAGE> 137
(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, 1996, filed in accordance with Rule 303(b) of
Regulation S-T.
(19.6) Semi-Annual Report to Shareholders for the six months
ended April 30, 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.
C-5
<PAGE> 138
(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.
(t) Filed as an exhibit to Post-Effective Amendment No. 29 to the
Registration Statement on April 17, 1997 and incorporated herein by
reference.
C-6
<PAGE> 139
Item 25. Persons Controlled by or Under Common Control with Registrant.
As of June 19, 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 A - - Bert Bell NFL Retirement Plan
(55%); Payden & Rygel U.S. Treasury Fund, Class A - - Dan Murphy Foundation
(46%) and L. Horvitz (27%); Payden & Rygel International Bond Fund, Class A --
Consuelo Zobel Alger Foundation (74%); Payden & Rygel Limited Maturity Fund,
Class A -- Tessera, Inc. (26%); Payden & Rygel Global Balanced Fund, Class A --
Lon V. Smith Foundation (32%); Payden & Rygel International Equity Fund, Class A
- -- Scottish Widows Fund (26%); Payden & Rygel Total Return Fund, Class A -
Washington Suburban Sanitary Commission (30%).
Item 26. Number of Holders of Securities.
As of June 13, 1997, the number of record holders of each class of
securities of Registrant was as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Shares of beneficial interest of Payden
& Rygel Global Fixed Income Fund - Class A 250
- Class B 0
Shares of beneficial interest of Payden
& Rygel International Bond Fund - Class A 7
- Class B 0
Shares of beneficial interest of Payden
& Rygel Tax Exempt Bond Fund - Class A 68
- Class B 0
Shares of beneficial interest of Payden
& Rygel Short Duration Tax Exempt Fund
- Class A 51
- Class B 0
Shares of beneficial interest of Payden
& Rygel Short Bond Fund - Class A 55
- Class B 0
Shares of beneficial interest of Payden
& Rygel Intermediate Bond Fund - Class A 36
- Class B 0
</TABLE>
C-7
<PAGE> 140
<TABLE>
<S> <C>
Shares of beneficial interest of Payden
& Rygel Investment Quality Bond
Fund - Class A 46
- Class B 0
Shares of beneficial interest of Payden
& Rygel Limited Maturity Fund - Class A 217
- Class B 0
Shares of beneficial interest of Payden
& Rygel U.S. Treasury Fund - Class A 27
- Class B 0
Shares of beneficial interest of Payden
& Rygel Market Return Fund - Class A 85
- Class B 0
Shares of beneficial interest of Payden
& Rygel Growth & Income Fund - Class A 2,761
- Class B 0
Shares of beneficial interest of Payden
& Rygel Global Short Bond Fund - Class A 25
- Class B 0
Shares of beneficial interest of Payden
& Rygel Total Return Fund - Class A 21
- Class B 0
Shares of beneficial interest of Payden
& Rygel Global Balanced Fund - Class A 44
- Class B 0
Shares of beneficial interest of Payden
& Rygel International Equity
Fund - Class A 54
- Class B 0
</TABLE>
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,
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<PAGE> 141
except with respect to matters as to which it has been determined that they
acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office ("Disabling
Conduct").
Section 7 of Registrant's Investment Management Agreement, filed
herewith as Exhibit 5, provides for the indemnification of Registrant's Adviser
against all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.
Section 4 of Registrant's Distribution Agreement, filed herewith as Exhibit 6,
provides for the indemnification of Registrant's Distributor against all
liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE> 142
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.
<TABLE>
<CAPTION>
Name and Principal
Business Address Office Other Employment
- ---------------- ------ ----------------
<S> <C> <C>
Joan A. Payden President and
Director
Lynn M. Bowker Vice President
and Treasurer
Lynda L. Faber Senior Vice
President and
Director
John P. Isaacson Executive Vice
President and
Director
Scott A. King Executive Vice
President and
Director
Brian W. Matthews Vice President
Christopher N. Orndorff Vice President
</TABLE>
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
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<PAGE> 143
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
President
Christopher N. Orndorff Chief Financial Trustee
Officer, Secretary
and Director
</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 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 file a post-effective amendment, using
financial statements which need not be certified
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<PAGE> 144
for the Payden & Rygel European Growth & Income Fund, within four to six months
of June 26, 1997, the effective date of Post-Effective Amendment No. 29 to
Registrant's Form N-1A Registration Statement File No. 33-46973.
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-12
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "1993
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 June, 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.
<TABLE>
<CAPTION>
Trustee and
Principal
Executive Officer
<S> <C> <C>
s/Joan A. Payden June 26, 1997
- ----------------------
Joan A. Payden
J. Clayburn La Force* Trustee June 26, 1997
- ----------------------
J. Clayburn La Force
Dennis C. Poulsen* Trustee June 26, 1997
- ----------------------
Dennis C. Poulsen
Thomas McKernan, Jr.* Trustee June 26, 1997
- ----------------------
Thomas McKernan, Jr.
Stender E. Sweeney* Trustee June 26, 1997
- ----------------------
Stender E. Sweeney
W.D. Hilton, Jr.* Trustee June 26, 1997
- ----------------------
W.D. Hilton, Jr.
s/Lynda L. Faber Trustee June 26, 1997
- ----------------------
Lynda L. Faber
s/John Paul Isaacson Trustee June 26, 1997
- ----------------------
John Paul Isaacson
s/Christopher N. Orndorff Trustee June 26, 1997
- ----------------------
Christopher N. Orndorff
s/Thomas J. Barrett Principal June 26, 1997
- ---------------------- Financial and
Thomas J. Barrett Accounting Officer
*s/Joan A. Payden
- ----------------------
By: Joan A. Payden
Attorney-In-Fact
</TABLE>
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<PAGE> 146
EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 30
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
----------- ----------------
<S> <C>
(5.15) Form of Amendment to Investment Management
Agreement between Registrant and Payden & Rygel
adding European Growth & Income Fund to the
Agreement.
(17) Financial Data Schedule.
(19.5) Annual Report to Shareholders for the fiscal year
ended October 31, 1996, filed in accordance with
Rule 303(b) of Regulation S-T.
(19.6) Semi-Annual Report to Shareholders for the six
months ended April 30, 1997, filed in accordance
with Rule 303(b) of Regulation S-T.
</TABLE>
<PAGE> 1
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 14 TO
MASTER TRUST AGREEMENT
This Amendment No. 14 to the Master Trust Agreement of The Payden
& Rygel Investment Group dated January 22, 1992, as amended (the "Agreement"),
is made as of June 11, 1997.
WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated fifteen 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 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 and the Payden & Rygel Global Balanced 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 one
addition sub-trust, to be known as the Payden & Rygel European Growth & Income
Fund, and to fix the rights and preferences of the shares of such additional
sub-trust;
NOW THEREFORE:
The first paragraph of Section 4.2 of the Agreement is hereby
amended to read in pertinent part as follows:
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of
<PAGE> 2
the Trustee set forth in Section 4.1 to establish and designate any further
Sub-Trusts, the Trustees hereby establish and designate fifteen Sub-Trusts
and classes thereof: the Payden & Rygel Global Fixed Income Fund, which
shall consist of two classes of shares designated as "Class A" and "Class
B" shares; the Payden & Rygel Tax-Exempt Bond Fund, which shall consist of
two classes of shares designated as "Class A" and "Class B" shares; the
Payden & Rygel Limited Maturity Fund, which shall consist of two classes of
shares designated as "Class A" and "Class B" shares; the Payden & Rygel
Short Bond Fund, which shall consist of two classes of shares designated as
"Class A" and "Class B" shares; the Payden & Rygel Intermediate Bond Fund,
which shall consist of two classes of shares designated as "Class A" and
"Class B" shares; the Payden & Rygel Investment Quality Bond Fund, which
shall consist of two classes of shares designated as "Class A" and "Class
B" shares; the Payden & Rygel Short Duration Tax Exempt Fund, which shall
consist of two classes of shares designated as "Class A" and Class B"
shares; the Payden & Rygel U.S. Treasury Fund, which shall consist of two
classes of shares designated as "Class A" and "Class B" shares; the Payden
& Rygel International Bond Fund, which shall consist of two classes of
shares designated as "Class A" and "Class B" shares; the Payden & Rygel
Market Return Fund, which shall consist of two classes of shares designated
as "Class A" and "Class B" shares; the Payden & Rygel Growth & Income Fund,
which shall consist of two classes of shares designated as "Class A" and
"Class B" shares; the Payden & Rygel Global Short Bond Fund, which shall
consist of two classes of shares designated as "Class A" and "Class B"
shares; the Payden & Rygel Total Return Fund, which shall consist of two
classes of shares designated as "Class A" and "Class B" shares; the Payden
& Rygel International Equity Fund, which shall consist of two classes of
shares designated as "Class A" and "Class B" shares; the Payden & Rygel
Global Balanced Fund, which shall consist of two classes of shares
designated as "Class A" and "Class B" shares; and the Payden & Rygel
European Growth & Income Fund, which shall consist of two classes of shares
designated as "Class A" and "Class B". The
-2-
<PAGE> 3
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 at 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.
-3-
<PAGE> 1
PAYDEN & RYGEL INVESTMENT GROUP [Full page graphic with corporate
ANNUAL REPORT logo for Payden and Rygel.]
OCTOBER 31, 1996
<PAGE> 2
[Graphic of triangle
with sun rising.]
CONTENTS
Letter to Shareholders
===========================================
1
Management Discussion
The Year in Review
Fund Strategies
Looking Forward
===========================================
9
Portfolio Highlights
===========================================
20
Statements of Assets
and Liabilities
===========================================
22
Statements of Operations
===========================================
24
Statements of Changes
in Net Assets
===========================================
28
Schedules of Portfolio
Investments
===========================================
63
Notes to Financial Statements
===========================================
78
Financial Highlights
===========================================
84
Independent Auditor's Report
===========================================
<PAGE> 3
Dear Shareholders:
A commitment to our long-term investment strategy and an expanding product line
has been the focus at Payden & Rygel during the past year.
Our long-standing view that inflation would be controlled remained true in 1996,
but it took the bond market a long time to iron out the rough spots. The
shutdown of the government in January sent the first big shock waves through the
bond market, followed by a startling announcement that 705,000 new jobs were
created in the month of February. Speculation on the accuracy of the number was
not enough to stop a nervous market from pushing 30-year Treasury yields to
steadily higher levels. A volatile summer followed. Employment levels continued
to grow at a higher-than-expected pace. Not until mid-fall did inflation fears
subside and long-term rates drift back down to levels where we thought they had
belonged at the end of 1995. While we began the year holding securities with
longer durations than our benchmarks, we did shorten our portfolios somewhat in
the summer to protect against further downside volatility. The move worked in
our favor, as rates rose in September and then dropped in October and November.
On the domestic fixed-income front, our shorter-duration Funds posted the best
results because they were the least affected by the volatility in rates. The
returns for our longer-duration funds were more affected by the volatility of
the rate changes, but have recovered since the decline in October.
On the international fixed-income front, the Global Fixed Income Fund has
continued to post strong numbers. Although funds that invested in
emerging-markets debt and other lower credit-quality issues reported strong
performances for the year, the Global Fixed Income Fund's returns remained
competitive without courting the same kind of high risks. In this regard, it is
worth noting that the average credit quality of the Global Fixed Income Fund's
portfolio is rated AAA. This year's solid performance only adds to a fine
long-term record. For the three-year period ending November 1996, the Fund was
given a 4-star rating by Morningstar.
Several new funds have been added to the Payden & Rygel Investment Group line-up
in the past year. Among the new offerings are the Growth & Income Fund,
International Equity Fund, Global Balanced Fund, Global Short Bond Fund, and the
Total Return Fund. The Growth & Income Fund is based on the Dow Dogs strategy.
It invests in the ten highest-yielding stocks in the Dow Jones Industrial
Average and uses Standard & Poor's Depositary Receipts to provide added
diversification for the portfolio. The International Equity Fund employs a
fundamental approach to stocks in the developed European, North American, and
Asian markets. The Global Balanced Fund gives investors an opportunity to
participate in both domestic and foreign
<PAGE> 4
equities and domestic and foreign bonds. Our new Global Short Bond Fund provides
money market and short-bond fund investors with a way to diversify into foreign
bonds with limited interest-rate, credit quality, and currency risks. Finally,
the Total Return Fund expands the Payden & Rygel line-up of mutual funds by
giving investors exposure to a wide range of fixed income markets, including
high-yield bonds, mortgages, asset-backed securities, and emerging-markets debt.
[PHOTO OF JOAN PAYDEN]
We believe that these additional offerings provide investors with an opportunity
to diversify among a broad range of mutual funds that adhere to their investment
styles and that follow Payden & Rygel's philosophy of low cost global investing.
Our view of moderate growth and low inflation, and our new line-up of Fund
offerings, gives us a very positive outlook for next year. We appreciate your
investment in our Funds and we look forward to a profitable 1997.
Best Wishes,
/s/ Joan A. Payden
Joan A. Payden
President and Chairman of the Board
Payden & Rygel Investment Group
The Global Fixed Income Fund's Four-Star rating is based on its risk-adjusted
performance against 1,075 fixed income funds for the period ending 11/30/96.
Morningstar's proprietary ratings reflect historical risk-adjusted performance,
are subject to change monthly and are calculated from the Fund's three-year
average annual returns in excess of 90-day T-bill returns with appropriate fee
adjustments. Ten percent of the funds in the category receive five stars with
four stars awarded to the next 22.5%.
<PAGE> 5
MANAGEMENT DISCUSSION AND ANALYSIS
THE YEAR IN REVIEW
Over the past year, an emergent theme in the global marketplace has been
deregulation and increased competition. This trend has forced improved
efficiency in the management of both countries and companies. The slowly
unfolding effect in the developed countries of the world is lower inflation and
increased productivity. Emerging economies offer low-wage labor and low-cost
production facilities, and have changed the direction of global capital flows.
Each major economic power has such a region for a neighbor: U.S. with Mexico and
Latin America, Japan with China and South East Asia, and Germany with Central
Europe. The World Bank recently reported that the emerging markets produce 75%
of the growth in the world's economy. The economic viability of the developed
countries depends on increasing competitiveness.
As Europe moves toward economic coordination to improve competitiveness, a
drastic change is taking place in many European economies. From Sweden to
Finland, Spain to Italy, government budgets have been slashed and inflation has
ratcheted lower. Interest rates were lowered in nearly all major countries this
year, in response to fiscal prudence and economic reality.
[ BAR CHARTS ]
<TABLE>
<CAPTION>
Average Inflation Rate
1973 - 1983 1984 - 1994 Current 1996
<S> <C> <C> <C> <C> <C>
Italy 16.1% Italy 6.2% US 3.3%
UK 13.3% Sweden 5.9% UK 2.7%
Australia 11.2% Australia 5.3% Italy 2.6%
France 10.9% UK 5.0% Denmark 2.4%
Denmark 10.5% US 3.7% Australia 2.1%
Sweden 9.9% Canada 3.6% Canada 1.8%
Canada 9.3% France 3.5% France 1.5%
US 8.2% Denmark 3.5% Germany 1.3%
Japan 8.2% Germany 2.3% Japan 0.5%
Germany 5.0% Japan 1.5% Sweden -0.3%
AVERAGE 10.3% 4.1% 1.8%
</TABLE>
In the Far East, Japan has been a somewhat different story. Japan continues to
find itself in the midst of an historic transition. A highly-regulated business
environment and controlling government bureaucracies have crippled economic
expansion in Japan. Despite heavy doses of fiscal stimulation to the economy,
the country remains in economic doldrums. Only through deregulation will Japan
be able to regain its prominence in the world's economic community.
ANNUAL REPORT [LOGO] 1
<PAGE> 6
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
In the U.S., the year began with the view that the economy would continue its
slow growth pattern and inflation would remain low. The market had adjusted to
reflect the idea that the Federal Reserve would lower interest rates. The Fed
did lower interest rates, both in December 1995 and again in late January 1996.
This moved the index of short-term interest rates, the Federal Funds rate, to
5.25%. The Federal government shutdowns in December and January made
interpretation of economic data released in the early months of 1996 difficult.
The reliability of economic data was further muddled by the blizzards in the
East and a strike at General Motors.
Instead, the market turned its focus on the prospect of economic strength, and
the yield curve steepened. Over the course of subsequent months, a sense that
the economy was gaining strength took hold causing market sentiment to shift
from an outlook of lower interest rates to one of tightening credit. This led to
a decline in prices in fixed-income securities as investors feared that interest
rates would rise in the near future. This rise in interest rates was accompanied
by increased volatility, particularly around data release dates. The swings in
the market that took place on the release of the monthly employment data, were
often two to three times the normal volatility during the year. This created a
treacherous environment for bonds, and signaled increased speculation in the
market.
Higher interest rates enticed foreign buyers to the U.S. market, and provided
support to the dollar. The growth of Treasury holdings by non-U.S. investors has
been dramatic this year. That source of demand, coupled with emerging signs of a
slowdown in economic strength in the second half of the year led to a shift in
market sentiment. Employment growth reflected strength in the economy, however,
and the unemployment rate declined to a low of 5.1%, before rising slightly to
5.2% at the end of October. Despite this low level of unemployment, wage costs
have not escalated dramatically. When the Federal Reserve held interest rates
steady after their August and September meetings, and economic data was released
reflecting a slowdown in growth and continued low inflation, interest rates
changed direction, and began to decline from their overly high levels.
The tax-exempt bond market was impacted by the fear of tax reform brought to the
fore in proposals by several Congressional leaders, as well as Steve Forbes in
his race to win the Republican presidential nomination. Tax reform fears began
to abate as the flat tax proposed by Mr. Forbes came under attack, and the
National Commission on Economic Growth and Tax Reform, appointed by Sen. Dole
and Rep. Gingrich, failed to make specific recommendations for reform. Municipal
bond prices reacted positively as the issue of tax reform was put on the back
burner. The rise in price relative to alternative
2 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 7
investments enabled municipal bonds to sidestep most of the rise in overall
yields that occurred during the year.
Higher interest rates seemed to have little impact on the equity market,
however. Blue chip stocks rallied throughout the year, with the Dow Jones
Industrial Average (DJIA) posting it's highest levels ever. As of the close of
the Funds' fiscal year, the DJIA stood at 6029, up 29.7% for the trailing 12
months. The technology stocks, which had led the rally in 1995, faded somewhat
through the year, reflected in the NASDAQ gain of only 17.9%. The stock market
rally has continued even as corporate profits, as measured by year-over-year
growth in operating earnings per share on S&P 500 stocks, have increased only
about 6%.
FUND STRATEGIES AND PERFORMANCE
Global and International Funds
Global bond investments have provided higher returns than U.S. bonds over the
last year. Slower economic growth and falling inflation left room for central
banks in each major economy, except Japan, to lower interest rates in the last
12 months. This has provided capital gains to the Funds, in addition to the
interest income earned on securities.
A strengthening U.S. dollar during this time had the potential to erode the
value of investments denominated in foreign currencies. Aggressive hedging of
currency exposure in the both the Global Fixed Income Fund and Global Short Bond
Fund offset most of this potential loss, protecting gains on bonds. The
International Bond Fund, on average, hedges less of its currency exposure, and
losses on foreign exchange did affect portfolio performance.
[ LINE CHART ]
U.S. Dollar Appreciation -- Last 12 Months
<TABLE>
<S> <C> <C>
10/02/95 100.5500 1.4317
10/03/95 101.2500 1.4374
10/04/95 101.0000 1.4364
10/05/95 100.4000 1.4315
10/06/95 100.2500 1.4225
10/10/95 100.3500 1.4147
10/11/95 100.9000 1.4235
10/12/95 100.1500 1.4223
10/13/95 100.7000 1.4315
10/16/95 100.3000 1.4196
10/17/95 100.4000 1.4200
10/18/95 100.6900 1.4227
10/19/95 100.6500 1.4153
10/20/95 100.3100 1.4000
10/23/95 99.7500 1.3843
10/24/95 100.1300 1.3927
10/25/95 101.3000 1.3948
10/26/95 101.7500 1.4012
10/27/95 101.2000 1.3936
10/30/95 101.6000 1.4067
10/31/95 102.2400 1.4090
11/01/95 102.8300 1.4145
11/02/95 103.3800 1.4170
11/03/95 103.7000 1.4172
11/06/95 102.9000 1.4110
11/07/95 102.9500 1.4140
11/08/95 102.3300 1.4151
11/09/95 101.7200 1.4183
11/10/95 100.2700 1.4086
11/13/95 101.4400 1.4155
11/14/95 101.5800 1.4158
11/15/95 101.0500 1.4030
11/16/95 101.8600 1.4070
11/17/95 102.0500 1.4026
11/20/95 101.8100 1.4141
11/21/95 101.3800 1.4095
11/22/95 101.3800 1.4097
11/24/95 101.3500 1.4154
11/27/95 101.7000 1.4328
11/28/95 101.1500 1.4351
11/29/95 101.5100 1.4363
11/30/95 101.2700 1.4360
12/01/95 101.4900 1.4458
12/04/95 100.9200 1.4358
12/05/95 101.2600 1.4337
12/06/95 101.3800 1.4382
12/07/95 101.2600 1.4393
12/08/95 101.3500 1.4533
12/11/95 100.9500 1.4431
12/12/95 101.7000 1.4462
12/13/95 101.6300 1.4504
12/14/95 101.4000 1.4419
12/15/95 101.8500 1.4424
12/18/95 101.6200 1.4341
12/19/95 101.8400 1.4363
12/20/95 101.6200 1.4351
12/21/95 101.7800 1.4394
12/22/95 102.5700 1.4410
12/26/95 102.4500 1.4315
12/27/95 102.7300 1.4322
12/28/95 102.4000 1.4309
12/29/95 103.2100 1.4334
01/02/96 103.7300 1.4320
01/03/96 104.3800 1.4410
01/04/96 106.0400 1.4538
01/05/96 104.6500 1.4361
01/08/96 105.4900 1.4405
01/09/96 105.0500 1.4421
01/10/96 104.6900 1.4369
01/11/96 104.7000 1.4375
01/12/96 105.3700 1.4450
01/16/96 105.7200 1.4560
01/17/96 105.4800 1.4625
01/18/96 105.2500 1.4689
01/19/96 105.3500 1.4793
01/22/96 105.8700 1.4793
01/23/96 105.7700 1.4768
01/24/96 106.7700 1.4823
01/25/96 106.5100 1.4758
01/26/96 106.5700 1.4905
01/29/96 106.5500 1.4881
01/30/96 107.3200 1.4912
01/31/96 106.9100 1.4869
02/01/96 107.0900 1.4936
02/02/96 106.7500 1.4879
02/05/96 104.8900 1.4685
02/06/96 105.2000 1.4682
02/07/96 106.0500 1.4777
02/08/96 106.9200 1.4777
02/09/96 106.8200 1.4755
02/12/96 106.6800 1.4731
02/13/96 106.8100 1.4750
02/14/96 106.7900 1.4703
02/15/96 105.8800 1.4686
02/16/96 105.1500 1.4608
02/20/96 105.7700 1.4514
02/21/96 105.1700 1.4518
02/22/96 105.1100 1.4540
02/23/96 105.0800 1.4564
02/26/96 104.3400 1.4494
02/27/96 104.5800 1.4529
02/28/96 104.3500 1.4586
02/29/96 105.1800 1.4705
03/01/96 105.4000 1.4765
03/04/96 104.9400 1.4717
03/05/96 105.1400 1.4794
03/06/96 105.2800 1.4765
03/07/96 105.3200 1.4784
03/08/96 105.8000 1.4805
03/11/96 105.2200 1.4808
03/12/96 105.6900 1.4817
03/13/96 105.3000 1.4729
03/14/96 105.2500 1.4708
03/15/96 105.7300 1.4717
03/18/96 106.0000 1.4746
03/19/96 106.3200 1.4770
03/20/96 106.6000 1.4782
03/21/96 106.6400 1.4767
03/22/96 106.7500 1.4779
03/25/96 106.0700 1.4764
03/26/96 106.2700 1.4759
03/27/96 106.6800 1.4857
03/28/96 104.9400 1.4717
03/29/96 106.3700 1.4732
04/01/96 107.5000 1.4815
04/02/96 107.4000 1.4813
04/03/96 106.8700 1.4787
04/04/96 107.0000 1.4800
04/05/96 107.4500 1.4824
04/08/96 107.3500 1.4750
04/09/96 108.0900 1.4905
04/10/96 108.3600 1.4974
04/11/96 108.4700 1.4995
04/12/96 108.5600 1.5036
04/15/96 108.3100 1.5080
04/16/96 108.1000 1.5083
04/17/96 108.1200 1.5067
04/18/96 107.4000 1.5101
04/19/96 106.9100 1.5026
04/22/96 106.6000 1.5168
04/23/96 106.4000 1.5159
04/24/96 106.6900 1.5211
04/25/96 106.5500 1.5304
04/26/96 105.6500 1.5305
04/29/96 104.1700 1.5188
04/30/96 104.5700 1.5317
05/01/96 105.0500 1.5319
05/02/96 104.6200 1.5360
05/03/96 104.5600 1.5255
05/06/96 104.7400 1.5262
05/07/96 104.9800 1.5232
05/08/96 105.2800 1.5201
05/09/96 104.7300 1.5172
05/10/96 105.1700 1.5245
05/13/96 104.8600 1.5318
05/14/96 105.4500 1.5355
05/15/96 106.5800 1.5330
05/16/96 106.5300 1.5361
05/17/96 106.7500 1.5281
05/20/96 107.2000 1.5361
05/21/96 107.0500 1.5417
05/22/96 106.9500 1.5400
05/23/96 106.7600 1.5413
05/24/96 107.6800 1.5430
05/28/96 108.4400 1.5478
05/29/96 108.7100 1.5485
05/30/96 107.4200 1.5310
05/31/96 108.1000 1.5300
06/03/96 108.0000 1.5232
06/04/96 108.8300 1.5280
06/05/96 108.8500 1.5286
06/06/96 108.9800 1.5263
06/07/96 109.0400 1.5335
06/10/96 109.0300 1.5354
06/11/96 109.3500 1.5338
06/12/96 109.3200 1.5360
06/13/96 109.1200 1.5339
06/14/96 108.5800 1.5228
06/17/96 108.9200 1.5177
06/18/96 107.9500 1.5140
06/19/96 107.7500 1.5183
06/20/96 108.1100 1.5250
06/21/96 108.9400 1.5278
06/24/96 109.0000 1.5306
06/25/96 109.0500 1.5327
06/26/96 109.5800 1.5295
06/27/96 109.0800 1.5209
06/28/96 109.7200 1.5230
07/01/96 109.5700 1.5243
07/02/96 109.9500 1.5257
07/03/96 110.5100 1.5259
07/05/96 110.7000 1.5260
07/08/96 110.7000 1.5270
07/09/96 110.4600 1.5230
07/10/96 110.1500 1.5247
07/11/96 110.2500 1.5242
07/12/96 110.5300 1.5217
07/15/96 110.4300 1.5207
07/16/96 109.4400 1.4969
07/17/96 108.9200 1.4852
07/18/96 108.4000 1.4892
07/19/96 108.3500 1.4916
07/22/96 107.7000 1.4876
07/23/96 108.0100 1.4903
07/24/96 107.8500 1.4860
07/25/96 108.1600 1.4773
07/26/96 108.2500 1.4811
07/29/96 108.3000 1.4801
07/30/96 108.0400 1.4797
07/31/96 106.7000 1.4710
08/01/96 106.7400 1.4718
08/02/96 107.1000 1.4783
08/05/96 106.5500 1.4796
08/06/96 106.9500 1.4850
08/07/96 107.6000 1.4841
08/08/96 108.0500 1.4841
08/09/96 108.1000 1.4785
08/12/96 107.6500 1.4748
08/13/96 107.5500 1.4765
08/14/96 107.8000 1.4835
08/15/96 107.9000 1.4856
08/16/96 107.7700 1.4915
08/19/96 107.9100 1.4875
08/20/96 108.2500 1.4900
08/21/96 108.2000 1.4812
08/22/96 108.4500 1.4942
08/23/96 108.4400 1.4875
08/26/96 107.6000 1.4771
08/27/96 107.8100 1.4767
08/28/96 108.2100 1.4771
08/29/96 108.3600 1.4779
08/30/96 108.6400 1.4773
09/03/96 109.2500 1.4834
09/04/96 108.8300 1.4841
09/05/96 108.9900 1.4840
09/06/96 109.1900 1.4865
09/09/96 108.9900 1.4900
09/10/96 109.5800 1.5061
09/12/96 110.0100 1.5120
09/13/96 110.3900 1.5132
09/16/96 110.4000 1.5102
09/17/96 110.1700 1.5138
09/18/96 108.9600 1.5073
09/19/96 109.2400 1.5113
09/20/96 109.8000 1.5150
09/23/96 109.8000 1.5142
09/24/96 109.7200 1.5122
09/25/96 110.2500 1.5084
09/26/96 110.3500 1.5206
09/27/96 110.7900 1.5221
09/30/96 111.4600 1.5258
10/01/96 111.1400 1.5233
10/02/96 111.8800 1.5272
10/03/96 111.5200 1.5315
10/04/96 111.5700 1.5289
10/07/96 111.4000 1.5302
10/08/96 111.1900 1.5265
10/09/96 111.4100 1.5275
10/10/96 111.2800 1.5300
10/11/96 111.6000 1.5308
10/14/96 111.6000 1.5288
10/15/96 112.2400 1.5381
10/16/96 112.2200 1.5385
10/17/96 112.1000 1.5412
10/18/96 112.5000 1.5418
10/21/96 112.8100 1.5360
10/22/96 112.8000 1.5340
10/23/96 112.6600 1.5205
10/24/96 112.7800 1.5216
10/25/96 113.3000 1.5218
10/28/96 114.1900 1.5197
10/29/96 113.6000 1.5114
10/30/96 113.7700 1.5088
10/31/96 113.8800 1.5132
</TABLE>
ANNUAL REPORT [LOGO] 3
<PAGE> 8
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
Regarding country allocations, Fund strategies focused on a higher weighting to
non-U.S. markets early in the year, as we felt European bonds offered superior
return potential. With the Bundesbank in Germany lowering interest rates in
response to an economic slowdown over the winter months, bond markets were
expected to rally. In addition, as the European nations prepared for the start
of European Monetary Union in 1999, stringent economic policies drove the yields
in Italy, Spain, and Sweden towards convergence with yields in Germany and
France. European bonds posted high total returns for the year, especially where
convergence provided high capital gains.
Japanese bond holdings were reduced early in the year as stronger economic
growth in the first quarter had the potential to cause higher interest rates.
Late in the spring as interest rates had moved higher in Japan, we began to add
back positions as economic growth looked likely to again slow. By the end of
October, bond yields had moved back to historic lows, earning significant
capital gains for the Funds. The Global Fixed Income Fund earned a total return
of 7.41% for the fiscal year with the International Bond Fund producing a 4.47%
total return. The Global Short Bond Fund, which was opened September 18, 1996,
earned a total return of 1.10% through the end of the fiscal year.
Taxable Funds
The Limited Maturity Fund had a total return of 5.41 % for the fiscal year
ending October 31,1996. The Fund was well positioned throughout the year, with a
short average maturity. The Fund's focus on short maturity assets enabled it to
capture attractive yield opportunities without the price risk of longer maturity
assets. The Limited Maturity Fund maintained significant exposure to corporate
and mortgage backed bonds throughout the year in order to add yield and
performance to the portfolio.
The Short Bond Fund posted a 4.86% return for the fiscal year ending October 31,
1996. The Fund's focus on maturities of less than 5 years generally resulted in
less volatile price fluctuations. The Fund was structured with an outlook for
lower interest rates in the first half of the year which limited its return as
interest rates rose sharply during the first quarter of 1996. The onset of lower
interest rates, due to a slow-down in economic activity in the 3rd quarter,
helped the Fund's performance rebound in the latter half of the year.
Intermediate interest rates, as measured by 2-year through 5-year Treasuries,
rose slightly over the past 12 months. Investors basically received only coupon
income for the period, without any price appreciation. The Short Bond Fund's
exposure to corporate and mortgage backed securities enhanced the portfolio
4 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 9
return by providing extra yield. The additional yield available on these
instruments offset some of the price declines due to rising interest rates.
The Intermediate Bond Fund returned 4.06% for the 12 months ending October 31,
1996. The Fund was structured to benefit from a decline in interest rates,
caused by continued slow economic growth. The unexpected sharp increase in
yields that occurred in the first two quarters of 1996 accounted for a sharp
drop in bond prices. The Fund took steps after the second quarter to become more
defensively postured by investing in corporate, mortgage and asset backed
securities. These instruments helped provide valuable coupon income to offset
the decline in bond prices. The Intermediate Bond Fund's defensive nature
focused much of the non-Treasury investments toward securities which were at the
higher end of the quality spectrum. The Fund has avoided lowering quality
criteria to capture marginal yield in return for the safety and extra liquidity
of higher rated issuers.
The Opportunity Fund returned 4.86% for the 12 months ending October 31, 1996.
Intermediate-term interest rates moved over 1.5%, peak to trough, during the
fiscal year. When interest rates were rising, the Fund was structured to take
advantage of a stable interest rate environment. The unexpected rise in rates
caused the Fund's performance to lag as the sharp drop in bond prices offset any
coupon income accrued over the period. The Fund undertook various strategies
over the year to diminish the impact of volatile swings in interest rates. The
most prominent strategy was to increase the allocation to the mortgage and
corporate sectors. Both sectors tend to provide extra coupon income which acts
to cushion the impact of falling bond prices. High quality incremental yield was
added without exposing the Fund to credit or prepayment risk. The second
strategy was to shorten the average maturity of the Fund during periods of high
volatility. Shortening the average maturity of the Fund decreased the impact of
swings in interest rates.
On December 9, 1996 the name of the Opportunity Fund was changed to the
Investment Quality Bond Fund. This was done to provide investors with a name
that would offer a brief description of the Fund's objectives much the same way
that the "Short Bond Fund" and "Intermediate Bond Fund" names do currently. The
strategies and objectives of the Fund have not changed.
The U.S. Treasury Fund returned 5.20% over the 12 months ending October 31,
1996. The Fund invested 100% of its assets in U.S. Treasury securities. At the
beginning of the year, the Fund was structured with a longer average maturity to
benefit from a continuation of the declining interest rate trend set in 1995.
When
ANNUAL REPORT [LOGO] 5
<PAGE> 10
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
this trend was broken, and interest rates rose almost 1.5% through the first
half of 1996, the Fund stayed the course and was rewarded as interest rates
eventually fell to within 0.25% of where they began the fiscal year. The Fund
invested primarily in intermediate-term Treasury securities over the past 12
months. Intermediate-term Treasuries worked to the Fund's advantage as longer
maturity Treasuries underperformed.
The Market Return Fund began on December 1, 1995. The objective of the Fund is
to outperform the S&P 500 Index by replicating the return of the Index using
index futures, and enhancing that return by actively managing a bond portfolio
with the assets of the Fund. The bond portion of the Fund was structured for a
continued decline in interest rates at the beginning of 1996. The sharp rise in
rates that occurred during the first half of 1996 forced bond prices sharply
lower. The short time frame in which bond prices dropped offset the coupon
income that was accrued on the bond positions. The Fund has returned 14.06%
since inception. Over the past six months, despite continued interest rate
volatility, the Market Return Fund has outperformed the S&P 500 Index by over
1.0%.
Tax Exempt Bond Funds
At the end of 1995, municipal bond prices reflected concern over lower tax
rates, and long-term municipal bond yields were unusually high compared to the
general level of interest rates. During the first six months of the fiscal year,
the portfolios were positioned with the outlook that interest rates would
decline due to low inflation. Fund durations were longer than those of their
peers because of this outlook. A longer duration will result in greater exposure
to a change in interest rates.
[ BAR CHART ]
Municipal Yields as Percent of Treasury Yields
Maturity in Years Nov. '95 Oct. '96
3 70 69
5 73 72
10 79 77
15 86 82
20 87 80
30 88 83
Source: Payden & Rygel
6 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 11
The Funds continue to focus on high quality municipal debt securities having
strong legal support for debt service payment. Additional yield available from
lower quality credits has diminished as more investors compete for those
securities, reducing their overall value. Given the growing trend of state
voters to restrict municipal entities from raising taxes to provide services, we
believe that our focus on only the strongest credits with solid support is
beneficial to shareholders.
As economic numbers began to portray a moderately growing economy during the
second quarter of 1996, Fund durations were shortened to reduce the negative
price impact of rising interest rates. The Short Duration Tax Exempt Fund
returned 3.28% for the year, and the Tax Exempt Bond Fund had a return of 3.52%.
LOOKING FORWARD
As we look forward, we see a continuation of the trend towards increased
competitiveness. Global inflation should stay low, keeping interest rates at the
lower end of recent ranges. The U.S. dollar should also remain well supported,
as this suits the economic agenda in Europe and Japan.
In the U.S., we continue to believe the economic environment will be one of
slow, non-inflationary growth. The outlook for a restatement of the CPI by the
Boskin Commission, expected to report in December, could have a dramatic impact
on inflation expectations, real (i.e. inflation adjusted) rates of return, and
the federal budget deficit. Both cost of living increases and increases in
entitlement programs are based on this widely used index. The efforts to balance
the Federal Budget and tackle entitlement reform will affect the direction and
level of U.S. interest rates. However given our outlook for non-inflationary
economic growth in the 2.5-3.0% range, we expect the Federal Reserve to keep
short-term rates on hold in the immediate future.
The issue of tax reform has not gone away, it has simply changed shape.
President Clinton will want to make good on his election promises of reducing
the tax burden of the middle class. Rather than large scale tax reform, we
anticipate smaller code changes that will provide general relief. This type of
tax reform should not negatively impact municipal bond prices. The emergence of
taxpayer revolts regarding increases in local taxation will have an impact on
municipal credits. Whereas corporate restructuring and increasing international
competition has forced higher efficiency in the public market place, perhaps it
is time for municipal government to begin restructuring. The increase of
public/private partnerships and greater accountability for public spending may
have a positive impact on the tax exempt market.
ANNUAL REPORT [LOGO] 7
<PAGE> 12
MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
Equities, as measured by traditional measures such as price/earnings multiples
and profit growth projections, are at expensive levels. It is difficult to
project where the stock market may go from here. Whereas it is naive to insist
that the economic paradigm has changed this time, it is interesting to note the
increased participation in the market as a source of its strength. To the extent
that 401(k) participants allocate their assets to stock funds, this will
continue to provide a stream of demand that could propel the market further.
Lower interest rates may continue to provide a positive for equity valuations,
however the upside may be limited.
8 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 13
GLOBAL SHORT BOND FUND
Maturity Composition
[bar chart]
1 2 4 6
U.S 1.3
Canada 1.3
Sweden 2.2
Ireland 2.4
Germany 2.8
U.K. 3.0
Denmark 4.1
Country Allocation
- ------------------
U.S. 25%
U.K. 24%
Denmark 17%
Germany 13%
Sweden 11%
Canada 5%
Ireland 5%
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $28,913,000 Fund
Number of Issues: 13 Not
Average Maturity: 2.4 years In
SEC Yield: 5.12% Operation
</TABLE>
Investment Performance
[line chart]
Global Short Bond Merrill Lynch
10 10
10.06 10.04
10.11 10.16
Total Return
------------
Since Inception*
----------------
Global Short Bond Fund: 1.10%
Merrill Lynch 1-3 Years Treasury Index: 1.57%
*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.
ANNUAL REPORT [LOGO] 9
<PAGE> 14
GLOBAL FIXED INCOME FUND
Maturity Composition
[bar chart]
<TABLE>
<CAPTION>
Years
<S> <C>
Spain 3.4
U.S. 5.0
U.K. 5.0
Sweden 6.0
Japan 6.3
Germany 6.4
Denmark 6.9
Australia 8.7
</TABLE>
<TABLE>
<CAPTION>
Country Allocation
------------------
<S> <C>
U.S. 31%
U.K. 17%
Japan 14%
Denmark 11%
Germany 10%
Sweden 7%
Australia 5%
Spain 5%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31,1995
---------------- ---------------
<S> <C> <C>
Net Assets: $651,165,000 $540,040,000
Number of Issues: 21 20
Average Maturity: 5.7 years 6.7 years
SEC Yield: 5.40% 5.85%
</TABLE>
Investment Performance
[line chart]
<TABLE>
<CAPTION>
Global Fixed Income Fund JP Morgan Hedged Global Bond Index
<S> <C>
10 10
10.05 10.14
10.03 10.17
10 10.14
10.08 10.29
10.2 10.44
10.39 10.63
10.52 10.66
10.59 10.7
10.62 10.72
10.73 10.94
10.83 11.03
11.14 11.26
11.14 11.3
11.22 11.4
11.2 11.39
11.4 11.54
11.47 11.57
11.09 11.33
10.89 11.17
10.82 11.09
10.79 11.02
10.85 10.95
10.94 11.07
10.94 11.01
10.9 10.96
10.99 10.98
11.05 11.06
11.06 11.07
11.24 11.22
11.47 11.41
11.77 11.57
11.94 11.74
12.24 12.14
12.25 12.16
12.3 12.24
12.28 12.35
12.47 12.52
12.65 12.67
12.91 12.91
13.05 13.05
13.11 13.18
12.82 12.99
12.83 13.02
12.83 13.09
12.82 13.14
12.97 13.27
13.03 13.34
13.16 13.45
13.39 13.7
13.59 13.95
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- ---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Global Fixed Income Fund: 7.41% 7.63%
JP Morgan Hedged Global Bond Index: 10.09% 8.31%
*Fund Inception was 9/1/92
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
10 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 15
INTERNATIONAL BOND FUND
Maturity Composition
[Bar Chart]
<TABLE>
<CAPTION>
Years Country Allocation
- ----- ------------------
<S> <C> <C>
6.3 U.K. 21%
6.5 Japan 18%
6.3 Germany 12%
8.3 Sweden 10%
8.1 Denmark 9%
5.0 Spain 8%
4.5 Italy 8%
8.0 Ireland 5%
8.7 Australia 4%
8.3 Netherlands 3%
0.8 U.S. 2%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $18,364,000 $19,194,000
Number of Issues: 23 28
Average Maturity: 6.6 years 6.8 years
SEC Yield: 5.31% 5.54%
</TABLE>
Investment Performance
[Line Chart]
<TABLE>
<CAPTION>
International Bond JP Morgan Non-US Bond
- ------------------ ---------------------
<S> <C>
10 10
10.21 10.18
10.4 10.41
10.42 10.46
10.44 10.56
9.96 10.02
10.18 10.33
10.24 10.4
10.37 10.5
10.44 10.62
10.29 10.39
10.13 10.42
10.17 10.44
10.15 10.41
10.14 10.44
10.22 10.51
10.44 10.81
10.49 10.88
10.55 10.89
10.7 11.1
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
International Bond Fund 4.47% 4.36%
JP Morgan Non-US Bond Index 6.66% 6.78%
*Fund Inception was 4/1/95
</TABLE>
Note: Past performance is not predicitive of future performance. This
information is not part of the audited financial statements.
ANNUAL REPORT [ LOGO ] 11
<PAGE> 16
SHORT DURATION TAX EXEMPT FUND
[Pie Chart]
Portfolio Composition
Revenue Bonds 28%
General Obligation 26%
Insured Bonds 26%
Pre-refunded Bonds 17%
Cash 3%
[Pie Chart]
Credit
Quality
-------
AAA 52%
AA 26%
A 17%
BBB 5%
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $36,336,000 $16,019,000
Number of Issues: 35 24
Average Maturity: 2.1 years 3.5 years
SEC Yield: 3.76% 3.80%
</TABLE>
Investment Performance
[Line Chart]
<TABLE>
<CAPTION>
Short Duration Lehman 1 yr General Obligation
<S> <C>
10 10
9.97 10
9.97 10
9.96 10.03
9.99 10.04
10.04 10.08
10.12 10.15
10.18 10.22
10.21 10.26
10.33 10.36
10.34 10.4
10.44 10.48
10.48 10.53
10.5 10.56
10.55 10.6
10.63 10.65
10.68 10.69
10.76 10.76
10.74 10.79
10.68 10.8
10.68 10.82
10.68 10.85
10.74 10.9
10.78 10.95
10.8 10.97
10.84 11.02
10.9 11.07
11.15 11.2
11.13 11.21
11.15 11.23
11.23 11.31
11.26 11.36
11.3 11.4
11.39 11.5
11.52 11.63
</TABLE>
Average Annual Total Return
- ---------------------------
<TABLE>
<CAPTION>
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Short Duration Tax Exempt Fund: 3.28% 4.04%
Lehman 1 Year General Obligation Index: 4.49% 4.81%
*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.
12 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 17
TAX EXEMPT FUND
Portfolio Composition
[Pie chart]
Revenue Bonds 22%
Cash 2%
Pre-refunded Bonds 4%
Insured Bonds 37%
General Obligation 35%
Credit
Quality
- -------
AAA 51%
AA 35%
A 10%
BBB 4%
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $49,862,000 $40,052,000
Number of Issues: 43 43
Average Maturity: 9.3 years 9.4 years
SEC Yield: 4.75% 4.75%
</TABLE>
Investment Performance
[Line Chart]
Lehman Quality Intermediate Tax Exempt Bond
10.03 10
10.09 10.1
9.76 9.89
9.37 9.62
9.45 9.7
9.5 9.75
9.38 9.73
9.53 9.86
9.56 9.91
9.39 9.82
9.22 9.72
9.07 9.6
9.24 9.73
9.48 9.91
9.72 10.12
9.84 10.24
9.81 10.26
10.11 10.52
9.98 10.51
10.09 10.64
10.23 10.76
10.28 10.81
10.44 10.89
10.62 11.01
10.7 11.07
10.8 11.18
10.72 11.15
10.54 11.04
10.49 11.02
10.46 11.01
10.54 11.09
10.62 11.18
10.63 11.18
10.7 11.28
10.81 11.4
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
Tax Exempt Bond Fund: 3.52% 2.74%
Lehman Quality Intermediate Index: 4.60% 4.72**
*Fund Inception was 12/21/93
**Since January 1, 1994
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT [LOGO] 13
<PAGE> 18
U.S. TREASURY FUND
Portfolio Composition
Treasury/Agency 100%
[Pie Chart]
Credit
Quality
-------
AAA 100%
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $22,114,000 $10,894,000
Number of Issues: 13 13
Average Maturity: 4.7 years 4.9 years
SEC Yield: 5.85% 5.60%
</TABLE>
Investment Performance
[LINE CHART]
<TABLE>
<CAPTION>
Lehman Intermediate Treasury US Treasury
<S> <C>
10 10
10.16 10.13
10.36 10.29
10.41 10.34
10.53 10.46
10.83 10.79
10.9 10.86
10.91 10.84
10.99 10.95
11.07 11.02
11.19 11.16
11.33 11.33
11.44 11.47
11.54 11.57
11.42 11.37
11.36 11.25
11.33 11.19
11.32 11.17
11.43 11.28
11.47 11.33
11.48 11.33
11.63 11.5
11.82 11.74
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
U.S. Treasury Fund: 5.20% 9.15%
Lehman Intermediate Treasury Index: 5.61% 9.54%
</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.
14 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 19
LIMITED MATURITY FUND
Portfolio Composition
[Pie Chart]
<TABLE>
<CAPTION>
<S> <C>
Treasury/Agency 26%
Commercial Paper 38%
Mortgage Backed 5%
Cash 1%
Asset Backed 3%
Corporate 27%
</TABLE>
Credit
Quality
-------
<TABLE>
<CAPTION>
<S> <C>
AAA 36%
AA 29%
A 26%
B 9%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $50,771,000 $18,414,000
Number of Issues: 27 23
Average Maturity: 0.7 years 0.7 years
SEC Yield: 5.63% 5.52%
</TABLE>
Investment Performance
[Line Chart]
<TABLE>
<CAPTION>
Limited Maturity Fund Merrill Lynch 90-day Treasury Bill Index
<S> <C>
10 10
10.03 10.024
10.071 10.063
10.107 10.119
10.142 10.155
10.179 10.158
10.223 10.184
10.263 10.199
10.314 10.24
10.366 10.308
10.416 10.395
10.469 10.447
10.518 10.497
10.572 10.584
10.626 10.634
10.677 10.684
10.731 10.739
10.778 10.774
10.828 10.84
10.877 10.9
10.936 10.965
10.986 11.032
11.03 11.047
11.071 11.066
11.118 11.099
11.167 11.139
11.213 11.193
11.264 11.242
11.315 11.289
11.368 11.345
11.417 11.427
11.3 11.4
11.39 11.5
11.52 11.63
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- ---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Limited Maturity Fund: 5.41% 5.47%
Merrill Lynch 90-day Treasury Bill Index: 5.43% 5.43%
*Fund Inception was 5/1/94
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT [LOGO] 15
<PAGE> 20
SHORT BOND FUND
Portfolio Composition
[Pie Chart]
<TABLE>
<CAPTION>
<S> <C>
Treasury/Agency 50%
Corporate 32%
Mortgage Backed 12%
Asset Backed 3%
Commercial Paper 1%
Cash 2%
</TABLE>
Credit
Quality
-------
<TABLE>
<CAPTION>
<S> <C>
AAA 66%
AA 2%
A 22%
BBB 10%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Asset: $97,966,000 $19,157,000
Number of Issues: 34 27
Average Maturity: 1.9 years 2.6 years
SEC Yield: 5.80% 5.62%
</TABLE>
Investment Performance
[Line Chart]
<TABLE>
<CAPTION>
Short Bond Merrill Lynch 1-3 year Treasury
<S> <C>
10 10
10.05 10.06
10 10
9.94 9.95
9.88 9.91
9.9 9.93
9.93 9.96
10 10.04
10.04 10.08
10 10.06
10.02 10.08
10.01 10.03
10.04 10.06
10.16 10.2
10.3 10.34
10.37 10.39
10.46 10.49
10.67 10.67
10.73 10.73
10.75 10.77
10.83 10.84
10.89 10.89
10.98 10.98
11.09 11.08
11.18 11.16
11.28 11.26
11.21 11.21
11.15 11.2
11.13 11.21
11.15 11.23
11.23 11.31
11.26 11.36
11.3 11.4
11.39 11.5
11.52 11.63
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
- ---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Short Bond Fund: 4.86% 5.10%
Merrill Lynch 1-3 year Treasury Index: 5.89% 5.47%
*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.
16 [LOGO] PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 21
INTERMEDIATE BOND FUND
Portfolio Composition
<TABLE>
<CAPTION>
[pie chart]
<S> <C>
Treasury/Agency 35%
Corporate 32%
Mortgage Backed 18%
Commercial Paper 11%
Asset Backed 4%
</TABLE>
Credit
Quality
- -------
AAA 61%
AA 10%
A 18%
BBB 11%
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $52,767,000 $34,391,000
Number of Issues: 31 28
Average Maturity: 3.1 years 5.9 years
SEC Yield: 5.74% 5.93%
</TABLE>
Investment Performance
[line chart]
Intermediate Bond Lehman Intermediate Govt/Corp
10 10
10.11 10.12
9.96 9.91
9.8 9.73
9.73 9.64
9.74 9.65
9.74 9.6
9.88 9.72
9.91 9.74
9.82 9.66
9.82 9.65
9.77 9.64
9.81 9.67
9.97 9.82
10.18 10.01
10.24 10.07
10.36 10.18
10.68 10.49
10.75 10.56
10.75 10.53
10.85 10.64
10.93 10.72
11.05 10.85
11.19 11.01
11.31 11.15
11.41 11.24
11.27 11.06
11.22 10.97
11.18 10.9
11.17 10.87
11.29 10.98
11.32 10.99
11.33 11.02
11.49 11.14
11.69 11.29
<TABLE>
<CAPTION>
Average Annual Total Return
- ---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Intermediate Bond Fund: 4.06% 4.37%
Lehman Intermediate
Government/Corporate Index: 5.79% 5.66%
*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 [LOGO] 17
<PAGE> 22
OPPORTUNITY FUND
Portfolio Composition
[pie chart]
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C> <C> <C>
AAA 66% Mortgage Backed 32%
AA1 5% Cash 1%
A 16% Corporate 30%
BBB 3% Commercial Paper 12%
Treasury / Agency 26%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $32,304,000 $25,822,000
Number of Issues: 32 32
Average Maturity: 6.8 years 9.5 years
SEC Yield: 6.63% 5.91%
</TABLE>
Investment Performance
[line chart]
<TABLE>
<CAPTION>
Opportunity Fund Lehman Aggregate
- ---------------- ----------------
<S> <C>
10 10
10.14 10.19
9.96 9.88
9.71 9.64
9.64 9.55
9.63 9.54
9.61 9.51
9.8 9.67
9.82 9.63
9.67 9.48
9.66 9.45
9.64 9.48
9.71 9.53
9.9 9.71
10.14 9.92
10.2 9.99
10.34 10.11
10.74 10.56
10.82 10.62
10.8 10.55
10.93 10.7
11.03 10.83
11.18 11
11.34 11.21
11.5 11.41
11.58 11.47
11.38 11.14
11.3 11
11.23 10.89
11.21 10.85
11.36 10.98
11.39 10.98
11.37 11.11
11.57 11.22
11.83 11.54
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
1-Year Since Inception*
------ ----------------
<S> <C> <C>
Opportunity Fund: 4.86% 5.17%
Lehman Aggregate Index: 5.39% 5.87%
*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.
18 [ LOGO ] Payden & Rygel Investment Group
<PAGE> 23
MARKET RETURN FUND
Portfolio Composition
[pie chart]
<TABLE>
<CAPTION>
Equity
Exposure
--------
<S> <C> <C> <C>
S&P Futures 98% Corporate 17%
S&P Depository 2% Mortgage Backed 14%
Receipts S & P Depository Receipts 2%
Cash 9%
Treasury / Agency 58%
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
<S> <C> <C>
Net Assets: $5,789,000 Fund
Number of Issues: 20 Not
Average Maturity: 2.1 years In
SEC Yield: 6.03% Operation
</TABLE>
<TABLE>
<CAPTION>
Investment Performance
[line chart]
Standard & Poors Market Return Fund
- ---------------- ------------------
<S> <C>
10 10
10.19 10.16
10.54 10.55
10.64 10.36
10.74 10.37
10.9 10.36
11.18 10.49
11.22 10.7
10.73 10.17
10.95 10.34
11.57 10.98
11.89 11.41
</TABLE>
<TABLE>
<CAPTION>
Total Return
------------
Since Inception*
----------------
<S> <C>
Market Return Fund: 14.06%
Standard & Poor's 500 Index: 18.88%
*Fund Inception was 12/1/95
</TABLE>
Note: Past performance is not predictive of future performance. This information
is not part of the audited financial statements.
ANNUAL REPORT [ LOGO ] 19
<PAGE> 24
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL INTERNATIONAL SHORT DURATION
SHORT BOND FIXED INCOME BOND TAX EXEMPT
FUND FUND FUND FUND
============== ============== ============== ==============
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value*................... $ 27,199,566 $633,674,501 $ 17,956,091 $ 35,731,987
Interest receivable...................... 1,089,359 20,719,527 500,193 610,894
Open forward currency contracts.......... 10,145 3,482,088 90,984
Closed forward currency contracts........ 154,261
Receivable for investments sold..........
Receivable for open futures contracts....
Receivable for fund shares sold.......... 1,000,000
Unamortized organization costs (Note
4)..................................... 1,027 15,212 3,654 3,105
Deferred expense subsidy (Note 5)........ 50,458 118,517 182,710
Other assets............................. 201 20
------------- -------------- ------------- -------------
Total Assets........................ 29,350,555 658,045,790 18,669,459 36,528,696
------------- -------------- ------------- -------------
LIABILITIES:
Open forward currency contracts.......... 383,890 6,465,142 179,850
Closed forward currency contracts........ 28,389
Payable for investments purchased........
Payable for open futures contracts.......
Payable for fund shares redeemed.........
Deposit for fund shares sold.............
Payable to Payden & Rygel (Note 5)....... 6,684
Accrued expenses:
Investment advisory fees............... 7,843 128,447 76,423 140,450
Administration fees.................... 1,569 33,430 9,273 14,675
Other expenses......................... 37,154 225,804 39,509 37,942
Other liabilities
------------- -------------- ------------- -------------
Total Liabilities................... 437,140 6,881,212 305,055 193,067
------------- -------------- ------------- -------------
NET ASSETS.......................... $ 28,913,415 $651,164,578 $ 18,364,404 $ 36,335,629
============= ============== ============= =============
NET ASSETS:
Paid in capital.......................... $ 28,785,368 $644,593,521 $ 18,027,254 $ 36,324,093
Undistributed net investment income...... 25,713 2,668,546 2,225
Accumulated net realized gains
(losses) from:
Investments............................ (11,848,733) 65,275
Futures contracts...................... 170,675 (108,515)
Accumulated distributions in excess of
realized gains (losses) on
investments............................ (110,019)
Net unrealized appreciation
(depreciation) from:
Investments............................ 78,846 16,591,370 592,947 52,551
Translation of assets and liabilities
in
foreign currencies.................. 23,488 (1,010,801) (145,778)
Open futures contracts.................
------------- -------------- ------------- -------------
NET ASSETS.......................... $ 28,913,415 $651,164,578 $ 18,364,404 $ 36,335,629
============= ============== ============= =============
Outstanding shares of beneficial
interest............................... 2,871,151 62,918,935 1,766,919 3,630,620
============= ============== ============= =============
NET ASSET VALUE -- offering and
redemption price per share............. $ 10.07 $ 10.35 $ 10.39 $ 10.01
============= ============== ============= =============
- ------------
* Investments, at cost................... $ 26,739,594 $615,229,208 $ 17,420,954 $ 35,679,436
</TABLE>
See notes to financial statements.
20 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 25
<TABLE>
<CAPTION>
TAX EXEMPT U.S. LIMITED SHORT INTERMEDIATE MARKET
BOND TREASURY MATURITY BOND BOND OPPORTUNITY RETURN
FUND FUND FUND FUND FUND FUND FUND
============ ============ ============ ============ ============ ============ ============
<S> <C> <C> <C> <C> <C> <C> <C>
$49,160,419 $23,807,464 $54,827,184 $97,021,839 $57,624,705 $34,656,903 $6,024,222
752,013 307,280 415,150 1,393,857 677,503 361,314 60,181
5,054,738 2,517,960
54,800
1,000,000 2,498,119
6,561 2,345 880 41,427
266,058 134,344 260,697 228,740 188,283 318,100 119,282
----------- ----------- ----------- ----------- ----------- ----------- ----------
50,185,051 24,251,433 55,503,911 104,699,174 61,008,451 37,834,436 6,299,912
----------- ----------- ----------- ----------- ----------- ----------- ----------
5,000,000 6,978,762 5,212,599
14,219
28,500 2,000,000 4,470,377 1,500,000 1,069,775
350,000
29,130 37,318 30 159,294 112,195
215,573 62,862 154,408 132,091 134,774 111,424 8,031
25,600 9,263 20,752 30,253 20,422 15,112 1,721
37,221 36,536 50,249 67,297 36,341 32,270 38,763
1,835 3,261 1,648
----------- ----------- ----------- ----------- ----------- ----------- ----------
322,948 2,137,791 4,733,104 6,732,932 8,241,722 5,530,699 510,710
----------- ----------- ----------- ----------- ----------- ----------- ----------
$49,862,103 $22,113,642 $50,770,807 $97,966,242 $52,766,729 $32,303,737 $5,789,202
=========== =========== =========== =========== =========== =========== ==========
$50,821,640 $22,004,727 $50,706,798 $97,680,510 $52,355,817 $32,248,275 $5,510,368
6,235 7,296 12,828 22,497 11,959 67,182 1,537
(1,316,984) (134,232) (63,043) (356,543) (51,401) (434,882) (96,145)
(157,832) 165,973 112,669
677,482 235,851 114,224 619,778 450,354 257,189 34,998
(168,438) 225,775
----------- ----------- ----------- ----------- ----------- ----------- ----------
$49,862,103 $22,113,642 $50,770,807 $97,966,242 $52,766,729 $32,303,737 $5,789,202
=========== =========== =========== =========== =========== =========== ==========
5,266,366 2,098,931 5,047,881 9,829,447 5,497,972 3,294,124 532,943
=========== =========== =========== =========== =========== =========== ==========
$ 9.47 $ 10.54 $ 10.06 $ 9.97 $ 9.60 $ 9.81 $ 10.86
=========== =========== =========== =========== =========== =========== ==========
$48,482,937 $23,571,613 $54,712,960 $96,402,061 $57,174,351 $34,399,714 $5,989,224
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 21
<PAGE> 26
STATEMENTS OF OPERATIONS
For the period ended October 31, 1996
<TABLE>
<CAPTION>
GLOBAL GLOBAL INTERNATIONAL SHORT DURATION
SHORT BOND FIXED INCOME BOND TAX EXEMPT
FUND (A) FUND FUND FUND
========== ============ ============= ==============
<S> <C> <C> <C> <C>
INVESTMENT INCOME - INTEREST............ $142,485 $39,656,546 $ 1,179,617 $1,188,946
---------- ----------- ------------ -------------
EXPENSES:
Investment advisory fees (Note 5)....... 7,843 1,982,809 65,046 89,100
Administration fees (Note 5)............ 1,569 397,116 11,676 17,181
Custodian fees.......................... 3,375 182,796 27,074 6,162
Accounting fees (Note 5)................ 1,939 179,198 14,821 18,153
Legal fees.............................. 359 50,211 2,432 1,576
Audit fees.............................. 19,184 60,599 17,675 17,658
Organization expenses (Note 4).......... 534 18,246 1,035 1,098
Trustees' fees and expenses............. 183 70,071 2,095 2,733
Transfer agent fees (Note 5)............ 3,676 60,717 13,114 13,388
Registration and filing fees............ 22,645 167,350 21,591 15,793
Printing costs.......................... 805 44,856 1,209 2,935
Other expenses.......................... 111 147,409 5,042 8,668
Expense subsidy (Note 5)................ (50,458) (51,952) (69,070)
---------- ----------- ------------ -------------
Net Expenses.......................... 11,765 3,361,378 130,858 125,375
---------- ----------- ------------ -------------
Net Investment Income.............. 130,720 36,295,168 1,048,759 1,063,571
---------- ----------- ------------ -------------
REALIZED AND UNREALIZED
GAINS (LOSSES):
Net realized gains (losses) from:
Investments........................... 9,061,739 481,273* 65,273
Foreign currency transactions......... (8) (8,756,285) (1,437,710)
Futures contracts..................... 170,675 (108,515)
Change in net unrealized appreciation
(depreciation) from:
Investments........................... 78,846 (1,190,846) 280,999 (83,247)
Translation of assets and liabilities
in
foreign currencies................. 23,488 8,722,865 333,018
Futures contracts.....................
---------- ----------- ------------ -------------
Net realized and unrealized
gains (losses)................... 102,326 8,008,148 (342,420) (126,489)
---------- ----------- ------------ -------------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS....................... $233,046 $44,303,316 $ 706,339 $ 937,082
========== =========== ============ =============
- ------------
(a) The Fund commenced operations on September 18, 1996.
(b) The Fund commenced operations on December 1, 1995.
* Included net realized loss of $79,924 on option contracts purchased.
</TABLE>
See notes to financial statements.
22 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 27
<TABLE>
<CAPTION>
TAX EXEMPT U.S. LIMITED SHORT INTERMEDIATE MARKET
BOND TREASURY MATURITY BOND BOND OPPORTUNITY RETURN
FUND FUND FUND FUND FUND FUND FUND(B)
========== ========== ========== ========== ============ =========== =========
<S> <C> <C> <C> <C> <C> <C> <C>
$2,577,975 $1,072,381 $2,161,797 $3,271,853 $2,523,749 $1,904,675 $ 171,576
--------- ---------- ---------- ---------- ------------ ---------- ---------
159,206 49,630 104,879 150,282 111,179 83,067 8,031
30,854 10,950 22,883 32,665 24,631 18,435 1,721
6,494 6,082 6,198 6,275 6,162 6,114 5,570
24,200 13,489 19,896 24,109 19,239 16,438 8,882
2,946 1,243 2,595 3,300 2,234 2,119 11,443
18,008 16,904 17,849 17,803 17,774 17,108 20,373
2,900 756 340 7,711
5,092 2,242 3,716 5,070 3,697 3,267 285
14,680 11,736 14,213 16,067 13,053 13,429 9,986
17,294 21,542 27,347 39,981 18,284 16,810 41,079
6,950 (115) 3,422 5,594 5,001 4,024 1,250
14,822 4,677 8,124 8,368 10,518 8,342 2,951
(79,465) (59,308) (119,112) (94,820) (53,096) (189,153) (119,282)
--------- ---------- ---------- ---------- ---------- ---------- ---------
223,981 79,828 112,350 214,694 178,676 0 0
--------- ---------- ---------- ---------- ---------- ---------- ---------
2,353,994 992,553 2,049,447 3,057,159 2,345,073 1,904,675 171,576
--------- ---------- ---------- ---------- ---------- ---------- ---------
(9,692) (130,766) (60,491) (353,688) (52,914) (434,892) (96,145)
(157,832) 165,973 112,669
(414,168) (94,523) 53,290 439,764 (479,438) (342,583) 34,998
(292,875) 225,775
--------- ---------- ---------- ---------- ---------- ---------- ---------
(874,567) (225,289) (7,201) 86,076 (532,352) (611,502) 277,297
--------- ---------- ---------- ---------- ---------- ---------- ---------
$1,479,427 $ 767,264 $2,042,246 $3,143,235 $1,812,721 $1,293,173 $ 448,873
========== ========== ========== ========== ========== ========== =========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 23
<PAGE> 28
STATEMENTS OF CHANGES IN NET ASSETS
October 31, 1996
<TABLE>
<CAPTION>
GLOBAL SHORT
BOND FUND GLOBAL FIXED INCOME FUND
=================== =================================
PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, OCTOBER 31,
(A) 1996 1995
=================== =============== ===============
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 130,720 $ 36,295,168 $ 28,703,456
Net realized gains (losses)................... (8) 476,129 27,506,560
Change in net unrealized appreciation
(depreciation).............................. 102,334 7,532,019 9,681,400
---------------- --------------- --------------
Change in net assets resulting
from operations.......................... 233,046 44,303,316 65,891,416
---------------- --------------- --------------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income......................... (104,999) (44,142,948) (41,196,930)
Net realized gains from investments...........
In excess of net realized gains from
investments.................................
---------------- --------------- --------------
Change in net assets from distributions to
shareholders............................. (104,999) (44,142,948) (41,196,930)
---------------- --------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold................ 28,680,369 230,552,397 111,729,616
Reinvestment of distributions................. 104,999 40,665,055 38,712,586
Cost of fund shares redeemed.................. (160,254,143) (65,305,726)
---------------- --------------- --------------
Change in net assets from capital
transactions............................. 28,785,368 110,963,309 85,136,476
---------------- --------------- --------------
Total Change in Net Assets............... 28,913,415 111,123,677 109,830,962
NET ASSETS:
Beginning of period........................... 0 540,040,901 430,209,939
---------------- --------------- --------------
End of period................................. $28,913,415 $ 651,164,578 $ 540,040,901
================ =============== ==============
FUND SHARES OF BENEFICIAL
INTEREST:
Outstanding shares at beginning of period..... 0 52,327,237 44,045,982
---------------- --------------- --------------
Shares sold................................... 2,860,724 22,249,887 10,968,947
Shares issued in reinvestment of
distributions............................... 10,427 4,006,005 3,831,846
Shares redeemed............................... 0 (15,664,194) (6,519,538)
---------------- --------------- --------------
Change in shares outstanding.................. 2,871,151 10,591,698 8,281,255
---------------- --------------- --------------
Outstanding shares at end of period........... 2,871,151 62,918,935 52,327,237
================ =============== ==============
</TABLE>
- ------------
(a) The Fund commenced operations on September 18, 1996.
(b) The Fund commenced operations on April 1, 1995.
See notes to financial statements.
24 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 29
<TABLE>
<CAPTION>
INTERNATIONAL BOND
FUND SHORT DURATION TAX EXEMPT TAX EXEMPT BOND
====================================== FUND FUND
YEAR ENDED PERIOD ENDED ==================================== ====================================
OCTOBER 31, OCTOBER 31, 1995 YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
1996 (B) OCTOBER 31, 1996 OCTOBER 31, 1995 OCTOBER 31, 1996 OCTOBER 31, 1995
=============== ================== ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
$ 1,048,759 $ 370,386 $ 1,063,571 $ 738,428 $ 2,353,994 $ 1,545,633
(956,437) (98,063) (43,242) 33,670 (167,524) (216,473)
614,017 (166,848) (83,247) 227,515 (707,043) 2,443,288
------------- --------------- -------------- -------------- -------------- --------------
706,339 105,475 937,082 999,613 1,479,427 3,772,448
------------- --------------- -------------- -------------- -------------- --------------
(51,924) (219,289) (1,063,018) (743,140) (2,352,923) (1,550,994)
(23,827) (53,034) (32,675)
(110,019) (16,571)
------------- --------------- -------------- -------------- -------------- --------------
(185,770) (288,894) (1,095,693) (743,140) (2,352,923) (1,550,994)
------------- --------------- -------------- -------------- -------------- --------------
4,234,969 19,111,194 28,660,093 17,480,222 19,067,316 14,684,139
180,026 268,449 826,992 678,179 1,985,629 1,467,907
(5,765,447) (1,937) (9,011,463) (22,546,345) (10,369,014) (3,795,557)
------------- --------------- -------------- -------------- -------------- --------------
(1,350,452) 19,377,706 20,475,622 (4,387,944) 10,683,931 12,356,489
------------- --------------- -------------- -------------- -------------- --------------
(829,883) 19,194,287 20,317,011 (4,131,471) 9,810,435 14,577,943
19,194,287 0 16,018,618 20,150,089 40,051,668 25,473,725
------------- --------------- -------------- -------------- -------------- --------------
$18,364,404 $19,194,287 $ 36,335,629 $ 16,018,618 $ 49,862,103 $ 40,051,668
============= =============== ============== ============== ============== ==============
1,912,673 0 1,589,820 2,029,728 4,177,567 2,861,275
------------- --------------- -------------- -------------- -------------- --------------
421,938 1,886,243 2,854,221 1,745,760 1,986,272 1,570,000
17,707 26,628 82,428 67,925 208,658 158,441
(585,399) (198) (895,849) (2,253,593) (1,106,131) (412,149)
------------- --------------- -------------- -------------- -------------- --------------
(145,754) 1,912,673 2,040,800 (439,908) 1,088,799 1,316,292
------------- --------------- -------------- -------------- -------------- --------------
1,766,919 1,912,673 3,630,620 1,589,820 5,266,366 4,177,567
============= =============== ============== ============== ============== ==============
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 25
<PAGE> 30
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
LIMITED
U.S. TREASURY MATURITY
FUND FUND
========================== ==========================
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 (C) 1996 1995
=========== ============ ============ ===========
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................... $ 992,553 $ 355,690 $ 2,049,447 $ 879,148
Net realized gains (losses)................... (130,766) 34,473 (60,491) 999
Change in net unrealized appreciation
(depreciation).............................. (94,523) 330,374 53,290 91,216
----------- ----------- ------------ -----------
Change in net assets resulting from
operations............................... 767,264 720,537 2,042,246 971,363
----------- ----------- ------------ -----------
FROM DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income......................... (988,707) (352,240) (2,041,488) (881,648)
Net realized gains from investments........... (37,939)
In excess of net realized gains from
investments.................................
----------- ----------- ------------ -----------
Change in net assets from distributions to
shareholders............................. (1,026,646) (352,240) (2,041,488) (881,648)
----------- ----------- ------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold................ 21,850,747 11,528,561 111,950,760 30,816,505
Reinvestment of distributions................. 821,001 351,159 2,027,495 866,908
Cost of fund shares redeemed.................. (11,192,992) (1,353,749) (81,622,509) (27,606,714)
----------- ----------- ------------ -----------
Change in net assets from capital
transactions............................. 11,478,756 10,525,971 32,355,746 4,076,699
----------- ----------- ------------ -----------
Total Change in Net Assets............... 11,219,374 10,894,268 32,356,504 4,166,414
NET ASSETS:
Beginning of period........................... 10,894,268 0 18,414,303 14,247,889
----------- ----------- ------------ -----------
End of period................................. $22,113,642 $10,894,268 $ 50,770,807 $18,414,303
=========== =========== ============ ===========
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period..... 1,026,380 0 1,830,050 1,424,310
----------- ----------- ------------ -----------
Shares sold................................... 2,071,280 1,121,118 11,140,482 3,067,449
Shares issued in reinvestment of
distributions............................... 78,390 33,655 201,954 86,480
Shares redeemed............................... (1,077,119) (128,393) (8,124,605) (2,748,189)
----------- ----------- ------------ -----------
Change in shares outstanding.................. 1,072,551 1,026,380 3,217,831 405,740
----------- ----------- ------------ -----------
Outstanding shares at end of period........... 2,098,931 1,026,380 5,047,881 1,830,050
=========== =========== ============ ===========
</TABLE>
- ------------
(c) The Fund commenced operations on January 1, 1995.
(d) The Fund commenced operations on December 1, 1995.
See notes to financial statements.
26 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 31
<TABLE>
<CAPTION>
INTERMEDIATE MARKET
SHORT BOND BOND OPPORTUNITY RETURN
FUND FUND FUND FUND
=========================== ============================ ============================ ============
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1996 1995 1996 1995 1996 (D)
=========== =========== ============ =========== ============ =========== ============
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,057,159 $ 573,521 $ 2,345,073 $ 1,549,919 $ 1,904,675 $ 530,941 $ 171,576
(353,688) 59,994 (52,914) 471,047 (268,919) 202,864 16,524
439,764 201,029 (479,438) 1,010,731 (342,583) 600,568 260,773
----------- ----------- ------------ ----------- ------------ ----------- -----------
3,143,235 834,544 1,812,721 3,031,697 1,293,173 1,334,373 448,873
----------- ----------- ------------ ----------- ------------ ----------- -----------
(3,039,378) (570,116) (2,340,379) (1,549,848) (1,843,583) (526,378) (170,039)
(16,883) (255,413) (13,424)
----------- ----------- ------------ ----------- ------------ ----------- -----------
(3,056,261) (570,116) (2,595,792) (1,549,848) (1,857,007) (526,378) (170,039)
----------- ----------- ------------ ----------- ------------ ----------- -----------
95,063,381 22,625,118 32,977,552 19,805,492 25,161,170 25,177,485 5,468,086
2,857,489 570,116 1,610,996 926,921 1,728,421 524,801 141,367
(19,198,388) (6,894,440) (15,429,671) (2,135,210) (19,843,931) (3,718,336) (99,085)
----------- ----------- ------------ ----------- ------------ ----------- -----------
78,722,482 16,300,794 19,158,877 18,597,203 7,045,660 21,983,950 5,510,368
----------- ----------- ------------ ----------- ------------ ----------- -----------
78,809,456 16,565,222 18,375,806 20,079,052 6,481,826 22,791,945 5,789,202
19,156,786 2,591,564 34,390,923 14,311,871 25,821,911 3,029,966 0
----------- ----------- ------------ ----------- ------------ ----------- -----------
$97,966,242 $19,156,786 $ 52,766,729 $34,390,923 $ 32,303,737 $25,821,911 $5,789,202
=========== =========== ============ =========== ============ =========== ===========
1,907,327 267,604 3,490,147 1,538,681 2,591,405 333,492 0
----------- ----------- ------------ ----------- ------------ ----------- -----------
9,562,749 2,270,630 3,433,330 2,074,179 2,556,961 2,588,864 528,431
287,635 57,274 166,498 96,175 177,262 54,154 13,760
(1,928,264) (688,181) (1,592,003) (218,888) (2,031,504) (385,105) (9,248)
----------- ----------- ------------ ----------- ------------ ----------- -----------
7,922,120 1,639,723 2,007,825 1,951,466 702,719 2,257,913 532,943
----------- ----------- ------------ ----------- ------------ ----------- -----------
9,829,447 1,907,327 5,497,972 3,490,147 3,294,124 2,591,405 532,943
=========== =========== ============ =========== ============ =========== ===========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 27
<PAGE> 32
GLOBAL SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
CANADA (CANADIAN DOLLAR) (4.2%):
Government Bonds (4.2%):
1,600,000 6.25%, 2/1/98................................... $ 1,227,088
--------------
Total Canada (Cost -- $1,191,177)................................... 1,227,088
--------------
DENMARK (DANISH KRONE) (16.3%):
Government Bonds (16.3%):
24,300,000 9.00%, 11/15/00................................. 4,715,637
--------------
Total Denmark (Cost -- $4,667,115).................................. 4,715,637
--------------
GERMANY (GERMAN MARK) (12.7%):
Government Bonds (8.6%):
3,525,000 Bundeschatze, 6.88%, 10/15/03................... 2,479,175
--------------
Total Government Bonds.............................................. 2,479,175
--------------
U.S. Government Agencies (4.1%):
Federal National Mortgage Association (4.1%):
1,720,000 Global Bond, 6.00%, 8/23/00..................... 1,187,751
--------------
Total U.S. Government Agencies...................................... 1,187,751
--------------
Total Germany (Cost -- $3,648,917).................................. 3,666,926
--------------
GREAT BRITAIN (BRITISH POUND) (23.0%):
Corporate Bonds (12.7%):
Financial (12.7%):
790,000 Abbey National Treasury, 6.00%, 8/10/99......... 1,249,723
725,000 Baden Wurt L-Finance, 7.75%, 12/14/00........... 1,198,949
770,000 General Electric Capital Corporation, 6.25%,
12/7/99......................................... 1,223,851
--------------
Total Corporate Bonds............................................... 3,672,523
--------------
Government Bonds (6.1%):
1,075,000 UK Gilt, 7.25%, 3/30/98......................... 1,767,601
--------------
Total Government Bonds.............................................. 1,767,601
--------------
</TABLE>
See notes to financial statements.
28 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 33
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
Supranational Bonds (4.2%):
700,000 European Investment Bank Euro, 8.75%, 12/7/00... $ 1,196,580
--------------
Total Supranational Bonds........................................... 1,196,580
--------------
Total Great Britain (Cost -- $6,378,861)............................ 6,636,704
--------------
IRELAND (IRISH PUNT) (4.3%):
Government Bonds (4.3%):
750,000 6.25%, 4/1/99................................... 1,220,860
--------------
Total Ireland (Cost -- $1,201,085).................................. 1,220,860
--------------
SWEDEN (SWEDISH KRONA) (10.1%):
Government Bonds (10.1%):
17,300,000 11.00%, 1/21/99................................. 2,932,785
--------------
Total Sweden (Cost -- $2,881,596)................................... 2,932,785
--------------
UNITED STATES (UNITED STATES DOLLAR) (23.5%):
U.S. Treasury Notes (17.7%):
2,150,000 7.25%, 2/15/98.................................. 2,190,984
2,950,000 5.13%, 3/31/98.................................. 2,928,797
--------------
Total U.S. Treasury Notes........................................... 5,119,781
--------------
Cash Equivalents (5.8%):
1,679,785 First Chicago Credit Interest................... 1,679,785
--------------
Total United States (Cost -- $6,770,843)............................ 6,799,566
--------------
TOTAL (COST -- $26,739,594)(a) (94.1%).............................. $27,199,566
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $28,913,415.
(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............................................... $459,972
Unrealized depreciation............................................... 0
--------
Net unrealized appreciation........................................... $459,972
========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 29
<PAGE> 34
GLOBAL SHORT BOND FUND
FORWARD CURRENCY CONTRACTS
October 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ------------------------------------------------ -------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
German Mark (sold).............................. 1.50600 $ 2,845,101 $ 10,145 11/14/96
------------- ------------
$ 2,845,101 $ 10,145
============ ============
LIABILITIES:
British Pound (sold)............................ 0.64519 $ 2,929,946 $ (140,054) 11/07/96
British Pound (sold)............................ 0.64267 1,952,520 (85,320) 11/25/96
British Pound (sold)............................ 0.63867 1,464,973 (55,789) 11/07/96
British Pound (sold)............................ 0.63123 488,324 (13,064) 11/07/96
Canadian Dollar (sold).......................... 1.35889 298,579 (4,221) 11/14/96
Canadian Dollar (sold).......................... 1.36400 895,736 (15,971) 11/14/96
Danish Krone (sold)............................. 5.81050 3,822,867 (2,198) 11/12/96
Danish Krone (sold)............................. 5.85700 1,205,409 (10,258) 11/12/96
German Mark (sold).............................. 1.52646 893,229 (8,830) 11/14/96
Irish Punt (sold)............................... 0.62500 325,353 (5,353) 11/14/96
Irish Punt (sold)............................... 0.62383 894,722 (13,072) 11/14/96
Swedish Krona (sold)............................ 6.61640 594,695 (5,251) 11/13/96
Swedish Krona (sold)............................ 6.61960 1,921,322 (17,884) 11/13/96
Swedish Krona (sold)............................ 6.63000 609,944 (6,625) 11/13/96
------------- ------------
$ 18,297,619 $ (383,890)
============= ============
</TABLE>
See notes to financial statements.
30 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 35
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (4.9%):
Government Bonds (4.9%):
39,700,000 7.50%, 7/15/05.................................. $ 31,738,543
--------------
Total Australia (Cost -- $29,291,879)............................... 31,738,543
--------------
DENMARK (DANISH KRONE) (10.3%):
Government Bonds (10.3%):
146,300,000 8.00%, 11/15/01................................. 27,554,938
225,000,000 7.00%, 12/15/04................................. 39,729,116
--------------
Total Denmark (Cost -- $65,372,012)................................. 67,284,054
--------------
GERMANY (GERMAN MARK) (10.2%):
Government Bonds (10.2%):
43,500,000 German Unity Fund, 8.00%, 1/21/02............... 32,428,737
16,000,000 Treuhandanstalt, 6.25%, 3/4/04.................. 10,880,677
33,000,000 Treuhandanstalt, 6.75%, 5/13/04................. 23,050,043
--------------
Total Germany (Cost -- $67,307,621)................................. 66,359,457
--------------
GREAT BRITAIN (BRITISH POUND) (16.5%):
Government Bonds (16.5%):
50,800,000 UK Gilt, 8.00%, 12/7/00......................... 85,261,006
14,230,000 UK Gilt, 6.75%, 11/26/04........................ 22,094,992
--------------
Total Great Britain (Cost -- $101,075,578).......................... 107,355,998
--------------
JAPAN (JAPANESE YEN) (13.9%):
Corporate Bonds (3.2%):
Banking (3.2%):
2,100,000,000 Export -- Import Bank of Japan, 4.38%,
10/1/03........................................ 20,964,905
--------------
Total Corporate Bonds............................................... 20,964,905
--------------
Government Bonds (4.6%):
3,000,000,000 Republic of Austria, 5.00%, 1/22/01............. 30,121,383
--------------
Total Government Bonds.............................................. 30,121,383
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 31
<PAGE> 36
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
JAPAN (CONTINUED):
Supranational Bonds (6.1%):
1,000,000,000 Asian Development Bank, 5.00%, 2/5/03........... $ 10,254,200
300,000,000 IBRD -- Global Bond, 4.50%, 3/20/03............. 3,016,624
2,560,000,000 IBRD -- Global Bond, 4.75%, 12/20/04............ 26,325,059
--------------
Total Supranational Bonds........................................... 39,595,883
--------------
Total Japan (Cost -- $91,843,100)................................... 90,682,171
--------------
SPAIN (SPANISH PESETA) (4.6%):
Government Bonds (4.6%):
3,320,000,000 12.25%, 3/25/00................................. 30,186,079
--------------
Total Spain (Cost -- $28,916,300)................................... 30,186,079
--------------
SWEDEN (SWEDISH KRONA) (6.5%):
Government Bonds (6.5%):
90,200,000 11.00%, 1/21/99................................. 15,291,165
192,700,000 6.00%, 2/9/05................................... 27,038,811
--------------
Total Sweden (Cost -- $38,267,539).................................. 42,329,976
--------------
UNITED STATES (UNITED STATES DOLLAR) (30.4%):
U.S. Treasury Notes (28.3%):
41,000,000 5.88%, 6/30/00.................................. 40,820,625
32,000,000 6.25%, 8/31/00.................................. 32,235,000
12,000,000 7.88%, 8/15/01.................................. 12,868,125
30,000,000 7.50%, 5/15/02.................................. 31,893,750
68,200,000 5.75%, 8/15/03 (a).............................. 66,356,469
--------------
Total U.S. Treasury Notes........................................... 184,173,969
--------------
Cash Equivalents (2.1%):
13,564,254 First Chicago Credit Interest................... 13,564,254
--------------
Total United States (Cost -- $193,155,179).......................... 197,738,223
--------------
TOTAL (COST -- $615,229,208)(b) (97.3%)............................. $ 633,674,501
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $651,164,578.
See notes to financial statements.
32 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 37
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open short positions.
(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............................................. $20,574,884
Unrealized depreciation............................................. (2,129,591)
-----------
Net unrealized appreciation......................................... $18,445,293
===========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 33
<PAGE> 38
GLOBAL FIXED INCOME FUND
FORWARD CURRENCY CONTRACTS
October 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ----------------------------------------------- --------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
German Mark (sold)............................. 1.50810 $ 65,503,484 $ 142,031 11/14/96
Japanese Yen (sold)............................ 105.30000 29,043,068 1,821,130 02/20/97
Japanese Yen (sold)............................ 109.25000 62,554,299 1,518,927 02/20/97
------------ ------------
$157,100,851 $ 3,482,088
============ ============
LIABILITIES:
Australian Dollar (sold)....................... 1.26470 $ 30,891,900 $ (54,600) 11/21/96
British Pound (sold)........................... 0.64280 107,388,600 (4,712,400) 11/25/96
Danish Krone (sold)............................ 5.83870 68,985,341 (476,940) 12/11/96
German Mark (sold)............................. 1.53525 2,778,936 (43,225) 11/14/96
Spanish Peseta (sold).......................... 129.80000 30,553,089 (506,864) 12/05/96
Swedish Krona (sold)........................... 6.65760 44,230,354 (671,113) 11/25/96
------------ ------------
$284,828,220 $ (6,465,142)
============ ============
</TABLE>
See notes to financial statements.
34 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 39
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (4.4%):
Government Bonds (4.4%):
1,000,000 7.50%, 7/15/05.................................. $ 799,460
--------------
Total Australia (Cost -- $737,831).................................. 799,460
--------------
DENMARK (DANISH KRONE) (8.8%):
Government Bonds (8.8%):
9,200,000 7.00%, 12/15/04................................. 1,624,479
--------------
Total Denmark (Cost -- $1,614,958).................................. 1,624,479
--------------
GERMANY (GERMAN MARK) (11.6%):
Corporate Bonds (4.2%):
Finance (4.2%):
1,125,000 KFW International Finance, 6.25%, 10/15/03...... 766,609
--------------
Total Corporate Bonds............................................... 766,609
--------------
Government Bonds (4.1%):
1,075,000 Treuhandanstalt, 6.75%, 5/13/04................. 750,873
--------------
Total Government Bonds.............................................. 750,873
--------------
U.S. Government Agencies (3.3%):
Federal National Mortgage Association (3.3%):
870,000 Global Bond, 6.00%, 8/23/00..................... 600,781
--------------
Total U.S. Government Agencies...................................... 600,781
--------------
Total Germany (Cost -- $2,068,742).................................. 2,118,263
--------------
GREAT BRITAIN (BRITISH POUND) (20.6%):
Corporate Bonds (4.3%):
Finance (4.3%):
475,000 General Electric Capital Corporation, 8.00%,
12/29/00....................................... 790,854
--------------
Total Corporate Bonds............................................... 790,854
--------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 35
<PAGE> 40
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
GREAT BRITAIN (CONTINUED):
Government Bonds (12.0%):
250,000 UK Gilt, 6.75%, 11/26/04........................ $ 388,176
1,000,000 UK Gilt, 9.50%, 4/18/05......................... 1,817,764
--------------
Total Government Bonds.............................................. 2,205,940
--------------
Supranational Bonds (4.3%):
500,000 Abbey National Treasury, 6.00%, 8/10/99......... 790,964
--------------
Total Supranational Bonds........................................... 790,964
--------------
Total Great Britain (Cost -- $3,623,352)............................ 3,787,758
--------------
IRELAND (IRISH PUNT) (4.2%):
Government Bonds (4.2%):
485,000 6.25%, 10/18/04................................. 766,211
--------------
Total Ireland (Cost -- $716,520).................................... 766,211
--------------
ITALY (ITALIAN LIRA) (8.1%):
Government Bonds (8.1%):
1,150,000,000 Buoni Poliennali Del Tes, 9.50%, 4/15/99........ 800,053
1,000,000,000 Buoni Poliennali Del Tes, 9.00%, 10/1/03........ 695,764
--------------
Total Italy (Cost -- $1,415,583).................................... 1,495,817
--------------
JAPAN (JAPANESE YEN) (17.6%):
Corporate Bonds (3.9%):
Banking (3.9%):
80,000,000 Export -- Import Bank of Japan, 2.88%,
7/28/05........................................ 717,952
--------------
Total Corporate Bonds............................................... 717,952
--------------
Government Bonds (4.2%):
60,000,000 Republic of Austria, 5.00%, 1/22/01............. 602,428
15,000,000 Republic of Austria, 6.25%, 10/16/03............ 165,344
--------------
Total Government Bonds.............................................. 767,772
--------------
</TABLE>
See notes to financial statements.
36 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 41
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
JAPAN (CONTINUED):
Supranational Bonds (9.5%):
70,000,000 Asian Development Bank, 5.00%, 2/5/03........... $ 717,794
40,000,000 European Investment Bank, 4.63%, 2/26/03........ 403,061
63,000,000 IBRD -- Global Bond, 4.50%, 3/20/03............. 633,491
--------------
Total Supranational Bonds........................................... 1,754,346
--------------
Total Japan (Cost -- $3,339,245).................................... 3,240,070
--------------
NETHERLANDS (DUTCH GUILDER) (3.2%):
Government Bonds (3.2%):
875,000 7.75%, 3/1/05................................... 581,407
--------------
Total Netherlands (Cost -- $579,706)................................ 581,407
--------------
SPAIN (SPANISH PESETA) (7.4%):
Government Bonds (7.4%):
50,000,000 10.00%, 2/28/05................................. 445,390
100,000,000 12.25%, 3/25/00................................. 909,219
--------------
Total Spain (Cost -- $1,282,743).................................... 1,354,609
--------------
SWEDEN (SWEDISH KRONA) (9.6%):
Government Bonds (9.6%):
12,600,000 6.00%, 2/9/05................................... 1,767,976
--------------
Total Sweden (Cost -- $1,624,116)................................... 1,767,976
--------------
UNITED STATES (UNITED STATES DOLLAR) (2.3%):
U.S. Treasury Notes (1.2%):
225,000 6.13%, 5/15/98.................................. 226,442
--------------
Cash Equivalents (1.1%):
193,599 First Chicago Credit Interest................... 193,599
--------------
Total United States (Cost -- $418,158).............................. 420,041
--------------
TOTAL (COST -- $17,420,954)(a) (97.8%).............................. $17,956,091
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $18,364,404.
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 37
<PAGE> 42
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
(a) For federal income tax purposes, cost is $17,507,073, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $548,603
Unrealized depreciation............................................... (909,585)
--------
Net unrealized appreciation........................................... $449,018
========
</TABLE>
See notes to financial statements.
38 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 43
INTERNATIONAL BOND FUND
FORWARD CURRENCY CONTRACTS
October 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- --------------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Canadian Dollar (buy)........................ 1.36069 $2,834,975 $ 42,273 11/05/96
Dutch Guilder (sold)......................... 1.68300 590,294 3,883 11/13/96
Japanese Yen (sold).......................... 105.30000 714,906 44,828 02/20/97
------------- ------------
$4,140,175 $ 90,984
============= ============
LIABILITIES:
Australian Dollar (sold)..................... 1.26470 $ 792,100 $ (1,400) 11/21/96
British Pound (sold)......................... 0.64280 1,952,520 (85,680) 11/25/96
Danish Krone (sold).......................... 5.83870 776,085 (5,366) 12/11/96
German Mark (buy)............................ 1.50810 1,455,633 (3,156) 11/14/96
Irish Punt (sold)............................ 0.62305 813,350 (10,850) 11/18/96
Italian Lira (sold).......................... 1536.05000 148,302 (1,822) 11/15/96
Japanese Yen (buy)........................... 109.25000 1,921,311 (46,653) 02/20/97
Spanish Peseta (sold)........................ 129.80000 470,048 (7,798) 12/05/96
Swedish Krona (sold)......................... 6.65760 1,128,637 (17,125) 11/25/96
------------- ------------
$9,457,986 $ (179,850)
============= ============
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 39
<PAGE> 44
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
GENERAL OBLIGATIONS (47.0%):
Limited (5.6%):
2,000,000 Massachusetts State, 4.75%, 9/1/98................ $ 2,022,500
-----------
Unlimited (41.4%)
1,000,000 California State, 11.00%, 3/1/97.................. 1,023,740
1,650,000 Gwinnett County Georgia, 1/1/00, 7.10%,
Pre-Refunded, 1/1/97............................. 1,691,925
700,000 Illinois State, 5.50%, 2/1/99..................... 715,750
1,000,000 Illinois State, 6.38%, 8/1/00..................... 1,057,500
1,000,000 Lewisville, Texas Independent School District,
6.25%, 8/15/02, Insd: PSF........................ 1,073,750
2,000,000 Milwaukee County, Wisconsin, 5.13%, 12/1/97, Insd:
MBIA............................................. 2,022,260
700,000 Minnesota State, 6.80%, 8/1/00, Pre-Refunded,
8/1/98........................................... 732,375
1,000,000 Montgomery County, Maryland, 6.80%, 11/1/08, Pre-
Refunded, 11/1/99................................ 1,090,000
1,000,000 New York, New York, Series G, 5.60%, 2/1/02....... 1,013,750
1,500,000 Tennessee State, 5.90%, 6/1/98.................... 1,545,000
1,000,000 Virginia State, 5.50%, 12/1/98.................... 1,021,150
1,000,000 Washington Suburban Sanitation District, Maryland,
5.00%, 6/1/97.................................... 1,008,150
1,000,000 Wisconsin State, 6.00%, 5/1/03, Pre-Refunded,
5/1/02........................................... 1,065,000
-----------
15,060,350
-----------
Total General Obligations............................................. 17,082,850
-----------
REVENUE (47.8%):
Airport (2.8%):
1,000,000 Washoe County, Nevada Airport Authority, 5.25%,
7/1/00, Insd: MBIA............................... 1,017,500
-----------
Correctional Facility (3.0%):
1,000,000 Ohio State Building Authority, 7.35%, 8/1/04,
Pre-Refunded, 8/1/99, Insd: MBIA................. 1,098,750
-----------
</TABLE>
See notes to financial statements.
40 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 45
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
REVENUE (CONTINUED):
Education (5.6%):
1,000,000 University of Texas, 5.00%, 8/15/97............... $ 1,008,820
1,000,000 Virginia State Public School Authority Series C,
5.00%, 8/1/98.................................... 1,012,500
-----------
2,021,320
-----------
Electric (5.8%):
700,000 Georgia Municipal Electric Authority, 4.50%,
1/1/98........................................... 700,875
500,000 San Antonio Electric & Gas, 6.00%, 2/1/98, Insd:
FGIC............................................. 510,000
900,000 Tacoma, Washington Electric System, 4.90%, 1/1/98,
Insd: AMBAC...................................... 907,875
-----------
2,118,750
-----------
Health (2.7%):
1,000,000 Missouri State Health & Educational Facilities,
Sisters of Mercy, 4.25%, 12/1/99................. 996,250
-----------
Housing (3.0%):
450,000 Alaska State Housing Finance Corporation, 4.35%,
12/1/98, Insd: MBIA.............................. 450,563
655,000 Maryland State Community Development, 4.45%,
4/1/99........................................... 651,725
-----------
1,102,288
-----------
Lease (1.3%):
450,000 Phoenix, Arizona Civic Plaza Building Corporation
Excise Tax, 4.70%, 7/1/98........................ 454,500
-----------
Power (4.3%):
1,500,000 Intermountain Power Agency Utah Power Supply,
8.63%, 7/1/21, Pre-Refunded, 7/1/97.............. 1,577,580
-----------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 41
<PAGE> 46
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
Sales Tax (8.3%):
1,000,000 Contra Costa, California Transportation Auth,
5.00%, 3/1/98, Insd: FGIC........................ $ 1,011,250
2,000,000 Municipal Assistance Corporation for New York, New
York, 4.00%, 7/1/97.............................. 2,004,340
-----------
3,015,590
-----------
Sewer (4.1%):
1,000,000 Portland, Oregon Sewer System, 7.00%, 6/1/97...... 1,016,420
435,000 Portland, Oregon Sewer System, 6.50%, 6/1/00...... 465,994
-----------
1,482,414
-----------
Transportation (1.9%):
675,000 New Jersey State Turnpike Authority, 6.00%,
1/1/98........................................... 686,813
-----------
Water (5.0%):
755,000 Ohio State Water Development Authority, 4.95%,
12/1/98, Insd: MBIA.............................. 769,156
1,000,000 Orlando, Florida Utilities Commission, 5.70%,
10/1/0........................................... 1,056,250
-----------
1,825,406
-----------
Total Revenue......................................................... 17,397,161
-----------
VARIABLE RATE DEMAND NOTES (0.3%):
Airport (0.3%):
100,000 Salt Lake City, Utah Airport, 3.60%(a), 6/1/98.... 100,000
-----------
Total Variable Rate Demand Notes...................................... 100,000
-----------
INVESTMENT COMPANIES (3.2%):
1,151,976 Prairie Municipal Money Market Fund............... 1,151,976
-----------
Total Investment Companies............................................ 1,151,976
-----------
TOTAL (COST -- $35,679,436)(b) (98.3%)............................... $35,731,987
===========
</TABLE>
- ------------
AMBAC: AMBAC Indemnity Corporation
FGIC: Financial Guaranty Insurance Company
MBIA: MBIA Insurance Corp.
PSF: Permanent School Fund
See notes to financial statements.
42 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 47
Percentages indicated are based on net assets of $36,335,629.
(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, 1996.
(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................................................ $95,235
Unrealized depreciation................................................ (42,684)
-------
Net unrealized appreciation............................................ $52,551
=======
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 43
<PAGE> 48
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
GENERAL OBLIGATIONS (42.5):
Limited (3.8%):
700,000 Clark County, Nevada School District, 5.88%,
6/15/13, Insd: MBIA.............................. $ 70,750
1,100,000 Dallas, Texas, 5.90%, 2/15/03..................... 1,164,625
-----------
1,873,375
-----------
Unlimited (38.7%):
1,325,000 California State, 7.00%, 8/1/05, Insd: FGIC....... 1,525,403
1,500,000 Charleston County, South Carolina, 5.75%,
6/1/08........................................... 1,567,500
1,200,000 Chicago, Illinois Metropolitan Water Reclamation
District, 6.30%, 12/1/09 (a)..................... 1,282,500
765,000 Du Page County, Illinois Stormwater, 5.60%,
1/1/21........................................... 763,088
1,000,000 Florida State Board of Education, 5.00%, 6/1/08... 983,750
1,000,000 Fort Worth, Texas Independent School District,
0.00%, 2/15/06, Insd: PSF........................ 618,750
1,000,000 Georgia State, 5.50%, 7/1/07...................... 1,041,250
1,000,000 Honolulu, Hawaii City & County, 5.00%, 10/1/02.... 1,013,750
1,235,000 Massachusetts State Turnpike Authority, 5.00%,
6/1/99........................................... 1,255,069
750,000 Mecklenburg County, North Carolina, 6.20%,
1/1/01........................................... 801,563
1,000,000 Mississippi State, 5.80%, 6/1/09.................. 1,032,500
1,250,000 Montgomery County, Maryland, 6.88%, 10/1/99....... 1,342,188
1,000,000 New York, New York, 6.20%, 8/1/07................. 1,018,750
1,000,000 Pennsylvania State, 5.20%, 6/15/04, Insd: MBIA.... 1,020,000
1,000,000 Texas Public Finance Authority, 5.38%, 10/1/03.... 1,040,000
1,000,000 Texas State College Student Loan, 5.00%, 8/1/21 910,000
1,000,000 Virginia State, 6.10%, 6/1/06..................... 1,078,750
1,000,000 Washington State, 5.25%, 9/1/05................... 1,018,750
-----------
19,313,561
-----------
Total General Obligations............................................. 21,186,936
-----------
REVENUE (51.6%):
Airport (4.4%):
1,200,000 Los Angeles, California City Dept. of Airports,
5.50%, 5/15/07, Insd: FGIC....................... 1,219,500
</TABLE>
See notes to financial statements.
44 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 49
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
1,010,000 San Francisco, California City & County Airport
Commission, Int'l Airport, 5.00%, 5/01/06, Insd:
FGIC............................................. $ 994,850
-----------
2,214,350
-----------
Education (7.4%):
1,250,000 New York State Dorm Authority, 6.13%, 7/1/07,
Insd: AMBAC...................................... 1,342,188
1,100,000 Pennsylvania State Higher Educational Facilities
Authority, 5.85%, 9/1/13......................... 1,117,875
1,160,000 University of Texas Permanent University Fund,
5.90%, 7/1/02.................................... 1,232,500
-----------
3,692,563
-----------
Electric (5.3%):
2,000,000 Georgia Municipal Electric & Power Authority,
5.55%, 1/1/07, Insd: FGIC (a).................... 2,057,500
575,000 Indiana Municipal Power Agency Power Supply,
5.13%, 1/1/01, Insd: MBIA........................ 586,500
-----------
2,644,000
-----------
Housing (3.7%):
3,000,000 Perris, California Single Family, 0.00%, 6/1/23... 648,180
1,000,000 Virginia State Housing Development Authority,
6.30%, 7/1/11.................................... 1,028,750
170,000 Wisconsin Housing & Economic Development,
5.30%, 11/1/05 (a)............................... 168,938
-----------
1,845,868
-----------
Lease (1.9%):
1,000,000 Avon Indiana Community School Building
Corporation, 5.25%, 1/1/22, Insd: AMBAC.......... 938,750
-----------
Sales Tax (4.9%):
5,000,000 Metropolitan Pier & Exposition Authority Illinois
State, 0.00%, 6/15/09, Insd: FGIC................ 2,468,750
-----------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 45
<PAGE> 50
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
Sewer (1.1%):
500,000 Portland, Oregon Sewer, 6.50%, 6/1/00............. $ 535,625
-----------
Transportation (13.0%):
2,800,000 Los Angeles, California Harbor, 5.00%, 8/1/01..... 2,835,000
1,000,000 Massachusetts Bay Transportation Authority, 5.60%,
3/1/08........................................... 1,038,750
1,465,000 Port Authority New York & New Jersey, 5.80%,
12/1/12.......................................... 1,497,963
1,000,000 Puerto Rico Commonwealth Highway Authority, 6.75%,
7/1/05, Pre-Refunded, 7/1/00..................... 1,095,000
-----------
6,466,713
-----------
Utility (0.6%):
300,000 City of Knoxville, Tennessee Gas System, 4.85%,
3/1/06 (a)....................................... 289,875
-----------
Water (9.3%):
1,400,000 California State Department of Water Resources,
6.00%, 12/1/06, Insd: MBIA (a)................... 1,522,500
2,000,000 Cleveland, Ohio Waterworks, 5.50%, 1/1/08, Insd:
MBIA (a)......................................... 2,057,500
1,000,000 Ohio State Water Development Authority, 5.70%,
6/1/09, Insd: AMBAC.............................. 1,041,250
-----------
4,621,250
-----------
Total Revenue......................................................... 25,717,744
-----------
SPECIAL TAX (2.1%):
Transportation (2.1%):
1,000,000 Connecticut State Special Tax Obligation, 6.25%,
10/1/09, Pre-Refunded, 10/1/01................... 1,066,250
-----------
Total Special Tax..................................................... 1,066,250
-----------
</TABLE>
See notes to financial statements.
46 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 51
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
VARIABLE RATE DEMAND NOTES (0.4%):
Health (0.4%):
200,000 St. Mary Hospital Authority Langhorne,
Pennsylvania Hospital Revenue, 3.50%(b),
12/1/24.......................................... $ 200,000
-----------
Total Variable Rate Demand Notes...................................... 200,000
-----------
INVESTMENT COMPANIES (2.0%):
989,489 Prairie Municipal Money Market Fund............... 989,489
-----------
Total Investment Companies............................................ 989,489
-----------
TOTAL (COST -- $48,482,937)(c) (98.6%)............................... $49,160,419
===========
</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 $49,862,103.
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At October 31, 1996, the Fund's open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of Expiration Current Unrealized
Contracts Contract Type Date Market Value Depreciation
- --------- --------------------------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
35 30 Year U.S. Treasury Bond Future 12/19/96 $3,955,001 168,438
</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, 1996.
(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............................................... $ 960,616
Unrealized depreciation............................................... (283,134)
---------
Net unrealized appreciation........................................... $ 677,482
=========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 47
<PAGE> 52
U.S. TREASURY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY NOTES (83.9%):
2,000,000 5.88%, 4/30/98.................................... $ 2,006,340
3,000,000 5.88%, 8/15/98.................................... 3,006,960
1,000,000 7.50%, 10/31/99................................... 1,041,730
1,440,000 7.75%, 12/31/99................................... 1,513,627
765,000 7.75%, 1/31/00.................................... 804,803
2,200,000 7.75%, 2/15/01.................................... 2,339,414
4,000,000 5.75%, 8/15/03.................................... 3,896,320
3,580,000 7.88%, 11/15/04................................... 3,928,943
-----------
Total U.S. Treasury Notes............................................. 18,538,137
-----------
U.S. TREASURY STRIPS (19.4%):
1,200,000 8/15/99........................................... 1,021,188
550,000 8/15/01........................................... 413,424
2,200,000 8/15/05........................................... 1,259,258
3,000,000 8/15/06........................................... 1,600,860
-----------
Total U.S. Treasury Strips............................................ 4,294,730
-----------
INVESTMENT COMPANIES (4.4%):
974,597 Pegasus U.S. Government Securities Cash Management
Fund............................................. 974,597
-----------
Total Investment Companies............................................ 974,597
-----------
TOTAL (COST -- $23,571,613)(a) (107.7%).............................. $23,807,464
-----------
</TABLE>
- ------------
Percentages indicated are based on net assets of $22,113,642.
(a) For federal income tax purposes, cost is $23,584,396, and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $280,116
Unrealized depreciation............................................... (57,048)
--------
Net unrealized appreciation........................................... $223,068
========
</TABLE>
See notes to financial statements.
48 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 53
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (2.9%):
581,100 Chase Manhattan Grantor Trust 1995-A, 6.00%,
9/17/01.......................................... $ 582,100
128,721 Honda 94-A Auto Receivables, 4.80%, 8/15/99....... 128,522
750,000 MBNA Master Credit Card Trust 1992-1A, 7.25%,
6/15/99.......................................... 755,303
-----------
Total Asset Backed Securities......................................... 1,465,925
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (5.7%):
2,892,029 Residential Funding Mortgage Securities 1995-S18,
7.00%, 11/25/10.................................. 2,892,521
-----------
Total Collateralized Mortgage Obligations............................. 2,892,521
-----------
COMMERCIAL PAPER (41.2%):
Banking (10.8%):
2,500,000 Toronto Dominion, 5.36%, 11/5/96.................. 2,498,511
3,000,000 Union Bank of California, 5.31%, 11/12/96......... 2,995,133
-----------
5,493,644
-----------
Financial (9.8%):
2,500,000 American Express Credit, 5.25%, 11/8/96........... 2,497,448
2,500,000 General Electric Capital Corp, 5.28%, 11/21/96.... 2,492,667
-----------
4,990,115
-----------
Industrial (20.6%):
2,500,000 Chevron Oil Finance Company, 5.20%, 11/25/96...... 2,491,333
3,000,000 E.I. du Pont de Nemours Company, 5.40%, 1/13/97... 2,967,150
2,500,000 Toyota Motor Credit Corporation, 5.27%,
11/13/96......................................... 2,495,608
2,500,000 Walt Disney Co, 5.25%, 11/8/96.................... 2,497,448
-----------
10,451,539
-----------
Total Commercial Paper................................................ 20,935,298
-----------
CORPORATE BONDS (28.9%):
Banking (3.0%):
1,500,000 Bank One Corp, 7.80%, 12/30/96.................... 1,504,605
-----------
Computer Hardware (5.9%):
3,000,000 IBM Credit Corp, 6.09%, 9/16/97................... 3,009,960
-----------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 49
<PAGE> 54
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Defense (6.0%):
3,000,000 Lockheed Martin Corporation, 6.63%, 6/15/98....... $ 3,030,000
-----------
Financial (5.8%):
225,000 American General Finance, 7.15%, 5/15/97.......... 226,829
2,000,000 AT&T Capital Corp, 7.65%, 1/30/97................. 2,009,160
700,000 Commercial Credit, 6.75%, 1/15/97................. 701,827
-----------
2,937,816
-----------
Industrial Equipment (5.0%):
1,500,000 Ingersoll-Rand, 6.54%, 8/24/98.................... 1,513,125
1,000,000 Paccar Financial Corporation, 8.03%, 4/15/98...... 1,028,750
-----------
2,541,875
-----------
Industrial Food and Beverage (2.0%):
1,000,000 PepsiCo, Inc., 6.13%, 1/15/98..................... 1,002,500
-----------
Industrial Goods and Services (1.2%):
600,000 Rockwell International, 7.63%, 2/17/98............ 612,750
-----------
Total Corporate Bonds................................................. 14,639,506
-----------
U.S. GOVERNMENT AGENCIES (13.4%):
Federal Home Loan Mortgage Corporation (4.9%):
2,500,000 Discount Note, 5.37%, 11/13/96.................... 2,495,525
-----------
Federal National Mortgage Association (8.5%):
2,000,000 6.00%, 8/25/13.................................... 1,996,660
2,153,747 9.50%, 9/1/24..................................... 2,318,638
-----------
4,315,298
-----------
Total U.S. Government Agencies........................................ 6,810,823
-----------
U.S. TREASURY NOTES (14.8%):
2,000,000 5.38%, 11/30/97................................... 1,996,040
5,500,000 6.13%, 8/31/98.................................... 5,536,684
-----------
Total U.S. Treasury Notes............................................. 7,532,724
-----------
</TABLE>
See notes to financial statements.
50 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 55
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
INVESTMENT COMPANIES (1.1%):
550,387 Pegasus U.S. Government Securities Cash Management
Fund............................................. $ 550,387
-----------
Total Investment Companies............................................ 550,387
-----------
TOTAL (COST -- $54,712,960) (A) (108.0%).............................. $54,827,184
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $50,770,807.
(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............................................... $128,648
Unrealized depreciation............................................... (14,424)
--------
Net unrealized appreciation........................................... $114,224
========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 51
<PAGE> 56
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (2.9%):
581,100 Chase Manhattan Grantor Trust 1995-A, 6.00%,
9/17/01.......................................... $ 582,100
1,299,221 Fleetwood Credit Corporation Grantor Trust 1996-A,
6.75%, 10/17/11.................................. 1,310,251
900,000 MBNA Master Credit Card Trust 1992-1A, 7.25%,
6/15/99.......................................... 906,363
-----------
Total Asset Backed Securities......................................... 2,798,714
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (8.0%):
1,000,000 Federal Home Loan Mortgage Corporation 1394 D,
5.50%, 4/15/13................................... 997,360
2,500,000 Federal National Mortgage Association 93-37 PD,
6.00%, 8/25/13................................... 2,495,825
4,338,044 Residential Funding Mortgage Securities 1995-S18,
7.00%, 11/25/10.................................. 4,338,782
-----------
Total Collateralized Mortgage Obligations............................. 7,831,967
-----------
COMMERCIAL PAPER (1.0%):
Industrial (1.0%):
1,000,000 Chevron Oil Finance Company, 5.20%, 11/25/96...... 996,533
-----------
Total Commercial Paper................................................ 996,533
-----------
CORPORATE BONDS (31.6%):
Banking (8.6%):
250,000 Citicorp, 6.65%, 5/15/00.......................... 251,563
500,000 Citicorp, 6.60%, 8/1/00........................... 501,875
3,600,000 First Chicago NBD, 8.50%, 6/1/98.................. 3,735,000
4,000,000 First USA Bank, 5.75%, 1/15/99.................... 3,955,000
-----------
8,443,438
-----------
Computer Hardware (0.4%):
400,000 IBM Corp, 6.38%, 6/15/00.......................... 400,500
-----------
</TABLE>
See notes to financial statements.
52 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 57
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED):
Consumer Goods and Services (1.2%):
1,000,000 Walt Disney Co, Global Note, 6.38%, 3/30/01....... $ 998,750
200,000 Wal-Mart Stores, 5.50%, 3/1/98.................... 199,250
-----------
1,198,000
-----------
Defense (4.6%):
4,500,000 Lockheed Martin Corporation, 6.63%, 6/15/98....... 4,545,000
-----------
Financial (4.8%):
225,000 American General Finance, 7.15%, 5/15/97.......... 226,829
900,000 AT&T Capital Corp, 5.90%, 7/10/98................. 895,500
3,500,000 CIT Group Holdings, 6.75%, 4/30/98................ 3,543,750
-----------
4,666,079
-----------
Industrial Equipment (7.1%):
3,500,000 Caterpillar Financial Services, 6.41%, 6/11/98.... 3,521,875
2,500,000 Ingersoll-Rand, 6.47%, 8/24/98.................... 2,518,750
900,000 Ingersoll-Rand, 6.55%, 8/7/00..................... 903,375
-----------
6,944,000
-----------
Industrial Goods and Services (4.4%):
4,000,000 Honeywell Incorporated, 7.70%, 4/1/98............. 4,100,000
200,000 Rockwell International, 7.63%, 2/17/98............ 204,250
-----------
4,304,250
-----------
Media (0.5%):
500,000 R.R. Donnelley, 6.03%, 6/22/98.................... 501,250
-----------
Total Corporate Bonds................................................. 31,002,517
-----------
Mortgage Backed Securities (4.2%):
3,773,962 Federal National Mortgage Association, 10.00%,
7/1/21........................................... 4,140,716
-----------
Total Mortgage Backed Securities...................................... 4,140,716
-----------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 53
<PAGE> 58
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (5.1%):
Federal Farm Credit Bank (5.1%):
5,000,000 6.44%, 11/5/99 (a)................................ $ 5,001,200
-----------
Total U.S. Government Agencies........................................ 5,001,200
-----------
U.S. TREASURY NOTES (44.4%):
380,000 6.75%, 5/31/97.................................... 382,838
250,000 5.88%, 7/31/97.................................... 250,780
12,500,000 7.88%, 1/15/98.................................... 12,828,250
4,000,000 5.13%, 2/28/98.................................... 3,973,200
9,000,000 5.88%, 8/15/98.................................... 9,020,880
1,000,000 5.50%, 11/15/98................................... 994,830
10,000,000 6.00%, 8/15/99.................................... 10,024,300
6,000,000 5.88%, 6/30/00.................................... 5,974,980
-----------
Total U.S. Treasury Notes............................................. 43,450,058
-----------
INVESTMENT COMPANIES (1.8%):
1,800,134 Pegasus U.S. Government Securities
Cash Management Fund............................. 1,800,134
-----------
Total Investment Companies............................................ 1,800,134
-----------
TOTAL (COST -- $96,402,061)(b) (99.0%)................................ $97,021,839
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $97,966,242.
(a) Security was purchased on a delayed delivery basis and cost is $5,000,000
(note 2).
(b) For federal income tax purposes, cost is $96,416,673 and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $632,353
Unrealized depreciation............................................... (27,187)
--------
Net unrealized appreciation........................................... $605,166
========
</TABLE>
See notes to financial statements.
54 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 59
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
ASSET BACKED SECURITIES (4.4%):
581,100 Chase Manhattan Grantor Trust 1995-A, 6.00%,
9/17/01........................................... $ 582,100
217,836 Honda 94-A Auto Receivables, 4.80%, 8/15/99....... 217,498
1,500,000 Premier Auto Trust 94-3A6, 6.85%, 3/2/99.......... 1,519,410
-----------
Total Asset Backed Securities......................................... 2,319,008
-----------
COMMERCIAL PAPER (12.3%):
Financial (8.5%):
2,500,000 American Express Credit, 5.24%, 11/14/96.......... 2,495,269
2,000,000 General Electric Capital Corp, 5.25%, 11/13/96.... 1,996,500
-----------
4,491,769
-----------
Industrial (3.8%):
2,000,000 Amoco Corporation, 5.21%, 11/4/96................. 1,999,132
-----------
Total Commercial Paper................................................ 6,490,901
-----------
CORPORATE BONDS (35.0%):
Banking (13.1%):
1,500,000 ABN-Amro Bank, Global Bond, 7.25%, 5/31/05........ 1,533,750
850,000 Citicorp, 6.65%, 5/15/00.......................... 855,313
2,000,000 First USA Bank, 5.75%, 1/15/99.................... 1,977,500
1,000,000 Old Kent Bank, 6.88%, 4/15/98..................... 1,012,500
1,500,000 Swiss Bank Corporation -- New York, 7.25%,
9/1/06............................................ 1,537,500
-----------
6,916,563
-----------
Consumer Goods and Services (1.9%):
1,000,000 Walt Disney Co, Global Note, 6.38%, 3/30/01....... 998,750
-----------
Defense (4.8%):
2,500,000 Lockheed Martin Corporation, 6.63%, 6/15/98....... 2,525,000
-----------
Electric Utility (2.9%):
1,500,000 Puget Sound Power & Light, 6.50%, 9/14/99......... 1,507,500
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 55
<PAGE> 60
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
Financial (5.6%):
600,000 American General Finance, 7.15%, 5/15/97.......... $ 604,878
1,500,000 AT&T Capital Corp, 5.90%, 7/10/98................. 1,492,500
850,000 Transamerica Financial Corp, 7.40%, 7/29/99....... 872,313
-----------
2,969,691
-----------
Industrial Equipment (4.8%):
2,500,000 Caterpillar Financial Services, 6.76%, 3/15/99.... 2,528,125
-----------
Industrial Goods and Services (1.9%):
1,000,000 Hanson Overseas, PLC, 6.75%, 9/15/05.............. 981,250
-----------
Total Corporate Bonds................................................. 18,426,879
-----------
MORTGAGE BACKED SECURITIES (19.7%):
Federal Home Loan Mortgage Corporation (8.6%):
2,500,000 7.00%, 15 Year, TBA (a)........................... 2,504,675
2,000,000 8.00%, 30 Year, TBA (a)........................... 2,041,240
-----------
4,545,915
-----------
Federal National Mortgage Association (5.5%):
788,497 8.50%, 10/1/19.................................... 822,994
1,886,981 10.00%, 7/1/21.................................... 2,070,358
-----------
2,893,352
-----------
Government National Mortgage Association (5.6%):
1,074,011 6.50%, 4/15/24.................................... 1,027,023
2,012,633 6.50%, 5/15/26.................................... 1,924,580
-----------
2,951,603
-----------
Total Mortgage Backed Securities...................................... 10,390,870
-----------
</TABLE>
See notes to financial statements.
56 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 61
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
U.S. GOVERNMENT AGENCIES (7.3%):
Federal Farm Credit Bank (4.7%):
2,500,000 6.44%, 11/5/99 (a)................................ $ 2,500,600
-----------
Tennessee Valley Authority (2.6%):
1,400,000 6.38%, 6/15/05.................................... 1,377,250
-----------
Total U.S. Government Agencies........................................ 3,877,850
-----------
U.S. TREASURY NOTES (30.4%):
3,000,000 6.00%, 8/31/97.................................... 3,011,279
10,000,000 6.00%, 11/30/97................................... 10,042,700
2,000,000 6.00%, 9/30/98.................................... 2,009,500
1,000,000 6.13%, 7/31/00.................................... 1,003,350
-----------
Total U.S. Treasury Notes............................................. 16,066,829
-----------
INVESTMENT COMPANIES (0.1%):
52,368 Pegasus U.S. Government Securities Cash Management
Fund.............................................. 52,368
-----------
Total Investment Companies............................................ 52,368
-----------
TOTAL (COST -- $57,174,351)(b) (109.2%)............................... $57,624,705
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $52,766,729.
(a) Security was purchased on a delayed delivery basis. Total cost of delayed
transactions is $6,978,762 (Note 2).
(b) For federal income tax purposes, cost is $57,181,773 and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $476,238
Unrealized depreciation............................................... (33,306)
--------
Net unrealized appreciation........................................... $442,932
========
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 57
<PAGE> 62
OPPORTUNITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
ASSET BACKED SECURITIES (0.4%):
119,240 General Motors Acceptance Corp, 7.15%, 3/15/00.... $ 120,665
-----------
Total Asset Backed Securities......................................... 120,665
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (5.5%):
1,715,249 General Electric Capital Mortgage Services, 8.30%,
7/25/23.......................................... 1,781,406
-----------
Total Collateralized Mortgage Obligations............................. 1,781,406
-----------
COMMERCIAL PAPER (12.1%):
Industrial (12.1%):
1,300,000 Amoco Corporation, 5.20%, 11/13/96................ 1,297,747
1,300,000 Chevron Oil Finance Company, 5.20%, 11/13/96...... 1,297,747
1,300,000 Emerson Electric Corporation, 5.22%, 11/14/96..... 1,297,550
-----------
Total Commercial Paper................................................ 3,893,044
-----------
CORPORATE BONDS (28.4%):
Auto (1.6%):
500,000 General Motors Acceptance Corporation, 8.63%,
6/15/99.......................................... 528,125
-----------
Banking (6.5%):
400,000 ABN-Amro Bank, Global Bond, 7.25%, 5/31/05........ 409,000
200,000 Citicorp, 6.65%, 5/15/00.......................... 201,250
1,000,000 First USA Bank, 5.75%, 1/15/99.................... 988,750
500,000 Swiss Bank Corporation -- New York, 7.25%,
9/1/06........................................... 512,500
-----------
2,111,500
-----------
Consumer Goods and Services (4.0%):
1,000,000 Walt Disney Co, Global Note, 6.38%, 3/30/01....... 998,750
300,000 Wal-Mart Stores, 5.50%, 3/1/98.................... 298,875
-----------
1,297,625
-----------
Electric Utility (3.2%):
500,000 Union Electric, 6.88%, 8/1/04..................... 505,000
500,000 Virginia Electric Power Co, 7.38%, 7/1/02......... 519,375
-----------
1,024,375
-----------
</TABLE>
See notes to financial statements.
58 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 63
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
CORPORATE BONDS (CONTINUED):
Financial (5.7%):
1,500,000 General Electric Capital Corp, 8.13%, 5/15/12..... $ 1,655,625
190,000 Transamerica Financial Corp, 7.40%, 7/29/99....... 194,988
-----------
1,850,613
-----------
Industrial Goods and Services (7.4%):
1,500,000 Grand Metropolitan Investment, 8.63%, 8/15/01..... 1,629,375
500,000 Hanson Overseas, PLC, 6.75%, 9/15/05.............. 490,625
250,000 Rockwell International, 7.63%, 2/17/98............ 255,313
-----------
2,375,313
-----------
Total Corporate Bonds................................................. 9,187,551
-----------
FOREIGN GOVERNMENT BONDS (2.9%):
1,000,000 British Columbia, 6.50%, 1/15/26.................. 927,500
-----------
Total Foreign Government Bonds........................................ 927,500
-----------
MORTGAGE BACKED SECURITIES (29.3%):
Federal Home Loan Mortgage Corporation (29.3%):
1,237,156 8.50%, 6/1/17..................................... 1,292,432
2,879,636 7.50%, 3/1/26..................................... 2,889,513
1,700,000 7.00%, 15 Year, TBA (a)........................... 1,703,179
1,500,000 7.50%, 30 Year, TBA (a)........................... 1,523,895
2,000,000 8.00%, 30 Year, TBA (a)........................... 2,041,240
-----------
Total Mortgage Backed Securities...................................... 9,450,259
-----------
U.S. GOVERNMENT AGENCIES (11.1%):
Federal Home Loan Mortgage Association (9.3%):
3,000,000 Discount Note, 5.15%, 11/13/96.................... 2,994,850
-----------
Tennessee Valley Authority (1.8%):
600,000 6.38%, 6/15/05.................................... 590,250
-----------
Total U.S. Government Agencies........................................ 3,585,100
-----------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 59
<PAGE> 64
OPPORTUNITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
U.S. TREASURY NOTES (9.2%):
1,500,000 6.00%, 11/30/97................................... $ 1,506,405
500,000 6.38%, 3/31/01.................................... 505,680
1,000,000 5.75%, 8/15/03.................................... 974,080
-----------
Total U.S. Treasury Notes............................................. 2,986,165
-----------
U.S. TREASURY BONDS (7.6%):
500,000 8.13%, 8/15/19.................................... 579,019
2,000,000 6.25%, 8/15/23.................................... 1,877,719
-----------
Total U.S. Treasury Bonds............................................. 2,456,738
-----------
INVESTMENT COMPANIES (0.8%):
268,475 Pegasus U.S. Government Securities Cash Management
Fund............................................. 268,475
-----------
Total Investment Companies............................................ 268,475
-----------
TOTAL (COST -- $34,399,714)(b) (107.3%)............................... $34,656,903
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $32,303,737.
(a) Security was purchased on a delayed delivery basis. Total cost of delayed
transactions is $5,212,599 (Note 2).
(b) For federal income tax purposes, cost is $34,408,227 and net unrealized
appreciation (depreciation) of securities is as follows:
<TABLE>
<S> <C>
Unrealized appreciation............................................... $375,161
Unrealized depreciation............................................... (126,485)
--------
Net unrealized appreciation........................................... $248,676
========
</TABLE>
See notes to financial statements.
60 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 65
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (0.4%):
22,732 Salomon Brothers Mortgage Securities 1994-9 A1,
7.00%, 7/25/24 (a)............................... $ 22,824
------------
Total Collateralized Mortgage Obligations............................. 22,824
------------
CORPORATE BONDS (17.5%):
Auto (1.9%):
100,000 Ford Motor Credit, 8.20%, 2/15/02 (a)............. 107,125
------------
Banking (2.5%):
150,000 Nationsbank Corporation, 5.75%, 1/17/01 (a)....... 145,125
------------
Financial (11.4%):
250,000 AT&T Capital Corp, 7.65%, 1/30/97 (a)............. 251,145
100,000 CIT Group Holdings, 6.63%, 6/15/05 (a)............ 98,500
100,000 Commercial Credit, 5.55%, 2/15/01 (a)............. 96,500
100,000 General Motors Acceptance Corp, 9.13%, 7/15/01
(a)............................................... 109,875
100,000 Lehman Brothers Holdings, Inc, 8.38%, 2/15/99
(a)............................................... 104,125
------------
660,145
------------
Industrial Goods and Services (1.7%):
100,000 Hanson Overseas, PLC, 6.75%, 9/15/05 (a).......... 98,125
------------
Total Corporate Bonds................................................. 1,010,520
------------
MORTGAGE BACKED SECURITIES (14.6%):
Federal Home Loan Mortgage Corporation (14.6%):
327,353 8.50%, 3/1/23 (a)................................. 342,388
383,702 7.50%, 1/1/26 (a)................................. 385,018
117,125 7.50%, 2/1/26 (a)................................. 117,527
------------
Total Mortgage Backed Securities...................................... 844,933
------------
U.S. GOVERNMENT AGENCIES (17.2%):
Federal National Mortgage Association (17.2%):
1,000,000 Discount Note, 5.16%, 11/15/96 (a)................ 997,993
------------
Total U.S. Government Agencies........................................ 997,993
------------
</TABLE>
See notes to financial statements.
ANNUAL REPORT PAYDEN LOGO 61
<PAGE> 66
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<S> <C> <C>
U.S. TREASURY NOTES (42.4%):
320,000 5.50%, 7/31/97 (a)................................ $ 320,176
350,000 5.38%, 11/30/97 (a)............................... 349,307
350,000 5.25%, 12/31/97 (a)............................... 348,723
365,000 5.63%, 1/31/98 (a)................................ 365,029
600,000 5.00%, 2/15/99 (a)................................ 589,662
70,000 6.38%, 7/15/99 (a)................................ 70,882
400,000 7.13%, 2/29/00 (a)................................ 413,704
------------
Total U.S. Treasury Notes............................................. 2,457,483
------------
INVESTMENT COMPANIES (12.0%):
555,925 Pegasus U.S. Government Securities Cash Management
Fund.............................................. 555,925
1,900 Standard & Poors Depositary Receipts (a).......... 134,544
------------
Total Investment Companies............................................ 690,469
------------
TOTAL (COST -- $5,989,224)(b) (104.1%)................................ $6,024,222
============
</TABLE>
- ------------
Percentages indicated are based on net assets of $5,789,202.
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At October 31, 1996, 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>
16 S&P 500 Future Dec 1996... 12/19/96 $5,677,200 $225,775
</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................................................ $36,246
Unrealized depreciation................................................ (1,248)
-------
Net unrealized appreciation............................................ $34,998
=======
</TABLE>
See notes to financial statements.
62 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
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 Opportunity Fund and Payden & Rygel Market Return
Fund (the Equity Market Tracking Fund prior to February 7, 1996) (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 and Opportunity 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 and
Opportunity 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 and International Bond 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. There
can, however, be no assurance that any of the Funds' investment
objectives will be achieved.
ANNUAL REPORT PAYDEN LOGO 63
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
The Funds offer both Class A and Class B shares; however, as of October
31, 1996, there have been no Class B shares issued. Class B shares are
subject to certain fees under a shareholder service plan (the "Plan");
Class A shares do not participate in the Plan. Both classes of shares
have identical rights and privileges except with respect to the
shareholder service fees borne by Class B and voting rights on matters
affecting a single class. The Group is authorized to issue an unlimited
number of shares of each class which are units of beneficial interest
with a par value of $.001 per share.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Funds:
Securities Valuation
Portfolio securities are valued on the basis of quotations obtained
from dealers or from a pricing service with consideration of such
factors as institutional-sized trading in similar groups of securities,
quality, yield, coupon rate, maturity, type of issue, trading
characteristics and other market data. Options, futures, swaps and
other similar assets are valued at the last available bid price in the
case of listed securities or on the basis of information provided by
brokers in the case of other securities. Securities for which market
quotations are not readily available are valued at fair value as
determined in good faith pursuant to guidelines established by the
Board of Trustees. Debt securities with remaining maturities of sixty
days or less are valued on an amortized cost basis unless Payden &
Rygel (the "Adviser") determines that such basis does not represent
fair value.
Investment Transactions and Related Income
Investment transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the
accrual basis. All premiums 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.
Foreign Currency Translation
The accounting records of the Funds are maintained in U.S. dollars. The
Global Short Bond, Global Fixed Income and International Bond Funds may
purchase debt obligations that are payable in a foreign currency. For
these three Funds, investment securities, other assets and liabilities
denominated in a foreign currency are translated
64 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 69
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 exchange rate on the dates of the transactions.
Each of these three 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, including 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 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.
ANNUAL REPORT PAYDEN LOGO 65
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
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 option, 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 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 Fund may invest in stock index futures contracts
which are an agreement pursuant to which two parties agree to take or
make delivery of an amount of cash equal to the difference between the
value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
Variation margin accounting procedures as discussed above apply
66 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 71
to these index futures contracts. This Fund invests in these futures
contracts, combined with a fixed income portfolio, to permit the Fund
to meet its objectives at a lower cost than investing directly in
equity securities, while permitting the equivalent of an investment in
a portfolio of equity securities. The potential risk to the Fund is
that the change in value of the underlying index may not correlate to
the change in value of the contracts.
EQUITY SWAP CONTRACTS
The Market Return Fund may enter into equity swap transactions which
involve an agreement between the Fund and another party to exchange
payments calculated as if they were interest on a fictitious
("notional") principal amount. The Fund will typically pay a floating
rate of interest and receive the total return of a specified equity
index. The Fund usually enters into such transactions on a "net" basis,
with the Fund receiving or paying, as the case may be, only the net
amounts of the two payment streams. The net amount of the excess or
deficiency, if any, of the Fund's obligations over its entitlements
with respect to each swap is accrued on a daily basis and is recorded
as an unrealized gain or loss by the Fund.
The Fund invests in these swap transactions to permit the Fund to meet
its objectives at a lower cost than investing directly in equity
securities, while permitting the equivalent of an investment in a
portfolio of equity securities. The potential risk to the Fund is that
the swap position may correlate imperfectly with the markets or the
asset or liability being hedged.
FORWARD CURRENCY CONTRACTS
The Global Short Bond, Global Fixed Income and International Bond 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
currency relative to the U.S. dollar. These three Funds will 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.
ANNUAL REPORT PAYDEN LOGO 67
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
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 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 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
68 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 73
shown as distributions in excess of net investment income and net
realized gains from investments in the accompanying statements.
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.
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, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Global Short Bond Fund..................... $ 20,002,009 $ 0
Global Fixed Income Fund................... 817,909,345 708,810,602
International Bond Fund.................... 37,287,866 37,717,301
Short Duration Tax Exempt Fund............. 28,270,756 9,919,341
Tax Exempt Bond Fund....................... 20,580,962 11,064,351
U.S. Treasury Fund......................... 0 0
Limited Maturity Fund...................... 19,669,852 3,047,496
Short Bond Fund............................ 39,048,043 7,072,767
Intermediate Bond Fund..................... 6,059,421 5,201,329
Opportunity Fund........................... 19,375,423 12,105,449
Market Return Fund......................... 1,827,622 671,758
</TABLE>
ANNUAL REPORT PAYDEN LOGO 69
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
Purchases and sales of long-term U.S. Government securities for the
period ended October 31, 1996 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Global Short Bond Fund.................... $ 5,093,426 $ 0
Global Fixed Income Fund.................. 355,079,410 324,826,000
International Bond Fund................... 1,426,473 1,763,441
Short Duration Tax Exempt Fund............ 0 0
Tax Exempt Bond Fund...................... 0 0
U.S. Treasury Fund........................ 38,348,065 25,675,243
Limited Maturity Fund..................... 55,558,175 55,049,845
Short Bond Fund........................... 142,080,289 97,233,282
Intermediate Bond Fund.................... 83,162,961 64,812,767
Opportunity Fund.......................... 39,289,439 42,520,837
Market Return Fund........................ 6,452,203 3,001,970
</TABLE>
None of the Funds had activity in written options for the period ended
October 31, 1996.
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 a period not exceeding five years. The
organization costs and the amounts reimbursed as of October 31, 1996
are as follows:
<TABLE>
<CAPTION>
CUMULATIVE AMORTIZED
ORGANIZATION ORGANIZATION
COSTS EXPENSES
------------ ------------
<S> <C> <C>
Global Short Bond Fund...................... $ 1,561 $ 534
Global Fixed Income Fund.................... 90,199 74,987
International Bond Fund..................... 5,322 1,668
Short Duration Tax Exempt Fund.............. 6,170 3,065
Tax Exempt Bond Fund........................ 15,168 8,607
U.S. Treasury Fund.......................... 3,926 1,581
Limited Maturity Fund....................... 4,939 4,059
Market Return Fund.......................... 49,138 7,711
</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.
70 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 75
5. RELATED PARTY TRANSACTIONS
Investment advisory services are provided to the Funds by Payden &
Rygel. Under the terms of the investment advisory agreement, amended on
June 28, 1996 at a special meeting of Shareholders, the Adviser 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, Opportunity and Market Return Funds is .28% on net assets up to
$1 billion, decreasing to .25% on net assets over $1 billion. Prior to
the June 28, 1996 amendment to the investment advisory agreement, the
rate for the Global Fixed Income and International Bond Funds was .37%
on net assets up to $200 million and decreased in increments to .18% on
net assets over $1.5 billion.
Payden & Rygel has agreed to guarantee that, for so long as it acts as
investment adviser to a Fund, the expenses of a Fund attributable to
Class A Shares, including advisory fees (but excluding interest, taxes,
portfolio transaction expenses, blue sky fees, 12b-1 plan fees [if any
such plan is adopted in the future] and extraordinary expenses) will
not exceed 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, 1996 (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).
ANNUAL REPORT PAYDEN LOGO 71
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
VOLUNTARY
EXPENSE EXPENSE
GUARANTEE LIMIT
--------- ---------
<S> <C> <C>
Global Short Bond Fund.......................... 0.70% 0.45%
Global Fixed Income Fund........................ 0.70% 0.70%
International Bond Fund......................... 0.70% 0.70%
Short Duration Tax Exempt Fund.................. 0.60% 0.45%
Tax Exempt Bond Fund............................ 0.60% 0.45%
U.S. Treasury Fund.............................. 0.60% 0.45%
Limited Maturity Fund........................... 0.60% 0.30%
Short Bond Fund................................. 0.60% 0.40%
Intermediate Bond Fund.......................... 0.60% 0.45%
Opportunity Fund................................ 0.60% 0.00%
Market Return Fund.............................. 0.60% 0.00%
</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 cumulative
amount of expenses subsidized for the Funds and will be recognized as
net expense in the statements of operations 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, 1996, will be allocated to all
series of the Group that offer Class B shares on the basis of relative
net assets at the time of the initial sale of Class B shares, and will
be prorated between the classes on the basis of eligible net assets of
each class over a five year period.
Payden & Rygel Distributors, a subsidiary of Payden & Rygel, serves as
the distributor for the Funds and is not entitled to receive any fees
from the Group under the distribution agreement.
Through December 31, 1995, BISYS Fund Services ("BISYS"), a subsidiary
of the BISYS Group, Inc., served as administrator to the Group.
Effective January 1, 1996, Treasury Plus, Inc., a subsidiary of Payden
& Rygel, serves as administrator to the Group. Treasury Plus, Inc. has
served as administrator for the Market Return Fund since December 1,
1995 (commencement of operations). Under the terms of the
72 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 77
administration agreement, Treasury Plus, Inc. receives fees monthly,
computed on the average daily net assets of the Group at an annualized
rate of .06%.
Through November 10, 1995, BISYS served as transfer agent to the Group.
BISYS also served as fund accountant through December 31, 1995.
Effective November 11, 1995, Investors Fiduciary Trust Company ("IFTC")
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. Effective
January 1, 1996 (December 1, 1995 [commencement of operations] for the
Market Return Fund), IFTC also serves as fund accountant. Under the
terms of the fund accounting agreement, IFTC receives fees based on
specified minimum-per-Group amounts, plus certain out-of-pocket
expenses.
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, 1996, 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 Short Bond Fund......... $ 16,684 $ 10,000
U.S. Treasury Fund............. 133,218 104,088
Limited Maturity Fund.......... 211,855 174,537
Short Bond Fund................ 262,480 262,450
Opportunity Fund............... 206,807 47,513
Market Return Fund............. 112,195 0
</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.
ANNUAL REPORT PAYDEN LOGO 73
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
6. FEDERAL INCOME TAXES
At October 31, 1996, 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
CARRYFORWARDS CARRYFORWARDS CARRYFORWARDS
EXPIRING IN 2002 EXPIRING IN 2003 EXPIRING IN 2004
---------------- ---------------- ----------------
<S> <C> <C> <C>
Global Fixed Income
Fund................ $2,622,551 $3,994,157
Short Duration Tax
Exempt Fund......... 43,242
Tax Exempt Bond Fund... 1,090,819 $ 92,036 460,399
U.S. Treasury Fund..... 121,452
Limited Maturity
Fund................ 1,971 61,072
Short Bond Fund........ 341,923
Intermediate Bond
Fund................ 45,492
Opportunity Fund....... 260,406
</TABLE>
7. EXEMPT-INTEREST INCOME DESIGNATION (UNAUDITED)
The Group designates the following exempt-interest income for the
taxable year ended October 31, 1996:
<TABLE>
<CAPTION>
EXEMPT-INTEREST
EXEMPT-INTEREST DIVIDENDS
DIVIDENDS PER SHARE
--------------- ---------------
<S> <C> <C>
Short Duration Tax Exempt Fund....... $ 1,063,018 0.38
Tax Exempt Bond Fund................. 2,352,923 0.45
</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................ $ 12,982
Tax Exempt Bond Fund.......................... 113,725
</TABLE>
74 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 79
The percentage break-down of the exempt-interest income by state for
the Funds' taxable year ended October 31, 1996 was as follows:
<TABLE>
<CAPTION>
SHORT DURATION TAX EXEMPT
TAX EXEMPT FUND BOND FUND
--------------- ----------
<S> <C> <C>
Alabama.............................. 0.1% 0.1%
Alaska............................... 1.8 0.0
Arizona.............................. 3.5 0.0
California........................... 6.2 17.7
Colorado............................. 0.9 0.0
Connecticut.......................... 0.0 1.7
Delaware............................. 0.1 0.0
Florida.............................. 6.7 2.9
Georgia.............................. 4.4 6.0
Hawaii............................... 0.0 1.9
Illinois............................. 6.9 9.1
Indiana.............................. 1.0 1.6
Louisiana............................ 0.1 0.1
Maryland............................. 7.2 3.3
Massachusetts........................ 0.8 5.4
Michigan............................. 0.3 0.0
Minnesota............................ 2.3 0.0
Mississippi.......................... 0.0 2.3
Missouri............................. 3.4 0.0
Nebraska............................. 1.3 0.0
Nevada............................... 4.3 1.6
New Jersey........................... 2.3 0.0
New York............................. 9.8 8.9
North Carolina....................... 0.0 1.4
Ohio................................. 6.9 6.4
Oregon............................... 2.3 0.0
Pennsylvania......................... 0.9 4.6
Puerto Rico.......................... 3.0 4.5
South Carolina....................... 0.2 3.4
Tennessee............................ 5.5 0.6
Texas................................ 4.9 7.7
Utah................................. 2.2 0.0
Virginia............................. 3.8 4.9
Washington........................... 3.3 2.0
</TABLE>
ANNUAL REPORT PAYDEN LOGO 75
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
<TABLE>
<CAPTION>
SHORT DURATION TAX EXEMPT
TAX EXEMPT FUND BOND FUND
--------------- ----------
<S> <C> <C>
Wisconsin............................ 3.2 1.7
Wyoming.............................. 0.4 0.2
----------- --------
TOTAL................................ 100.0 100.0
----------- --------
=========== ========
</TABLE>
76 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 81
(This page intentionally left blank)
ANNUAL REPORT PAYDEN LOGO 77
<PAGE> 82
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
GLOBAL SHORT
BOND FUND GLOBAL FIXED
============ =========================================
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996(A) 1996 1995 1994
============ =========== =========== ===========
<S> <C> <C> <C> <C>
Net asset value -- beginning of period...... $ 10.00 $ 10.32 $ 9.77 $ 10.62
---------- ---------- ---------- ----------
Income (loss) from investment activities:
Net investment income..................... 0.05 0.54 0.89 0.44
Net realized and unrealized gains
(losses)............................... 0.06 0.19 0.53 (0.65)
---------- ---------- ---------- ----------
Total from investment activities..... 0.11 0.73 1.42 (0.21)
---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income................ (0.04) (0.70) (0.87) (0.42)
In excess of net investment income........
From net realized gains................... (0.22)
In excess of net realized gains...........
---------- ---------- ---------- ----------
Total distributions to
shareholders...................... (0.04) (0.70) (0.87) (0.64)
---------- ---------- ---------- ----------
Net asset value -- end of period............ $ 10.07 $ 10.35 $ 10.32 $ 9.77
========== ========== ========== ==========
Total return................................ 1.10%* 7.41% 15.10% -2.09%
========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)........... $ 28,913 $ 651,165 $ 540,041 $ 430,210
Ratio of expenses to average net assets... 0.45%** 0.53% 0.50% 0.55%
Ratio of net investment income to average
net assets............................. 4.86%** 5.67% 8.94% 4.24%
Ratio of expenses to average net assets
prior
to subsidies........................... 2.31%** 0.53% 0.50% 0.55%
Ratio of net investment income to average
net assets prior to subsidies.......... 3.00%** 5.67% 8.94% 4.24%
Portfolio turnover rate................... 0.00%** 175.68% 226.72% 348.12%
- ------------
(a) The Fund commenced operations on September 18, 1996.
(b) The Fund commenced operations on September 1, 1992.
(c) The Fund commenced operations on April 1, 1995.
(d) The Fund commenced operations on September 1, 1994.
* Not annualized
** Annualized
</TABLE>
78 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 83
<TABLE>
<CAPTION>
INCOME FUND INTERNATIONAL BOND FUND SHORT DURATION TAX EXEMPT FUND
============================ ============================ ============================================
YEAR PERIOD YEAR PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1993 1992(B) 1996 1995(C) 1996 1995 1994(D)
=========== ============ =========== ============ =========== =========== ============
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.96 $ 10.00 $ 10.04 $ 10.00 $ 10.08 $ 9.93 $ 10.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.46 0.05 0.03 0.15 0.38 0.42 0.04
0.69 (0.02) 0.42 0.09 (0.06) 0.15 (0.07)
---------- ---------- ---------- ---------- ---------- ---------- ----------
1.15 0.03 0.45 0.24 0.32 0.57 (0.03)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.46) (0.05) (0.03) (0.15) (0.38) (0.42) (0.04)
(0.02)
(0.03) (0.01) (0.04) (0.01)
(0.06) (0.01)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.49) (0.07) (0.10) (0.20) (0.39) (0.42) (0.04)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 10.62 $ 9.96 $ 10.39 $ 10.04 $ 10.01 $ 10.08 $ 9.93
========== ========== ========== ========== ========== ========== ==========
11.88% 0.31%* 4.47% 2.43%* 3.28% 5.88% -0.35%*
========== ========== ========== ========== ========== ========== ==========
$ 296,958 $ 20,097 $18,364 $ 19,194 $36,336 $16,019 $ 20,150
0.70% 0.70%** 0.70% 0.70%** 0.45% 0.45% 0.45%**
4.22% 4.62%** 5.61% 5.24%** 3.81% 4.12% 3.20%**
0.68% 2.29%** 0.98% 1.64%** 0.70% 0.91% 2.87%**
4.24% 3.03%** 5.33% 4.30%** 3.56% 3.66% 0.78%**
252.97% 53.98%** 216.80% 96.62%** 34.72% 79.81% 0.00%**
</TABLE>
ANNUAL REPORT PAYDEN LOGO 79
<PAGE> 84
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
TAX EXEMPT BOND FUND
===========================================
YEAR YEAR PERIOD
ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994(E)
=========== =========== ===========
<S> <C> <C> <C>
Net asset value -- beginning of period............ $ 9.59 $ 8.90 $ 10.00
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income........................... 0.45 0.46 0.33
Net realized and unrealized gains (losses)...... (0.12) 0.69 (1.10)
---------- ---------- ----------
Total from investment activities........... 0.33 1.15 (0.77)
---------- ---------- ----------
Distributions to shareholders:
From net investment income...................... (0.45) (0.46) (0.33)
In excess of net investment income..............
From net realized gains.........................
In excess of net realized gains.................
---------- ---------- ----------
Total distributions to shareholders........ (0.45) (0.46) (0.33)
---------- ---------- ----------
Net asset value -- end of period.................. $ 9.47 $ 9.59 $ 8.90
========== ========== ==========
Total return...................................... 3.52% 13.25% -7.85%*
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)................. $49,862 $40,052 $25,474
Ratio of expenses to average net assets......... 0.45% 0.45% 0.50%**
Ratio of net investment income to average net
assets....................................... 4.73% 4.97% 4.47%**
Ratio of expenses to average net assets prior to
subsidies.................................... 0.61% 0.74% 1.07%**
Ratio of net investment income to average net
assets prior to subsidies.................... 4.57% 4.69% 3.90%**
Portfolio turnover rate......................... 23.04% 41.87% 97.53%**
- ------------
(e) The Fund commenced operations on December 21, 1993.
(f) The Fund commenced operations on January 1, 1995.
(g) The Fund commenced operations on May 1, 1994.
* Not annualized
** Annualized
</TABLE>
80 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 85
<TABLE>
<CAPTION>
U.S. TREASURY FUND LIMITED MATURITY FUND
=========================== ===========================================
YEAR PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995(F) 1996 1995 1994(G)
=========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C>
$ 10.61 $ 10.00 $ 10.06 $ 10.00 $ 10.00
---------- ---------- ---------- ---------- ----------
0.58 0.53 0.53 0.56 0.19
(0.04) 0.61 0.07 (0.01)
---------- ---------- ---------- ---------- ----------
0.54 1.14 0.53 0.63 0.18
---------- ---------- ---------- ---------- ----------
(0.58) (0.53) (0.53) (0.57) (0.18)
(0.03)
---------- ---------- ---------- ---------- ----------
(0.61) (0.53) (0.53) (0.57) (0.18)
---------- ---------- ---------- ---------- ----------
$ 10.54 $ 10.61 $ 10.06 $ 10.06 $ 10.00
========== ========== ========== ========== ==========
5.20% 11.61%* 5.41% 6.43% 1.84%*
========== ========== ========== ========== ==========
$22,114 $10,894 $50,771 $18,414 $14,248
0.45% 0.45%** 0.30% 0.33% 0.41%**
5.59% 6.31%** 5.45% 5.59% 4.74%**
0.78% 1.84%** 0.62% 0.83% 2.92%**
5.26% 4.92%** 5.13% 5.09% 2.23%**
151.83% 87.10%** 216.68% 166.07% 86.35%**
</TABLE>
ANNUAL REPORT PAYDEN LOGO 81
<PAGE> 86
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
SHORT BOND FUND
===========================================
YEAR YEAR PERIOD
ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994(H)
=========== =========== ===========
<S> <C> <C> <C>
Net asset value -- beginning of period........... $ 10.04 $ 9.68 $ 10.00
---------- ---------- ----------
Income (loss) from investment activities:
Net investment income.......................... 0.54 0.54 0.34
Net realized and unrealized gains (losses)..... (0.06) 0.36 (0.32)
---------- ---------- ----------
Total from investment activities.......... 0.48 0.90 0.02
---------- ---------- ----------
Distributions to shareholders:
From net investment income..................... (0.54) (0.54) (0.34)
In excess of net investment income.............
From net realized gains........................ (0.01)
In excess of net realized gains................
---------- ---------- ----------
Total distributions to shareholders....... (0.55) (0.54) (0.34)
---------- ---------- ----------
Net asset value -- end of period................. $ 9.97 $ 10.04 $ 9.68
========== ========== ==========
Total return..................................... 4.86% 9.56% 0.21%*
========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)................ $97,966 $19,157 $ 2,592
Ratio of expenses to average net assets........ 0.40% 0.40% 0.48%**
Ratio of net investment income to average net
assets...................................... 5.67% 5.72% 4.47%**
Ratio of expenses to average net assets prior
to subsidies................................ 0.57% 1.03% 4.56%**
Ratio of net investment income to average net
assets prior to subsidies................... 5.50% 5.09% 0.39%**
Portfolio turnover rate........................ 212.44% 170.27% 186.85%**
- ------------
(h) The Fund commenced operations on January 1, 1994.
(i) The Fund commenced operations on December 1, 1995.
* Not annualized
** Annualized
</TABLE>
82 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 87
<TABLE>
<CAPTION>
MARKET
RETURN
INTERMEDIATE BOND FUND OPPORTUNITY FUND FUND
=========================================== =========================================== ===========
YEAR YEAR PERIOD YEAR YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1996 1995 1994(H) 1996 1995 1994(H) 1996(I)
=========== =========== =========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.85 $ 9.30 $ 10.00 $ 9.96 $ 9.09 $ 10.00 $ 10.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.56 0.57 0.35 0.63 0.57 0.37 0.50
(0.17) 0.55 (0.70) (0.17) 0.87 (0.91) 0.86
---------- ---------- ---------- ---------- ---------- ---------- ----------
0.39 1.12 (0.35) 0.46 1.44 (0.54) 1.36
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.56) (0.57) (0.35) (0.61) (0.57) (0.37) (0.50)
(0.08)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(0.64) (0.57) (0.35) (0.61) (0.57) (0.37) (0.50)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 9.60 $ 9.85 $ 9.30 $ 9.81 $ 9.96 $ 9.09 $ 10.86
========== ========== ========== ========== ========== ========== ==========
4.06% 12.43% -3.52%* 4.86% 16.39% -5.49%* 14.06%*
---------- ---------- ---------- ---------- ---------- ---------- ----------
$52,767 $34,391 $14,312 $32,304 $25,822 $ 3,030 $ 5,789
0.45% 0.45% 0.46%** 0.00% 0.45% 0.49%** 0.00%**
5.90% 6.10% 5.39%** 6.41% 6.20% 5.25%** 5.95%**
0.58% 0.68% 2.03%** 0.64% 1.11% 4.52%** 4.14%**
5.77% 5.87% 3.82%** 5.77% 5.55% 1.22%** 1.81%**
195.63% 189.00% 358.23%** 196.78% 252.09% 513.35%** 146.31%**
</TABLE>
ANNUAL REPORT PAYDEN LOGO 83
<PAGE> 88
INDEPENDENT AUDITOR'S 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 (the
"Funds"), including Global Short Bond Fund, Global Fixed Income Fund,
International Bond Fund, Short Duration Tax Exempt Fund, Tax Exempt Bond Fund,
U.S. Treasury Fund, Limited Maturity Fund, Short Bond Fund, Intermediate Bond
Fund, Opportunity Fund and Market Return Fund, as of October 31, 1996, 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, 1996, 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, 1996, 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 6, 1996
84 PAYDEN LOGO PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 89
PAYDEN & RYGEL INVESTMENT GROUP
333 SOUTH GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071
1-800-5-PAYDEN
IMPORTANT INFORMATION: The information contained in this report is intended for
shareholders of the Payden & Rygel Funds only. It is not authorized for
distribution to prospective investors unless accompanied or preceded by a
current prospectus which provides further details.
The performance numbers presented in this report are derived from historical
market data. There is no guarantee of future performance nor are Fund shares
guaranteed. Investment return and principal value of an investment in a Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. Fund shares are sold through Payden & Rygel
Distributors, member NASD.
<PAGE> 1
PAYDEN & RYGEL INVESTMENT GROUP [Full page graphic with corporate
SEMI-ANNUAL REPORT logo for Payden and Rygel.]
APRIL 30, 1997
<PAGE> 2
CONTENTS
President's Letter
-------------------------
1
Management Discussion
Equity Markets
Bond Markets
-------------------------
8
Portfolio Highlights
-------------------------
16
Statements of Assets
and Liabilities
-------------------------
20
Statements of Operations
-------------------------
24
Statements of Changes
in Net Assets
-------------------------
31
Schedules of Portfolio
Investments
-------------------------
77
Notes to Financial Statements
-------------------------
92
Financial Highlights
-------------------------
<PAGE> 3
Dear Shareholders:
It's been an exciting six-month period for the Payden & Rygel mutual funds. Our
commitment to long-term investment strategies and our conviction that inflation
in the U.S. economy would remain under wraps during 1997 helped boost the
investment performance of our funds.
Going into this year, many market observers and economists questioned whether
inflation would be held in check. A tightening labor market, which increased
pressures on employee wages for the first time in several years, and a robust
economy, which boosted GDP by 5.8%, seemed to confirm the fears of inflation
hawks and contributed to the extremely volatile market sessions that
characterized the first quarter of 1997. The Fed's 0.25% tightening of
short-term interest rates in March and public concern over the sustainability of
U.S. corporate profits also helped roil the markets.
In the second quarter, however, it became apparent that inflation was not as
close to hatching as the markets and the Fed had supposed. Renewed investor
confidence and a wave of unexpectedly higher earnings reports from many of the
biggest U.S. companies drove the Dow Jones Industrial Average to record highs.
Prices in the bond market were also driven higher as investors bet that the Fed
would leave short-term interest rates unchanged at its FMOC meeting in May,
which it did.
Yet, despite the positive economic reports of the second quarter, Payden & Rygel
believes that the Fed's concerns about the labor market and its role in pushing
up consumer prices will continue to dominate market news in 1997. Therefore, we
have decided to stick to a conservative investment style in the coming months.
Indeed, the solid performance of our investment portfolios in general has
stemmed from our fairly conservative approach to the markets. Our high-quality,
domestic fixed-income funds have benefited from a relatively market-neutral
duration vis-a-vis the broad, investment-grade bond market. Short Bond Fund,
Intermediate Bond Fund, and Investment Quality Bond Fund have all turned in
notable performances. Our large-cap domestic equity funds have also done well.
Market Return Fund, which invests in S&P futures contracts and a portfolio of
enhanced cash, has beaten the S&P 500 Index over the trailing twelve months and
year-to-date, a feat that, according to Morningstar, only 3% of all actively
managed U.S. diversified stock funds have been able to accomplish. On the
international front, Global Fixed Income Fund, the third biggest global bond
fund in the mutual fund industry, has continued to post strong numbers. This
year's performance adds to a fine long-term record. For the three-year period
ending April 30, 1997, the Fund earned a 5-star rating by Morningstar (based on
its risk-adjusted performance against 1,193 fixed income funds for that period).
It achieved its strong returns with an average credit weighting of AAA and
without engaging in high risk securities such as emerging markets debt.
<PAGE> 4
As you may know, in mid-to-late 1996, several new funds joined the Payden &
Rygel fund family. Among the new offerings were Growth & Income Fund,
International Equity Fund, Global Balanced Fund, Global Short Bond Fund, and
Total Return Fund.
[PHOTO OF JOAN PAYDEN]
Within the last six months, all of these funds have offered competitive returns.
But, two of the funds, in particular, have stood out. Growth & Income Fund,
launched on November 1, 1996, now has approximately $100 million in assets and
has risen in tandem with the strong-performing big-cap stocks of the Dow and the
S&P 500 Index. The Fund employs the well-known Dow Dogs strategy, which invests
in the ten highest-yielding stocks in the Dow Jones Industrial Average, and
combines it with the S&P 500 Index to provide added diversification to the
portfolio. Global Short Bond Fund has also had a very positive showing
year-to-date relative to other global bond funds. The Fund, which has an average
credit quality of AAA, provides money market and short-bond fund investors with
a way to diversify into foreign bonds with limited interest-rate, credit
quality, and currency risks.
Looking forward, we believe that moderate inflation growth, large-cap equities,
and high-quality global bonds will continue to benefit our shareholders and will
provide us with a very positive outlook for the rest of the year and beyond. We
appreciate your investment in our funds and we hope to produce another
profitable six months for you in 1997.
Best Wishes,
/s/Joan A. Payden
- -----------------
Joan A. Payden
Chairman of the Board
Payden & Rygel Investment Group
Morningstar's proprietary ratings reflect historical risk-adjusted performance,
are subject to change monthly and are calculated from the Fund's three-year
average annual returns in excess of 90-day T-bill returns with appropriate fee
adjustments. Return scores that fall into the top 10% of the Fund's broad
investment category are labeled High; the next 22.5% are considered Above
Average; the middle 35% are Average; the next 22.5% are labeled Below Average;
and the bottom 10% are considered Low.
<PAGE> 5
MANAGEMENT DISCUSSION AND ANALYSIS
EQUITY MARKETS
The U.S. stock market continued its bull market run, with the S&P 500 Index
earning 14.72% for the six months ended April 30, 1997. The Dow Jones Industrial
Average did even better than that, posting a 17.48% return over the same period.
The DJIA index led all other U.S. stock market indices over this time period. As
the semi-annual review comes to a close, the S&P 500 Index and the Dow Jones
Industrial Average are approaching the highs that they reached in the previous
month.
<TABLE>
<CAPTION>
DATE S&P 500 Dow Jones Industrial Average
- ---- ------- ----------------------------
<S> <C> <C>
N '96 703.77 6021.93
11/8/96 730.82 6219.82
11/15/96 737.62 6348.03
11/22/96 748.73 6471.76
D 757.02 6521.7
12/6/96 739.6 6381.94
12/13/96 728.64 6304.87
12/20/96 748.87 6484.4
J '97 756.79 6560.91
1/3/97 748.03 6544.09
1/10/97 759.5 6703.79
1/17/97 776.17 6833.1
F 770.52 6696.48
1/31/97 786.16 6813.09
2/7/97 789.56 6855.8
2/14/97 808.48 6988.96
M 801.77 6931.62
2/28/97 790.82 6877.74
3/7/97 804.97 7000.89
3/14/97 793.17 6935.46
A 784.1 6804.79
3/28/97 773.88 6740.59
4/4/97 757.9 6526.07
4/11/97 737.65 6391.69
M 766.34 6703.55
4/25/97 765.37 6738.87
5/2/97 812.97 7071.2
</TABLE>
The GROWTH & INCOME FUND earned a very respectable 13.69% in its first six
months of operation. The Fund's strategy of investing half of its assets in the
S&P 500 Index and the other half in the 10 highest yielding stocks in the Dow
Jones Industrial Average (popularly known as the Dow Dogs) worked well. The
assets invested in the S&P 500 contributed the bulk of the portfolio return, as
the Dow Dogs lagged the market over this six month period. Among the best
performers in the portfolio were Exxon, which gained 20.5%, and Philip Morris,
which gained 28.9%, despite a slew of well-publicized (and potentially costly)
law suits that have been brought against the company's tobacco unit. AT&T Corp.
was the worst performer in the portfolio and the only stock in the Dow Jones
Industrial Average to post a negative return. Other underachievers were Chevron,
International Paper, and General Motors, which each earned less than half of the
Index return. Management believes that with the benefit of time, the Dow Dogs
strategy will work as successfully as it has for the past 24 years. That is,
these stocks will eventually recover from temporary problems within their
businesses and from undervalued stock prices because they are among some of
America's best managed and most globally diversified corporations.
Despite considerable volatility in the U.S. bond market, which will be addressed
later in the report, the MARKET RETURN FUND posted a strong return of 13.50%.
Management is generally pleased with this result and believes that the Fund's
good strategy of using short-intermediate bonds and S&P 500 stock index futures
will produce very competitive returns.
SEMI-ANNUAL REPORT 1
<PAGE> 6
MANAGEMENT DISCUSSION AND ANALYSIS (Continued)
<TABLE>
<CAPTION>
DATE German DAX UK FTSE 100 Japan Nikkei 225
- ---- ---------- ----------- ----------------
<S> <C> <C> <C>
N '96 2683.25 3948.5 20633.1
11/8/96 2739.83 3910.8 21201
11/15/96 2795.8 3958.2 20929.7
11/22/96 2763.69 4018.7 21216.1
D 2845.52 4058 21020.4
12/6/96 2791.96 3963 20276.7
12/13/96 2799.71 3972.4 20341.4
12/20/96 2854.45 4077.6 19690.5
J '97 2852.88 4091 19369
1/3/97 2859.28 4089.5 19361.3
1/10/97 2933.39 4056.6 17303.7
1/17/97 3001.37 4207.7 18090
F 2998.24 4218.8 17689.4
1/31/97 3035.15 4275.8 18330
2/7/97 3138.01 4307.8 17867
2/14/97 3248.18 4341 18722
M 3184.09 4336.8 19034.5
2/28/97 3259.64 4308.3 18557
3/7/97 3376.2 4420.3 18198.7
3/14/97 3359.29 4424.3 17923.6
A 3298.24 4254.8 18633.2
3/28/97 3429.05 4312.9 18189.7
4/4/97 3244.93 4236.6 17860.6
4/11/97 3340.05 4270.7 17847
M 3344.39 4310.5 18352.1
4/25/97 3374.1 4369.7 18612.9
5/2/97 3460.37 4455.6 19514.8
</TABLE>
The INTERNATIONAL EQUITY FUND performed well in a difficult environment. Since
the Fund's inception on December 9, 1996, through April 30, 1997, the Fund has
posted a return of 2.18%, while the MSCI Europe, Australia and Far East Index
has lost 0.45% over the same period.
Stock selection, particularly in Japan, was the primary reason for the
relatively strong performance of the Fund. An emphasis on import-related stocks,
such as Sony and Toyota Motors, helped boost the portfolio's return. The decline
of the Japanese yen, down 11.1% for the six months ended April 30, 1997, was the
primary reason that these Japanese exporters did so well.
Within Europe, the Fund was overweight in the high-performing German, Dutch, and
Swiss stock markets. The German DAX index gained 20.3% since the Fund's
inception date. As in Japan, export-related companies were the big gainers,
helped by a 10.5% decline in the German mark. Unfortunately, the stock positions
in the Fund were unhedged and its European currency exposure negatively impacted
its return. In the U.K., the stock market gained 11.9% since the Fund's
inception date. The Fund was overweight in the U.K. market, and the British
pound stayed generally stable versus the dollar, so the Fund was able to keep
nearly all of its gains.
<TABLE>
<CAPTION>
DATE Japanese Yen German Mark
- ---- ------------ -----------
<S> <C> <C>
N '96 113.3 1.512
11/8/96 111.74 1.5015
11/15/96 111.05 1.509
11/22/96 111.45 1.5066
D 113.92 1.539
12/6/96 112.95 1.547
12/13/96 113.85 1.557
12/20/96 114.25 1.5515
J '97 115.25 1.553
1/3/97 116.41 1.567
1/10/97 116.13 1.5854
1/17/97 117.36 1.6172
F 118.85 1.6285
1/31/97 121.25 1.637
2/7/97 123.15 1.662
2/14/97 124.25 1.6878
M 122.91 1.6885
2/28/97 120.33 1.69
3/7/97 121.92 1.7135
3/14/97 123.5 1.694
A 122.6 1.6863
3/28/97 123.91 1.6761
4/4/97 124.26 1.685
4/11/97 125.87 1.7204
M 125.8 1.7098
4/25/97 126.43 1.727
5/2/97 126.65 1.7294
</TABLE>
2 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 7
The GLOBAL BALANCED FUND earned 0.22% for the period from its inception on
December 9, 1996 through April 30, 1997. The portfolio was split approximately
50% in bonds and 50% in stocks over this time period. The large weighting in
bonds hurt the portfolio, particularly as half of the bond allocation, or 25% of
the total Fund, was invested in U.S. bonds. The U.S. bond market was among the
worst performing markets over this time period. In addition, the Fund had
significant exposure to European currency, and since 25% of the Fund was
invested in foreign bonds, those bonds did not rise in value enough to offset
the losses in the European currency over that time.
Management is generally satisfied that the Fund is meeting its investment
objective, as the Fund seeks maximum appreciation within a balanced framework
over long periods of time. The portfolio's conservative construction reflects
our worries about the level of stock market valuations worldwide. We believe
they are expensive, and this contributed to the Fund's conservative equity
allocation. Should the equity markets correct significantly, bringing valuations
more in line with what we believe is a reasonable price for stocks, then the
equity allocation of this Fund may be substantially increased.
BOND MARKETS
<TABLE>
<CAPTION>
MUNICIPAL BOND YIELD CURVE TREASURY BOND YIELD CURVE
-------------------------- -------------------------
11/1/96 4/30/97 11/1/96 4/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
1 yr 3.60% 3.85% 5.40% 5.88%
2 yr 3.85% 4.40% 5.73% 6.27%
3 yr 4.05% 4.60% 5.86% 6.39%
5 yr 4.35% 4.80% 6.07% 6.56%
10 yr 4.85% 5.10% 6.34% 6.70%
15 yr 5.25% 5.45% 6.44% 6.75%
20 yr 5.40% 5.60% 6.44% 6.80%
25 yr 5.45% 5.65% 6.54% 6.85%
30 yr 5.50% 5.70% 6.64% 6.95%
</TABLE>
During the six months ended April 30, 1997, bond yields moved modestly higher,
rising approximately 0.25%. This increase in rates was prompted by stronger
economic growth and fears that the Federal Reserve would raise interest rates to
keep inflation under wraps. Yields first began ticking upward in late February,
when it became apparent that the Fed was indeed going to make a preemptive
strike on inflation. It announced a rate hike of 0.25% on March 20.
SEMI-ANNUAL REPORT 3
<PAGE> 8
MANAGEMENT DISCUSSION AND ANALYSIS (Continued)
Tax-Exempt Bonds
The agreement to balance the budget by the year 2002 and the inclusion
of some form of tax cut have the potential to impact the bond market.
However, the tax cuts that are proposed, i.e., a reduction in the
capital gains tax rate, an increase in the child credit and tax relief
for college savings plans, should have little impact on the municipal
bond market. The issue of a flat tax continues to surface on Capital
Hill, as well; however, there is little popular support for it at this
time.
The emphasis in the core of Payden & Rygel's Tax-Exempt Funds continues
to be high quality, non-callable bonds. Management has also targeted
some high quality housing bonds, which have stable price movement and
provide incremental yield over other high quality bonds. The Funds have
been broadly diversified across states and issuer types to limit the
risk undertaken from any one economic area or issuer. Over the past six
months, we have emphasized the two- and three-year maturity area for
the SHORT DURATION TAX EXEMPT FUND, in order to take advantage of the
steep slope of this portion of the yield curve, and the 10-15 year
maturity range in the TAX EXEMPT BOND FUND. The 10-15 year maturity
range produced the greatest return over the past six months and proved
to be a profitable position for the Tax Exempt Fund.
For the six months ended April 30, 1997, the Short Duration Tax Exempt
Fund total return was 1.82%. The Tax Exempt Bond Fund returned 1.74%.
The outlook for the municipal bond market continues to be positive in
our opinion. Tax-exempt bonds provide attractive after-tax total
returns, when compared to other fixed income investments. The credit
quality of municipal issuers has firmed, as states continue to benefit
from the strength of the U.S. economy, and tax revenues remain high. We
weigh the maturity characteristics, structure, credit quality and
appreciation potential of every bond we analyze for purchase in the
Funds. We currently favor the three-year maturity range for the Short
Duration Tax Exempt Fund, and the 10-15 year maturity range for the Tax
Exempt Bond Fund.
Taxable Bonds
The LIMITED MATURITY FUND earned 2.51% for the six months ended April
30, 1997. The Fund recently earned a 4-star rating from Morningstar for
the trailing 3-years (based on its risk-adjusted performance against
1,193 fixed income funds for the period
4 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 9
ended April 30, 1997).* The Fund's stake in corporate and
mortgage-backed bonds contributed significantly to the portfolio's
performance. Higher yielding mortgage securities performed especially
well over this period due to a combination of higher yield, tighter
yield spreads, and decreased prepayment risk.
The SHORT BOND FUND returned 2.23% for the six months ended April 30,
1997. The Short Bond Fund, which primarily invests in securities with
maturities less than 5 years, also carries a 4-star rating from
Morningstar for the trailing 3-years (based on its risk-adjusted
performance against 1,193 fixed income funds for the period ended April
30, 1997).* Management overweighted the corporate bond and
mortgage-backed bond sectors and shortened the Fund's maturity to
protect it from a rising interest rate environment. The combination of
lower average maturities, along with the use of mortgages and
corporates, reduced portfolio volatility and enhanced returns.
The U.S. TREASURY FUND returned 1.50% for the six months ended April
30, 1997. The Fund invests 100% of its assets in U.S. Treasury
securities, concentrated its investments in the two- to seven-year
maturity buckets. Intermediate-term Treasuries offer yield advantages
over shorter-term securities because they are positioned at the
steepest part of the yield curve and can benefit from "rolling" down
the yield curve, thereby increasing significantly in price.
The INTERMEDIATE BOND FUND earned 2.02% for the six months ended April
30, 1997. The Fund invests in Treasuries, corporate bonds, mortgages
and asset-backed securities with maturities generally under 10 years.
The Fund carries a 3-star rating from Morningstar for the trailing
3-years (based on its risk-adjusted performance against 1,193 fixed
income funds for the period ended April 30, 1997).* Despite the rising
interest-rate environment, the inclusion of mortgages, corporates and
asset-backeds helped performance as these higher yield securities
performed well.
The INVESTMENT QUALITY BOND FUND returned 1.50% for the six months
ended April 30, 1997. The Fund invests in intermediate- and long-term
bonds, including Treasuries, corporate bonds, mortgages, and
asset-backed. The Fund carries a 3-star rating from Morningstar for the
trailing 3-years (based on its risk-adjusted performance against 1,193
fixed income funds for the period ended April 30, 1997).*
* Morningstar's proprietary ratings reflect historical risk-adjusted
performance, are subject to change monthly and are calculated from the
Fund's three-year average annual returns in excess of 90-day T-Bill
returns with appropriate fee adjustments. Return scores that fall into
the top 10% of the Fund's broad investment category are labeled High;
the next 22.5% are considered Above Average, the middle 35% are
Average; the next 22.5% are labeled Below Average; and the bottom 10%
are considered Low.
SEMI-ANNUAL REPORT 5
<PAGE> 10
MANAGEMENT DISCUSSION AND ANALYSIS (Continued)
Although the recent rise in interest rates negatively affected returns,
the impact was muted because the Fund's overall maturity profile was
shortened in March. As with our other fixed-income funds, an increased
allocation to non-Treasury securities provided an enhancement to
returns during this period. The tightening of mortgage-backed and
corporate bond yields further boosted portfolio returns, as did our
aggressive use of high quality asset-backed securities.
The TOTAL RETURN FUND returned 0.31% since inception on December 9,
1996, through April 30, 1997. Interest rates rose significantly during
the past several months which negatively impacted bond returns.
However, the Fund's performance was enhanced by the use of mortgages,
corporate bonds and asset-backeds. Each of these sectors has performed
relatively well and has contributed to overall returns. Payden & Rygel
continues to believe that these sectors offer attractive return
opportunities. In addition, 20% of the portfolio is invested in
intermediate-maturity, BB-rated corporate bonds which offer additional
returns because of their below investment-grade ratings. These
securities provide over 1% of additional yield while limiting risk
because of the positive credit conditions of the individual securities.
International Bonds
The geographical investment focus of the three Payden & Rygel GLOBAL
BOND FUNDS is on the major industrialized economies of the world,
(e.g., Germany, Japan, United Kingdom, Canada, France, etc.). Over the
past six months, several major themes have influenced the bond
performance in these regions around the world. European bonds have been
strongly influenced by the viability of European Monetary Union and its
ability to start on January 1, 1999. Japanese bonds have been affected
by the weakness in the Japanese economy and the loose monetary policy
of the Bank of Japan, which has held short term rates at 0.50% for the
past six months. In the U.S. and the U.K., bond investors have been
worried about economies, which appear to be gaining steam, and thus may
be subject to future inflation pressures.
6 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 11
In addition, the U.S. dollar has risen relative to most of the major
currencies in the world because of higher interest rates and a strong
domestic economy. THE INTERNATIONAL BOND FUND took advantage of this
situation by hedging a significant percentage of its foreign currency
exposure. This strategy enabled the Fund to outperform the JP Morgan
International Bond Index by 3.72% over the half year.
Another strategy employed by all three Funds was to sell their exposure
to the Japanese bond market in anticipation of interest rates rising
from historically low levels. The move paid off. Japanese bond yields
rose throughout the month of April, thereby lowering bond prices, which
helped the GLOBAL FIXED INCOME FUND and the International Bond Fund
outperform that segment of their respective indices. Overall, the
Global Fixed Income Fund returned 2.18%, the GLOBAL SHORT BOND FUND
returned 3.25% and the International Bond Fund returned - 3.19% over
the past six months.
SEMI-ANNUAL REPORT 7
<PAGE> 12
--------------------
GROWTH & INCOME FUND
--------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
S&P Depositary
Receipts 51% Other Issues, and Cash 2%
Texaco 3%
AT&T 4%
Dupont 5%
International Paper 5%
General Motors 5%
Minnesota Mining & Manufacturing 5%
Exxon 5% J.P. Morgan 5%
Chevron 5% Philip Morris 5%
</TABLE>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
Net Assets: $81,567,000 Fund Not In
Number of Issues: 13 Operation
- --------------------------------------------------------------------------------
------------------
MARKET RETURN FUND
------------------
Portfolio Composition
<TABLE>
<CAPTION>
<S> <C> <C>
Asset-Backed 9%
Corporate 10% Equity
Exposure
--------
S&P Futures 98%
Mortgage Backed 18% S&P Depositary
S&P Depositary Receipts 2%
Treasury/ Receipts 2%
Agency 57% Cash 4%
</TABLE>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
Net Assets: $10,814,000 $5,789,000
Number of Issues: 24 22
Average Maturity: 0.4 years 2.1 years
SEC Yield: 5.15% 6.03%
- --------------------------------------------------------------------------------
8 Payden & Rygel Investment Group
<PAGE> 13
-------------------------
INTERNATIONAL EQUITY FUND
-------------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C> <C>
Japan 29% Top 5 Countries
---------------
Japan 29%
U.K. 14%
Other 5% Switzerland 9%
Pacific Rim 11% France 8%
Netherlands 7%
U.K. 14%
Continental
Europe 41%
</TABLE>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
Net Assets: $8,800,000 Fund Not In
Number of Issues: 55 Operation
- --------------------------------------------------------------------------------
--------------------
GLOBAL BALANCED FUND
--------------------
<TABLE>
<CAPTION>
Portfolio Composition
Stocks Bonds
53% 47% Top 5 Countries
---------------
<S> <C> <C> <C> <C>
U.S. 19% U.S. 21% U.S. 40%
U.K. 13%
Japan 8%
Europe 21% Germany 6%
Europe 21% Australia 5%
Japan 8% Pacific Rim 5%
Pacific Rim 4%
Other 1%
</TABLE>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
Net Assets: $10,393,000 Fund Not In
Number of Issues: 73 Operation
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT 9
<PAGE> 14
- ------------------------------
SHORT DURATION TAX EXEMPT FUND
- ------------------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
General Obligation Bonds 16%
Insured Bonds 31%
Revenue Bonds 39%
Cash 8%
Pre-refunded Bonds 6%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 48%
AA 16%
A 27%
BBB 9%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $32,420,000 $36,336,000
Number of Issues: 34 35
Average Maturity: 1.8 years 2.1 years
SEC Yield: 3.97% 3.76%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------
TAX EXEMPT BOND FUND
- --------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
General Obligation Bonds 30%
Revenue Bonds 29%
Cash 3%
Pre-refunded Bonds 5%
Insured Bonds 33%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 54%
AA 35%
A 7%
BBB 4%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $48,365,000 $49,862,000
Number of Issues: 42 43
Average Maturity: 9.6 years 9.3 years
SEC Yield: 4.88% 4.75%
- --------------------------------------------------------------------------------
</TABLE>
10 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 15
- ---------------------
LIMITED MATURITY FUND
- ---------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Treasury/Agency 15%
Commercial Paper 39%
Mortgage Backed 17%
Cash 1%
Asset Backed 6%
Corporate 22%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 75%
AA 12%
A 13%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $113,775,000 $50,771,000
Number of Issues: 36 27
Average Maturity: 0.4 years 0.7 years
SEC Yield: 5.58% 5.63%
</TABLE>
- ---------------
SHORT BOND FUND
- ---------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Mortgage Backed 20%
Corporate 41%
Asset Backed 9%
Commercial Paper 12%
Cash 4%
Treasury/Agency 14%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 59%
AA 15%
A 26%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $109,504,000 $97,966,000
Number of Issues: 40 34
Average Maturity: 1.3 years 1.9 years
SEC Yield: 6.12% 5.80%
- --------------------------------------------------------------------------------
</TABLE>
SEMI-ANNUAL REPORT 11
<PAGE> 16
- ------------------
U.S. TREASURY FUND
- ------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Treasury/Agency 100%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 100%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $21,524,000 $22,114,000
Number of Issues: 8 13
Average Maturity: 2.5 years 4.7 years
SEC Yield: 6.14% 5.85%
- --------------------------------------------------------------------------------
</TABLE>
- ----------------------
INTERMEDIATE BOND FUND
- ----------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Treasury/Agency 33%
Commercial Paper 4%
Mortgage Backed 20%
Asset Backed 13%
Corporate 30%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 70%
AA 9%
A 13%
BBB 8%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $35,968,000 $52,767,000
Number of Issues: 24 31
Average Maturity: 3.8 years 3.1 years
SEC Yield: 6.33% 5.74%
- --------------------------------------------------------------------------------
</TABLE>
12 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 17
- -----------------------
INVESTMENT QUALITY FUND
- -----------------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Treasury/Agency 22%
Asset Backed 8%
Mortgage Backed 35%
Cash 1%
Corporate 34%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 82%
AA 6%
A 7%
BBB 5%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $48,141,000 $32,304,000
Number of Issues: 37 32
Average Maturity: 6.5 years 8.8 years
SEC Yield: 6.30% 6.63%
- --------------------------------------------------------------------------------
</TABLE>
- -----------------
TOTAL RETURN FUND
- -----------------
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Mortgage Backed 34%
Treasury/Agency 10%
Cash 1%
Non-U.S.$ 10%
Asset Backed 20%
Corporate 25%
</TABLE>
<TABLE>
<CAPTION>
Credit
Quality
-------
<S> <C>
AAA 77%
BBB 3%
BB 17%
B 3%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $12,583,000 Fund
Number of Issues: 37 Not In
Average Maturity: 6.4 years Operation
SEC Yield: 6.26%
- --------------------------------------------------------------------------------
</TABLE>
SEMI-ANNUAL REPORT 13
<PAGE> 18
- -----------------------
INTERNATIONAL BOND FUND
- -----------------------
<TABLE>
<CAPTION>
Maturity Composition
<S> <C>
Italy 4.4
Spain 5.1
Germany 7.2
U.K. 4.3
Denmark 7.6
Netherlands 7.8
Sweden 6.4
Australia 5.4
</TABLE>
<TABLE>
<CAPTION>
Country Allocation
------------------
<S> <C>
U.K. 27%
Germany 21%
Sweden 11%
Denmark 10%
Spain 4%
Italy 4%
Australia 21%
Netherlands 2%
</TABLE>
<TABLE>
<CAPTION>
Currency Composition
<S> <C>
U.S. 41%
Germany 20%
Spain 4%
U.K. 11%
Japan 12%
Canada 12%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $22,432,000 $18,364,000
Number of Issues: 24 23
Average Maturity: 5.5 years 6.6 years
SEC Yield: 6.01% 5.31%
- --------------------------------------------------------------------------------
</TABLE>
14 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 19
- ------------------------
GLOBAL FIXED INCOME FUND
- ------------------------
<TABLE>
<CAPTION>
Maturity Composition
<S> <C>
Spain 5.1
U.S. 3.4
U.K. 7.6
Sweden 4.7
Germany 7.0
Australia 8.5
</TABLE>
<TABLE>
<CAPTION>
Country Allocation
------------------
<S> <C>
U.S. 51%
U.K. 15%
Germany 9%
Sweden 10%
Australia 10%
Spain 5%
</TABLE>
CURRENCY 100%
HEDGED INTO
U.S. $
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $597,510,000 $651,165,000
Number of Issues: 17 21
Average Maturity: 5.2 years 5.7 years
SEC Yield: 6.22% 5.40%
- --------------------------------------------------------------------------------
</TABLE>
- ----------------------
GLOBAL SHORT BOND FUND
- ----------------------
<TABLE>
<CAPTION>
Maturity Composition
<S> <C>
U.S. 1.2
Sweden 2.2
Australia 3.5
Germany 2.5
U.K. 2.1
</TABLE>
<TABLE>
<CAPTION>
Country Allocation
<S> <C>
U.S. 21%
U.K. 10%
Germany 24%
Sweden 15%
Spain 10%
Australia 20%
</TABLE>
CURRENCY 100%
HEDGED INTO
U.S. $
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
April 30, 1997 October 31, 1996
-------------- ----------------
<S> <C> <C>
Net Assets: $153,877,000 $28,913,000
Number of Issues: 15 13
Average Maturity: 2.3 years 2.4 years
SEC Yield: 5.15% 5.12%
- --------------------------------------------------------------------------------
</TABLE>
SEMI-ANNUAL REPORT 15
<PAGE> 20
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
GLOBAL GLOBAL INTERNATIONAL SHORT DURATION TAX EXEMPT
SHORT BOND FIXED INCOME BOND TAX EXEMPT BOND
FUND FUND FUND FUND FUND
============ ============ ============ ============ ============
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at value*.............. $147,884,722 $580,988,569 $ 21,784,381 $ 31,969,812 $ 47,725,256
Interest receivable................. 4,087,116 14,431,478 603,288 474,051 716,197
Dividends receivable................
Open forward currency contracts..... 1,906,900 2,457,364 37,038
Closed forward currency contracts... 14,504 43,513 7,991
Receivable for investments sold.....
Receivable for open futures
contracts.........................
Receivable for fund shares sold.....
Unamortized organization costs (Note
4)................................ 1,254 6,185 2,674 1,643 3,897
Deferred expense subsidy (Note 5)... 86,141 126,135 216,184 302,598
Other assets........................
------------ ------------ ----------- ----------- -----------
Total Assets.................... 153,980,637 597,927,109 22,561,507 32,661,690 48,747,948
------------ ------------ ----------- ----------- -----------
LIABILITIES:
Open forward currency contracts.....
Closed forward currency contracts...
Payable for investments purchased...
Payable for open futures
contracts......................... 13,406
Payable for fund shares redeemed.... 9,993 20,000 60,000
Payable to Payden & Rygel (Note
5)................................
Accrued expenses:
Investment advisory fees.......... 60,453 235,735 93,685 172,953 247,056
Administration fees............... 7,433 29,198 15,001 24,290 40,066
Other expenses.................... 34,661 140,212 21,093 24,218 20,948
Other liabilities................... 717 2,128 63 1,833
------------ ------------ ----------- ----------- -----------
Total Liabilities............... 103,264 417,266 129,842 241,461 383,309
------------ ------------ ----------- ----------- -----------
NET ASSETS...................... $153,877,373 $597,509,843 $ 22,431,665 $ 32,420,229 $ 48,364,639
============ ============ =========== =========== ===========
NET ASSETS:
Paid in capital..................... $153,697,373 $603,499,937 $ 23,022,341 $ 32,448,385 $ 49,610,327
Undistributed net investment
income............................ (567,895) (5,791,720) 366,749 7,246 12,700
Accumulated net realized gains
(losses) from:
Investments....................... (1,580,812) (11,994,986) (298,382) 85,706 (1,282,527)
Foreign currency transactions..... 3,790,489 21,383,195 21,597
Futures contracts................. 170,675 (108,515) (303,315)
Options contracts................. (863,801)
Net unrealized appreciation
(depreciation) from:
Investments....................... (3,264,903) (10,844,384) (700,851) (12,593) 322,485
Translation of assets and
liabilities in foreign
currencies...................... 1,803,121 1,950,927 20,211
Open futures contracts............ 4,969
Open options contracts written....
------------ ------------ ----------- ----------- -----------
NET ASSETS...................... $153,877,373 $597,509,843 $ 22,431,665 $ 32,420,229 $ 48,364,639
============ ============ =========== =========== ===========
Outstanding shares of beneficial
interest.......................... 15,230,124 58,920,948 2,268,493 3,242,863 5,139,012
============ ============ =========== =========== ===========
NET ASSET VALUE -- offering and
redemption price per share........ $ 10.10 $ 10.14 $ 9.89 $ 10.00 $ 9.41
============ ============ =========== =========== ===========
- ------------
*Investments, at cost............... $151,149,625 $591,832,953 $ 22,485,232 $ 31,982,405 $ 47,402,771
<CAPTION>
TREASURY
FUND
============
<S> <C>
ASSETS:
Investments, at value*.............. $ 21,285,362
Interest receivable................. 240,061
Dividends receivable................
Open forward currency contracts.....
Closed forward currency contracts...
Receivable for investments sold.....
Receivable for open futures
contracts.........................
Receivable for fund shares sold.....
Unamortized organization costs (Note
4)................................ 1,584
Deferred expense subsidy (Note 5)... 157,850
Other assets........................
-----------
Total Assets.................... 21,684,857
-----------
LIABILITIES:
Open forward currency contracts.....
Closed forward currency contracts...
Payable for investments purchased...
Payable for open futures
contracts.........................
Payable for fund shares redeemed....
Payable to Payden & Rygel (Note
5)................................ 21,921
Accrued expenses:
Investment advisory fees.......... 99,998
Administration fees............... 17,221
Other expenses.................... 22,077
Other liabilities...................
-----------
Total Liabilities............... 161,217
-----------
NET ASSETS...................... $ 21,523,640
===========
NET ASSETS:
Paid in capital..................... $ 21,758,768
Undistributed net investment
income............................ 6,472
Accumulated net realized gains
(losses) from:
Investments....................... (185,818)
Foreign currency transactions.....
Futures contracts.................
Options contracts.................
Net unrealized appreciation
(depreciation) from:
Investments....................... (55,782)
Translation of assets and
liabilities in foreign
currencies......................
Open futures contracts............
Open options contracts written....
-----------
NET ASSETS...................... $ 21,523,640
===========
Outstanding shares of beneficial
interest.......................... 2,069,453
===========
NET ASSET VALUE -- offering and
redemption price per share........ $ 10.40
===========
- ------------
*Investments, at cost............... $ 21,341,144
</TABLE>
See notes to financial statements.
16 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 21
<TABLE>
<CAPTION>
LIMITED SHORT INTERMEDIATE INVESTMENT TOTAL GLOBAL INTERNATIONAL
MATURITY BOND BOND QUALITY BOND RETURN BALANCED EQUITY
FUND FUND FUND FUND FUND FUND FUND
=========== =========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C>
$121,474,418 $108,079,793 $38,164,089 $59,004,044 $14,808,428 $10,264,044 $8,665,222
534,483 1,245,035 393,880 473,081 114,080 114,367 31
21,545 40,084
13,229
588
2,011,081 5,764,852 290,514 92,405
21,266 4,500
67,500 180,000 200 5,000
2,657 3,385 3,144
346,605 283,139 216,524 348,021 32,512 37,695 35,452
887
----------- ----------- ----------- ----------- ----------- ----------- ----------
122,423,006 109,787,967 40,785,574 65,590,198 15,283,573 10,446,124 8,841,338
----------- ----------- ----------- ----------- ----------- ----------- ----------
10,427
4,533
4,601,097 17,100,108 2,659,880
8,298,311
122,487 13,973 13,584 11,718
265,195 199,208 165,139 173,477 8,939 11,391 8,572
44,492 42,688 30,234 28,409 1,916 1,904 1,722
39,954 42,506 21,058 24,976 11,205 15,413 17,916
874 1,132
----------- ----------- ----------- ----------- ----------- ----------- ----------
8,647,952 284,402 4,817,528 17,449,457 2,700,446 53,593 41,060
----------- ----------- ----------- ----------- ----------- ----------- ----------
$113,775,054 $109,503,565 $35,968,046 $48,140,741 $12,583,127 $10,392,531 $8,800,278
=========== =========== =========== =========== =========== =========== ==========
$113,851,181 $109,971,895 $35,852,687 $48,844,577 $12,649,162 $10,388,041 $8,634,896
29,628 28,482 9,489 16,376 41,854 109,663 33,472
(120,732) (334,178) 233,706 (666,185) (60,748) (130,810) (23,999)
6,364 (60,897) (72,262)
165,973 (49,612)
14,977 (162,634) (127,836) (220,000) (20,464) 32,778 231,714
12,727 (12,562) (3,543)
3,844 49,950
16,368
----------- ----------- ----------- ----------- ----------- ----------- ----------
$113,775,054 $109,503,565 $35,968,046 $48,140,741 $12,583,127 $10,392,531 $8,800,278
=========== =========== =========== =========== =========== =========== ==========
11,334,193 11,065,278 3,789,871 4,983,342 1,274,484 1,038,321 861,759
=========== =========== =========== =========== =========== =========== ==========
$ 10.04 $ 9.90 $ 9.49 $ 9.66 $ 9.87 $ 10.01 $ 10.21
=========== =========== =========== =========== =========== =========== ==========
$121,459,441 $108,242,427 $38,291,925 $59,224,044 $14,828,892 $10,231,266 $8,433,508
<CAPTION>
INCOME RETURN
FUND FUND
========== ==========
<S> <C> <C>
$83,339,088 $10,729,100
115 38,644
24,281
8,075
39,000
226,869
10,102 33,697
26,374 147,700
----------- -----------
83,626,829 10,996,216
----------- -----------
1,990,234
30,295
135,841
28,585 18,060
3,410 3,870
6,912 24,641
----------- -----------
2,059,436 182,412
----------- -----------
$81,567,393 $10,813,804
=========== ===========
$79,080,648 $10,031,016
(19,910) 3,012
(405) (345,609)
1,107,960
2,507,060 11,600
5,825
----------- -----------
$81,567,393 $10,813,804
=========== ===========
7,224,929 937,363
=========== ===========
$ 11.29 $ 11.54
=========== ===========
$80,832,028 $10,717,500
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 17
<PAGE> 22
STATEMENTS OF OPERATIONS
Period ended April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHORT
GLOBAL GLOBAL INTERNATIONAL DURATION TAX-EXEMPT U.S.
SHORT BOND FIXED INCOME BOND TAX EXEMPT BOND TREASURY
FUND FUND FUND FUND FUND FUND
=========== =========== =========== =========== =========== ===========
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income.................. $ 1,968,494 $19,317,161 $ 623,737 $686,862 $1,254,299 $788,201
Dividend income..................
---------- ----------- ---------- --------- ---------- ----------
Investment Revenues............ 1,968,494 19,317,161 623,737 686,862 1,254,299 788,201
---------- ----------- ---------- --------- ---------- ----------
EXPENSES:
Investment advisory fees (Note
5)............................. 108,425 925,302 28,639 51,279 77,154 37,135
Administration fees (Note 5)..... 21,685 185,060 5,728 9,615 14,466 7,958
Custodian fees................... 11,285 92,012 9,118 4,063 4,465 4,000
Accounting fees (Note 5)......... 11,845 114,443 6,229 8,611 11,551 7,613
Legal fees....................... 1,129 15,500 449 820 1,253 628
Audit fees....................... 8,809 20,071 11,943 8,184 8,322 8,007
Insurance........................ 2,332 28,534 835 1,440 2,195 1,182
Organization expenses (Note 4)... 259 9,027 980 1,462 2,664 761
Trustees' fees and expenses...... 2,712 35,641 1,036 1,835 2,728 1,294
Transfer agent fees (Note 5)..... 5,011 29,123 4,635 5,982 6,648 6,045
Registration and filing fees..... 22,196 21,983 3,226 7,989 7,399 6,091
Printing costs................... 740 16,341 480 739 1,215 611
Other expenses................... 1,905 20,816 1,147 3,571 4,984 1,867
Waived advisory fee (Note 5).....
Expense subsidy (Note 5)......... (35,683) (7,618) (33,474) (36,540) (23,506)
---------- ----------- ---------- --------- ---------- ----------
Net Expenses................... 162,650 1,513,853 66,827 72,116 108,504 59,686
---------- ----------- ---------- --------- ---------- ----------
Net Investment Income........ 1,805,844 17,803,308 556,910 614,746 1,145,795 728,515
---------- ----------- ---------- --------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES):
Net realized gains (losses) from:
Investments.................... (1,580,812) (146,253) (67,698) 20,431 34,457 (51,586)
Foreign currency
transactions................. 3,790,489 21,383,195 21,597
Futures contracts.............. (145,483)
Options contracts.............. (863,801)
Change in net unrealized
appreciation (depreciation)
from:
Investments.................... (3,724,875) (29,289,677) (1,235,988) (65,144) (354,997) (291,633)
Translation of assets and
liabilities in foreign
currencies................... 2,160,759 4,815,651 108,179
Futures contracts.............. 173,407
Open options contracts
written......................
---------- ----------- ---------- --------- ---------- ----------
Net realized and unrealized
gains (losses)............. 645,561 (4,100,885) (1,173,910) (44,713) (292,616) (343,219)
---------- ----------- ---------- --------- ---------- ----------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS................ $ 2,451,405 $13,702,423 $ (617,000) $570,033 $ 853,179 $385,296
========== =========== ========== ========= ========== ==========
- ------------
(a) The Fund commenced operations on December 9, 1996.
(b) The Fund commenced operations on November 1, 1996.
</TABLE>
See notes to financial statements.
18 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 23
<TABLE>
<CAPTION>
INVESTMENT
LIMITED SHORT INTERMEDIATE QUALITY TOTAL GLOBAL INTERNATIONAL
MATURITY BOND BOND BOND RETURN BALANCED EQUITY
FUND FUND FUND FUND FUND (A) FUND (A) FUND (A)
========== ========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C>
$2,294,291 $3,429,906 $1,056,395 $1,408,278 $ 210,067 $ 111,129 $ 14,819
28,709 50,067
---------- ---------- ---------- ---------- --------- --------- ---------
2,294,291 3,429,906 1,056,395 1,408,278 210,067 139,838 64,886
---------- ---------- ---------- ---------- --------- --------- ---------
110,787 154,929 45,788 62,052 8,939 15,865 17,222
23,740 33,199 9,812 13,297 1,916 1,904 1,722
4,905 5,526 4,070 4,429 4,661 8,758 8,924
15,581 22,960 9,610 10,965 3,575 3,506 3,513
1,681 2,725 914 1,351 161 154 155
8,335 8,691 8,050 8,648 7,793 9,419 9,420
3,338 5,132 1,704 1,996 288 264 267
880 598 678 655
4,052 6,473 2,062 2,443 339 337 342
7,684 8,055 6,658 5,905 4,521 4,519 4,519
18,522 19,532 8,855 13,963 12,839 12,507 12,546
1,579 2,305 893 1,070 124 115 115
3,540 6,216 3,417 3,537 1,126 1,882 1,886
(85,908) (54,399) (28,241) (29,921) (32,512) (37,695) (35,452)
---------- ---------- ---------- ---------- --------- --------- ---------
118,716 221,344 73,592 99,735 14,368 22,213 25,834
---------- ---------- ---------- ---------- --------- --------- ---------
2,175,575 3,208,562 982,803 1,308,543 195,699 117,625 39,052
---------- ---------- ---------- ---------- --------- --------- ---------
(57,689) 22,365 285,107 (231,303) (60,748) (130,810) (23,999)
6,364 (60,897) (72,262)
(49,612)
(99,247) (782,412) (578,190) (477,189) (20,464) 32,778 231,714
12,727 (12,562) (3,543)
3,844 49,950
16,368
---------- ---------- ---------- ---------- --------- --------- ---------
(156,936) (760,047) (293,083) (708,492) (107,889) (105,173) 131,910
---------- ---------- ---------- ---------- --------- --------- ---------
$2,018,639 $2,448,515 $ 689,720 $ 600,051 $ 87,810 $ 12,452 $170,962
========== ========== ========== ========== ========= ========= =========
<CAPTION>
GROWTH & MARKET
INCOME RETURN
FUND (B) FUND
========== ==========
<S> <C> <C>
$ 49,492 $215,519
287,369
---------- ----------
336,861 215,519
---------- ----------
75,606 10,029
9,073 2,149
3,829 3,666
6,324 4,141
592 158
8,948 7,683
871 241
1,345 7,730
1,022 375
6,883 5,418
20,898 318
465 1,727
2,421 902
(30,242)
(26,374) (28,418)
---------- ----------
81,661 16,119
---------- ----------
255,200 199,400
---------- ----------
(405) (7,166)
995,291
2,507,060 (23,398)
(219,950)
---------- ----------
2,506,655 744,777
---------- ----------
$2,761,855 $944,177
========== ==========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 19
<PAGE> 24
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GLOBAL SHORT BOND FUND
==============================
SIX MONTHS
ENDED PERIOD ENDED
APRIL 30, 1997 OCTOBER 31,
(UNAUDITED) 1996 (C)
============= ============
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................................................. $ 1,805,844 $ 130,720
Net realized gains (losses)........................................... 2,209,677 (8)
Change in net unrealized appreciation (depreciation).................. (1,564,116) 102,334
-------------- -----------
Change in net assets resulting from operations...................... 2,451,405 233,046
-------------- -----------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................................. (2,399,452) (104,999)
Net realized gains from investments...................................
In excess of net realized gains from investments......................
-------------- -----------
Change in net assets from distributions to shareholders............. (2,399,452) (104,999)
-------------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold........................................ 124,787,001 28,680,369
Reinvestment of distributions......................................... 2,232,171 104,999
Cost of fund shares redeemed.......................................... (2,107,167)
-------------- -----------
Change in net assets from capital transactions...................... 124,912,005 28,785,368
-------------- -----------
Total Change in Net Assets....................................... 124,963,958 28,913,415
NET ASSETS:
Beginning of period................................................... 28,913,415 0
-------------- -----------
End of period......................................................... $153,877,373 $28,913,415
============== ===========
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period............................. 2,871,151 0
-------------- -----------
Shares sold........................................................... 12,345,206 2,860,724
Shares issued in reinvestment of distributions........................ 220,802 10,427
Shares redeemed....................................................... (207,035) 0
-------------- -----------
Change in shares outstanding.......................................... 12,358,973 2,871,151
-------------- -----------
Outstanding shares at end of period................................... 15,230,124 2,871,151
============== ===========
</TABLE>
- ------------
(a) The Fund commenced operations on December 9, 1996.
(b) The Fund commenced operations on November 1, 1996.
(c) The Fund commenced operations on September 18, 1996.
(d) The Fund commenced operations on December 1, 1995.
See notes to financial statements.
20 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 25
<TABLE>
<CAPTION>
SHORT DURATION
GLOBAL FIXED INCOME FUND INTERNATIONAL BOND FUND TAX EXEMPT FUND
=================================== =================================== ===================================
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
APRIL 30, 1997 YEAR ENDED APRIL 30, 1997 YEAR ENDED APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996 (UNAUDITED) OCTOBER 31, 1996 (UNAUDITED) OCTOBER 31, 1996
================ ================ ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
$ 17,803,308 $ 36,295,168 $ 556,910 $ 1,048,759 $ 614,746 $ 1,063,571
20,373,141 476,129 (46,101) (956,437) 20,431 (43,242)
(24,474,026) 7,532,019 (1,127,809) 614,017 (65,144) (83,247)
--------------- --------------- -------------- -------------- --------------- --------------
13,702,423 44,303,316 (617,000) 706,339 570,033 937,082
--------------- --------------- -------------- -------------- --------------- --------------
(26,263,574) (44,142,948) (184,316) (51,924) (609,725) (1,063,018)
(126,510) (23,827) (32,675)
(110,019)
--------------- --------------- -------------- -------------- --------------- --------------
(26,263,574) (44,142,948) (310,826) (185,770) (609,725) (1,095,693)
--------------- --------------- -------------- -------------- --------------- --------------
79,368,229 230,552,397 4,986,878 4,234,969 9,651,839 28,660,093
23,076,972 40,665,055 289,719 180,026 470,791 826,992
(143,538,785) (160,254,143) (281,510) (5,765,447) (13,998,338) (9,011,463)
--------------- --------------- -------------- -------------- --------------- --------------
(41,093,584) 110,963,309 4,995,087 (1,350,452) (3,875,708) 20,475,622
--------------- --------------- -------------- -------------- --------------- --------------
(53,654,735) 111,123,677 4,067,261 (829,883) (3,915,400) 20,317,011
651,164,578 540,040,901 18,364,404 19,194,287 36,335,629 16,018,618
--------------- --------------- -------------- -------------- --------------- --------------
$ 597,509,843 $ 651,164,578 $ 22,431,665 $ 18,364,404 $ 32,420,229 $ 36,335,629
=============== =============== ============== ============== =============== ==============
62,918,935 52,327,237 1,766,919 1,912,673 3,630,620 1,589,820
--------------- --------------- -------------- -------------- --------------- --------------
7,744,694 22,249,887 500,834 421,938 965,018 2,854,221
2,249,818 4,006,005 27,887 17,707 47,000 82,428
(13,992,499) (15,664,194) (27,147) (585,399) (1,399,775) (895,849)
--------------- --------------- -------------- -------------- --------------- --------------
(3,997,987) 10,591,698 501,574 (145,754) (387,757) 2,040,800
--------------- --------------- -------------- -------------- --------------- --------------
58,920,948 62,918,935 2,268,493 1,766,919 3,242,863 3,630,620
=============== =============== ============== ============== =============== ==============
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 21
<PAGE> 26
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
TAX EXEMPT BOND FUND
====================================
SIX MONTHS
ENDED
APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996
================ ================
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income............................................ $ 1,145,795 $ 2,353,994
Net realized gains (losses)...................................... (111,026) (167,524)
Change in net unrealized appreciation (depreciation)............. (181,590) (707,043)
-------------- --------------
Change in net assets resulting from operations................. 853,179 1,479,427
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income............................................ (1,139,330) (2,352,923)
Net realized gains from investments..............................
In excess of net realized gains from investments.................
-------------- --------------
Change in net assets from distributions to shareholders........ (1,139,330) (2,352,923)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold................................... 5,283,261 19,067,316
Reinvestment of distributions.................................... 940,975 1,985,629
Cost of fund shares redeemed..................................... (7,435,549) (10,369,014)
-------------- --------------
Change in net assets from capital transactions................. (1,211,313) 10,683,931
-------------- --------------
Total Change in Net Assets.................................. (1,497,464) 9,810,435
NET ASSETS:
Beginning of period.............................................. 49,862,103 40,051,668
-------------- --------------
End of period.................................................... $ 48,364,639 $ 49,862,103
============== ==============
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of period........................ 5,266,366 4,177,567
-------------- --------------
Shares sold...................................................... 556,508 1,986,272
Shares issued in reinvestment of distributions................... 99,137 208,658
Shares redeemed.................................................. (782,999) (1,106,131)
-------------- --------------
Change in shares outstanding..................................... (127,354) 1,088,799
-------------- --------------
Outstanding shares at end of period.............................. 5,139,012 5,266,366
============== ==============
</TABLE>
- ------------
(a) The Fund commenced operations on December 9, 1996.
(b) The Fund commenced operations on November 1, 1996.
(c) The Fund commenced operations on September 18, 1996.
(d) The Fund commenced operations on December 1, 1995.
See notes to financial statements.
22 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 27
<TABLE>
<CAPTION>
U.S. TREASURY FUND LIMITED MATURITY FUND SHORT BOND FUND
=================================== =================================== ===================================
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
APRIL 30, 1997 YEAR ENDED APRIL 30, 1997 YEAR ENDED APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996 (UNAUDITED) OCTOBER 31, 1996 (UNAUDITED) OCTOBER 31, 1996
================ ================ ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
$ 728,515 $ 992,553 $ 2,175,575 $ 2,049,447 $ 3,208,562 $ 3,057,159
(51,586) (130,766) (57,689) (60,491) 22,365 (353,688)
(291,633) (94,523) (99,247) 53,290 (782,412) 439,764
--------------- --------------- --------------- --------------- --------------- ---------------
385,296 767,264 2,018,639 2,042,246 2,448,515 3,143,235
--------------- --------------- --------------- --------------- --------------- ---------------
(729,339) (988,707) (2,158,775) (2,041,488) (3,202,577) (3,039,378)
(37,939) (16,883)
--------------- --------------- --------------- --------------- --------------- ---------------
(729,339) (1,026,646) (2,158,775) (2,041,488) (3,202,577) (3,056,261)
--------------- --------------- --------------- --------------- --------------- ---------------
11,285,075 21,850,747 119,464,960 111,950,760 46,580,699 95,063,381
378,269 821,001 2,158,459 2,027,495 4,143,522 2,857,489
(11,909,303) (11,192,992) (58,479,036) (81,622,509) (38,432,836) (19,198,388)
--------------- --------------- --------------- --------------- --------------- ---------------
(245,959) 11,478,756 63,144,383 32,355,746 12,291,385 78,722,482
--------------- --------------- --------------- --------------- --------------- ---------------
(590,002) 11,219,374 63,004,247 32,356,504 11,537,323 78,809,456
22,113,642 10,894,268 50,770,807 18,414,303 97,966,242 19,156,786
--------------- --------------- --------------- --------------- --------------- ---------------
$ 21,523,640 $ 22,113,642 $113,775,054 $ 50,770,807 $109,503,565 $ 97,966,242
=============== =============== =============== =============== =============== ===============
2,098,931 1,026,380 5,047,881 1,830,050 9,829,447 1,907,327
--------------- --------------- --------------- --------------- --------------- ---------------
1,066,679 2,071,280 11,882,862 11,140,482 4,814,349 9,562,749
36,100 78,390 214,919 201,954 287,125 287,635
(1,132,257) (1,077,119) (5,811,469) (8,124,605) (3,865,643) (1,928,264)
--------------- --------------- --------------- --------------- --------------- ---------------
(29,478) 1,072,551 6,286,312 3,217,831 1,235,831 7,922,120
--------------- --------------- --------------- --------------- --------------- ---------------
2,069,453 2,098,931 11,334,193 5,047,881 11,065,278 9,829,447
=============== =============== =============== =============== =============== ===============
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 23
<PAGE> 28
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
INTERMEDIATE INVESTMENT QUALITY
BOND FUND BOND FUND
================================== ==================================
SIX MONTHS SIX MONTHS
ENDED ENDED
APRIL 30, 1997 YEAR ENDED APRIL 30, 1997 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1996 (UNAUDITED) OCTOBER 31, 1996
================ ================ ================ ================
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................... $ 982,803 $ 2,345,073 $ 1,308,543 $ 1,904,675
Net realized gains (losses)............. 285,107 (52,914) (231,303) (268,919)
Change in net unrealized appreciation
(depreciation)........................ (578,190) (479,438) (477,189) (342,583)
--------------- -------------- --------------- --------------
Change in net assets resulting from
operations......................... 689,720 1,812,721 600,051 1,293,173
--------------- -------------- --------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................... (985,273) (2,340,379) (1,359,349) (1,843,583)
Net realized gains from investments..... (255,413) (13,424)
In excess of net realized gains from
investments...........................
--------------- -------------- --------------- --------------
Change in net assets from distributions
to shareholders....................... (985,273) (2,595,792) (1,359,349) (1,857,007)
--------------- -------------- --------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from fund shares sold.......... 11,839,850 32,977,552 27,658,426 25,161,170
Reinvestment of distributions........... 664,823 1,610,996 1,167,398 1,728,421
Cost of fund shares redeemed............ (29,007,803) (15,429,671) (12,229,522) (19,843,931)
--------------- -------------- --------------- --------------
Change in net assets from capital
transactions....................... (16,503,130) 19,158,877 16,596,302 7,045,660
--------------- -------------- --------------- --------------
Total Change in Net Assets......... (16,798,683) 18,375,806 15,837,004 6,481,826
NET ASSETS:
Beginning of period..................... 52,766,729 34,390,923 32,303,737 25,821,911
--------------- -------------- --------------- --------------
End of period........................... $ 35,968,046 $ 52,766,729 $ 48,140,741 $ 32,303,737
=============== ============== =============== ==============
FUND SHARES OF BENEFICIAL INTEREST:
Outstanding shares at beginning of
period................................ 5,497,972 3,490,147 3,294,124 2,591,405
--------------- -------------- --------------- --------------
Shares sold............................. 1,240,873 3,433,330 2,830,738 2,556,961
Shares issued in reinvestment of
distributions......................... 69,722 166,498 120,255 177,262
Shares redeemed......................... (3,018,696) (1,592,003) (1,261,775) (2,031,504)
--------------- -------------- --------------- --------------
Change in shares outstanding............ (1,708,101) 2,007,825 1,689,218 702,719
--------------- -------------- --------------- --------------
Outstanding shares at end of period..... 3,789,871 5,497,972 4,983,342 3,294,124
=============== ============== =============== ==============
</TABLE>
- ------------
(a) The Fund commenced operations on December 9, 1996.
(b) The Fund commenced operations on November 1, 1996.
(c) The Fund commenced operations on September 18, 1996.
(d) The Fund commenced operations on December 1, 1995.
See notes to financial statements.
24 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 29
<TABLE>
<CAPTION>
TOTAL RETURN GLOBAL BALANCED INTERNATIONAL GROWTH & INCOME
FUND FUND EQUITY FUND FUND MARKET RETURN FUND
================ ================= ================ ================ ===================================
PERIOD PERIOD PERIOD SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED ENDED PERIOD ENDED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 OCTOBER 31,
(UNAUDITED) (A) (UNAUDITED) (A) (UNAUDITED) (A) (UNAUDITED) (B) (UNAUDITED) 1996 (D)
================ ================= ================ ================ ================ ================
<S> <C> <C> <C> <C> <C> <C>
$ 195,699 $ 117,625 $ 39,052 $ 255,200 $ 199,400 $ 171,576
(103,996) (191,707) (96,261) (405) 988,125 16,524
(3,893) 86,534 228,171 2,507,060 (243,348) 260,773
-------------- --------------- -------------- -------------- -------------- --------------
87,810 12,452 170,962 2,761,855 944,177 448,873
-------------- --------------- -------------- -------------- -------------- --------------
(153,845) (7,962) (5,580) (275,110) (197,925) (170,039)
(242,298)
-------------- --------------- -------------- -------------- -------------- --------------
(153,845) (7,962) (5,580) (275,110) (440,223) (170,039)
-------------- --------------- -------------- -------------- -------------- --------------
12,556,101 10,404,285 8,645,968 82,033,186 4,806,831 5,468,086
112,710 5,546 3,938 257,719 391,805 141,367
(19,649) (21,790) (15,010) (3,210,257) (677,988) (99,085)
-------------- --------------- -------------- -------------- -------------- --------------
12,649,162 10,388,041 8,634,896 79,080,648 4,520,648 5,510,368
-------------- --------------- -------------- -------------- -------------- --------------
12,583,127 10,392,531 8,800,278 81,567,393 5,024,602 5,789,202
0 0 0 0 5,789,202 0
-------------- --------------- -------------- -------------- -------------- --------------
$ 12,583,127 $10,392,531 $8,800,278 $ 81,567,393 $ 10,813,804 $5,789,202
============== =============== ============== ============== ============== ==============
0 0 0 0 532,943 0
-------------- --------------- -------------- -------------- -------------- --------------
1,265,082 1,039,982 862,835 7,498,965 429,240 528,431
11,407 554 393 23,444 34,790 13,760
(2,005) (2,215) (1,469) (297,480) (59,610) (9,248)
-------------- --------------- -------------- -------------- -------------- --------------
1,274,484 1,038,321 861,759 7,224,929 404,420 532,943
-------------- --------------- -------------- -------------- -------------- --------------
1,274,484 1,038,321 861,759 7,224,929 937,363 532,943
============== =============== ============== ============== ============== ==============
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 25
<PAGE> 30
GLOBAL SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (18.9%)
Government Bonds (18.9%)
4,950,000 Queensland Treasury Note, 8.00%, 7/14/99........ $ 3,978,553
8,550,000 Treasury Corporation of Victoria, 10.25%,
9/15/99......................................... 7,201,418
4,200,000 Government Bond, 13.00%, 7/15/00................ 3,853,912
7,400,000 Australian Treasury Corporation, 12.00%,
8/1/01.......................................... 6,775,769
9,100,000 New South Wales Treasury Note, 8.00%, 12/1/01... 7,292,775
--------------
Total Australia (Cost -- $29,080,702)............................... 29,102,427
--------------
GERMANY (GERMAN MARK) (23.0%)
Government Bonds (19.8%)
49,500,000 6.75%, 09/15/99................................. 30,508,607
U.S. Government Agencies (2.5%)
6,370,000 Federal National Mortgage Association, 6.00%,
8/23/00......................................... 3,867,553
Supranational Bonds (0.7%)
1,850,000 IBRD, 7.25%, 10/13/99........................... 1,149,518
--------------
Total Germany (Cost -- $36,972,840)................................. 35,525,678
--------------
GREAT BRITAIN (BRITISH POUND) (9.8%)
Government Bonds (4.6%)
4,000,000 Exchequer, 12.25%, 3/26/99...................... 7,103,208
Supranational Bonds (3.5%)
3,395,000 Abbey National Treasury, 6.00%, 8/10/99......... 5,366,380
Finance (1.7%)
840,000 KFW International Finance, 7.88%, 7/6/98........ 1,374,639
700,000 European Investment Bank, 8.75%, 12/7/00........ 1,185,731
--------------
2,560,370
--------------
Total Great Britain (Cost -- $14,998,367)........................... 15,029,958
--------------
SPAIN (SPANISH PESETA) (9.6%)
Government Bonds (9.6%)
1,850,000,000 12.25%, 3/25/00................................. 14,848,384
--------------
Total Spain (Cost -- $15,150,142)................................... 14,848,384
--------------
</TABLE>
See notes to financial statements.
26 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 31
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
SWEDEN (SWEDISH KRONA) (13.7%)
Government Bonds (13.7%)
103,300,000 11.00%, 1/21/99................................. $ 14,445,692
46,300,000 10.25%, 5/5/00.................................. 6,655,363
--------------
Total Sweden (Cost -- $22,653,371).................................. 21,101,055
--------------
UNITED STATES (UNITED STATES DOLLAR) (21.1%)
U.S. Treasury Notes (20.6%)
12,650,000 5.13%, 3/31/98.................................. 12,566,257
4,700,000 6.13%, 5/15/98.................................. 4,706,533
2,300,000 5.88%, 8/15/98.................................. 2,293,675
6,200,000 5.88%, 10/31/98................................. 6,175,014
5,900,000 5.50%, 11/15/98................................. 5,843,360
--------------
Total U.S. Treasury Notes........................................... 31,584,839
--------------
Investment Companies (0.5%)
692,381 Dreyfus Treasury Cash Management................ 692,381
--------------
Total Investment Companies.......................................... 692,381
--------------
Total United States (Cost -- $32,294,203)........................... 32,277,220
--------------
TOTAL (COST -- $151,149,625) (A) (96.1%)............................ $ 147,884,722
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $153,877,373.
(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............................................. $ 169,251
Unrealized depreciation............................................. (3,434,154)
-----------
Net unrealized depreciation......................................... $(3,264,903)
===========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 27
<PAGE> 32
GLOBAL SHORT BOND FUND
FORWARD CURRENCY CONTRACTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ------------------------------------------- -------------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)................... 0.787150 $ (18,679,912) $ 211,687 06/24/97
Australian Dollar (sell)................... 0.786300 (10,896,616) 111,584 06/24/97
German Mark (sell)......................... 1.695780 (22,322,723) 380,694 06/13/97
German Mark (sell)......................... 1.660500 (14,553,256) 562,673 06/13/97
Spanish Peseta (sell)...................... 145.507000 (14,377,115) 55,181 05/21/97
British Pound (sell)....................... 1.646300 (6,318,624) 101,946 05/12/97
Swedish Krona (sell)....................... 7.764180 (3,187,190) 71,498 06/17/97
Swedish Krona (sell)....................... 7.648600 (18,165,439) 465,421 06/27/97
------------- -------------
$(108,500,875) $1,960,684
============= =============
LIABILITIES:
British Pound (sell)....................... 1.610200 $ (8,748,864) $ (53,784) 05/12/97
------------- -------------
$ (8,748,864) $ (53,784)
============= =============
</TABLE>
See notes to financial statements.
28 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 33
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (10.0%)
Government Bonds (10.0%)
32,430,000 9.50%, 5/15/03.................................. $ 27,808,996
35,725,000 10.00%, 10/15/07................................ 32,172,631
--------------
Total Australia (Cost -- $59,443,204)............................... 59,981,627
--------------
GERMANY (GERMAN MARK) (9.0%)
Government Bonds (9.0%)
20,000,000 Treuhandanstalt, 6.25%, 3/4/04.................. 12,136,091
66,600,000 Treuhandanstalt, 6.75%, 5/13/04................. 41,436,495
--------------
Total Germany (Cost -- $59,582,347)................................. 53,572,586
--------------
GREAT BRITAIN (BRITISH POUND) (14.6%)
Government Bonds (14.6%)
17,100,000 UK Gilt, 10.00%, 2/26/01........................ 30,331,541
34,900,000 UK Gilt, 7.25%, 12/7/06......................... 56,862,470
--------------
Total Great Britain (Cost -- $88,761,896)........................... 87,194,011
--------------
SPAIN (SPANISH PESETA) (4.6%)
Government Bonds (4.6%)
3,425,000,000 10.30%, 6/15/02................................. 27,679,515
--------------
Total Spain (Cost -- $28,371,416)................................... 27,679,515
--------------
SWEDEN (SWEDISH KRONA) (9.1%)
Government Bonds (9.1%)
82,700,000 11.00%, 1/21/99................................. 11,564,944
137,400,000 10.25%, 5/5/00.................................. 19,750,472
192,700,000 6.00%, 2/9/05................................... 23,158,305
--------------
Total Sweden (Cost -- $59,681,441).................................. 54,473,721
--------------
UNITED STATES (UNITED STATES DOLLAR) (49.9%)
U.S. Treasury Notes (49.1%)
20,000,000 5.13%, 3/31/98.................................. 19,867,600
125,200,000 5.88%, 2/15/00.................................. 123,467,232
19,000,000 5.88%, 6/30/00.................................. 18,694,860
32,000,000 6.25%, 8/31/00.................................. 31,797,440
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 29
<PAGE> 34
GLOBAL FIXED INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<S> <C> <C>
22,000,000 7.88%, 8/15/01.................................. $ 23,082,180
41,200,000 7.50%, 5/15/02.................................. 42,847,176
35,000,000 5.75%, 8/15/03.................................. 33,428,150
--------------
Total U.S. Treasury Notes........................................... 293,184,638
--------------
UNITED STATES (CONTINUED)
Investment Companies (0.8%)
4,902,471 Dreyfus Treasury Cash Management................ 4,902,471
--------------
Total Investment Companies.......................................... 4,902,471
--------------
Total United States (Cost -- $295,992,649).......................... 298,087,109
--------------
TOTAL (COST -- $591,832,953) (A) (97.2%)............................ $ 580,988,569
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $597,509,843.
(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............................................ $ 3,061,774
Unrealized depreciation............................................ (13,906,158)
------------
Net unrealized depreciation........................................ $(10,844,384)
============
</TABLE>
See notes to financial statements.
30 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 35
GLOBAL FIXED INCOME FUND
FORWARD CURRENCY CONTRACTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ---------------------------------------------- ---------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)...................... 0.787150 $ (59,153,056) $ 670,344 06/24/97
German Mark (sell)............................ 1.695780 (56,241,665) 959,151 06/13/97
Spanish Peseta (sell)......................... 145.507000 (28,754,230) 110,361..... 05/21/97
Swedish Krona (sell).......................... 7.671800 (36,333,967) 815,073 06/17/97
Swedish Krona (sell).......................... 7.648600 (17,961,476) 460,195 06/27/97
----------- ---------
$(198,444,394) $3,015,124
=========== =========
LIABILITIES:
British Pound (sell).......................... 1.610200 $ (90,728,960) $ (557,760) 05/12/97
----------- ---------
$ (90,728,960) $ (557,760)
=========== =========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 31
<PAGE> 36
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (20.2%)
Government Bonds (20.2%)
1,250,000 Queensland Treasury Corp., 8.00%, 8/14/01....... $ 1,003,708
1,200,000 New South Wales Treasury Note, 8.00%, 12/1/01... 961,685
950,000 So. Australian Govt Financial Auth., 10.00%,
1/15/03........................................ 823,838
1,000,000 Government Bond, 9.50%, 5/15/03................. 857,508
1,100,000 Western Australia Treasury Corp, 8.00%,
7/15/03........................................ 873,636
--------------
Total Australia (Cost -- $4,504,331)................................ 4,520,375
--------------
DENMARK (DANISH KRONE) (8.6%)
Government Bonds (8.6%)
12,200,000 7.00%, 12/15/04................................. 1,934,169
--------------
Total Denmark (Cost -- $2,099,547).................................. 1,934,169
--------------
GERMANY (GERMAN MARK) (18.9%)
Government Bonds (13.5%)
2,575,000 Treuhandanstalt, 6.75%, 5/13/04................. 1,602,087
1,200,000 Austria, 6.00%, 2/1/06.......................... 704,945
1,250,000 Gemeinsame Bundeslaender, 6.25%, 8/21/06........ 741,754
--------------
3,048,786
--------------
U.S. Government Agencies (2.4%)
870,000 Federal National Mortgage Assn., 6.00%,
8/23/00........................................ 528,221
--------------
Finance (3.0%)
1,125,000 KFW International Finance, 6.25%, 10/15/03...... 681,160
--------------
Total Germany (Cost -- $4,655,805).................................. 4,258,167
--------------
GREAT BRITAIN (BRITISH POUND) (24.1%)
Government Bonds (13.0%)
525,000 UK Gilt, 10.00%, 2/26/01........................ 931,232
1,100,000 UK Gilt, 9.75%, 8/27/02......................... 1,977,918
--------------
2,909,150
--------------
</TABLE>
See notes to financial statements.
32 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 37
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
GREAT BRITAIN (CONTINUED)
Finance (11.1%)
500,000 Abbey National Treasury, 6.00%, 8/10/99......... $ 790,336
475,000 General Electric Capital Corporation, 8.00%,
12/29/00....................................... 788,499
600,000 Federal Home Loan Bank-Global, 6.88%, 6/7/02.... 955,022
--------------
2,533,857
--------------
Total Great Britain (Cost -- $5,341,828)............................ 5,443,007
--------------
ITALY (ITALIAN LIRA) (3.6%)
Government Bonds (3.6%)
580,000,000 9.50%, 4/15/99.................................. 355,406
700,000,000 BTPS, 9.00%, 10/1/03............................ 440,719
--------------
Total Italy (Cost -- $840,986)...................................... 796,125
--------------
NETHERLANDS (DUTCH GUILDER) (2.3%)
Government Bonds (2.3%)
875,000 7.75%, 3/1/05................................... 513,221
--------------
Total Netherlands (Cost -- $577,480)................................ 513,221
--------------
SPAIN (SPANISH PESETA) (3.8%)
Government Bonds (3.8%)
105,000,000 10.30%, 6/15/02................................. 848,569
--------------
Total Spain (Cost -- $869,781)...................................... 848,569
--------------
SWEDEN (SWEDISH KRONA) (9.4%)
Government Bonds (9.4%)
12,600,000 6.00%, 2/9/05................................... 1,514,243
4,000,000 10.25%, 5/5/00.................................. 574,977
--------------
Total Sweden (Cost -- $2,213,886)................................... 2,089,220
--------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 33
<PAGE> 38
INTERNATIONAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
UNITED STATES (UNITED STATES DOLLAR) (6.2%)
U.S. Treasury Notes (2.2%)
250,000 5.50%, 11/15/98................................. $ 247,600
250,000 5.88%, 2/15/00.................................. 246,540
--------------
494,140
--------------
Investment Companies (4.0%)
887,388 Dreyfus Treasury Cash Management................ 887,388
--------------
Total Investment Companies.......................................... 887,388
--------------
Total United States (Cost -- $1,381,588)............................ 1,381,528
--------------
TOTAL (COST -- $22,485,232)(A) (97.1%).............................. $21,784,381
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $22,431,665.
(a) 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............................................... $ 136,305
Unrealized depreciation............................................... (837,156)
---------
Net unrealized depreciation........................................... $(700,851)
=========
</TABLE>
See notes to financial statements.
34 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 39
INTERNATIONAL BOND FUND
FORWARD CURRENCY CONTRACTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- --------------------------------------------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)..................... 0.787200 $ (4,436,479) $ 50,276 06/24/97
German Mark (sell)........................... 1.695780 (811,736) 13,844 06/13/97
Danish Krone (sell).......................... 6.339000 (1,517,357) 60,179 05/12/97
Danish Krone (sell).......................... 6.490000 (485,554) 7,512 05/12/97
Italian Lira (sell).......................... 1,702.900 (877,798) 3,052 05/21/97
Dutch Guilder (sell)......................... 1.909000 (518,430) 5,404 06/13/97
Swedish Krona (sell)......................... 7.671800 (1,529,851) 34,319 06/17/97
Swedish Krona (sell)......................... 7.648600 (522,655) 13,391 06/27/97
------------- ------------
$(10,699,860) $ 187,977
============= ============
LIABILITIES:
British Pound (sell)......................... 1.610200 $ (1,012,600) $ (6,225) 05/12/97
British Pound (sell)......................... 1.597000 (405,040) (5,790) 05/12/97
British Pound (sell)......................... 1.590000 (1,775,911) (26,911) 06/16/97
Canadian Dollar (buy)........................ 1.387750 (2,719,037) (19,209) 05/07/97
German Mark (buy)............................ 1.683920 869,716 (21,062) 06/13/97
Japanese Yen (buy)........................... 122.410000 2,664,963 (71,742) 05/20/97
------------- ------------
$ (2,377,909) $ (150,939)
============= ============
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 35
<PAGE> 40
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
GENERAL OBLIGATIONS (30.5%)
Limited (12.6%)
1,000,000 Lewisville, Texas Independent School District,
6.25%,
8/15/02.......................................... $ 1,066,250
2,000,000 Massachusetts State, 4.75%, 9/1/98................ 2,020,000
1,000,000 Virginia State, 5.50%, 12/1/98.................... 1,021,090
-----------
4,107,340
-----------
Unlimited (17.9%)
1,000,000 Illinois State, 6.38%, 8/1/00..................... 1,047,500
2,000,000 Milwaukee County, Wisconsin, 5.13%, 12/1/97....... 2,014,800
700,000 Minnesota State, 6.80%, 8/1/00, Pre-refunded
8/1/98........................................... 722,750
1,000,000 New York City Series G, 5.60%, 2/1/02............. 1,018,750
1,000,000 Washington Suburban Sanitation District, MD,
5.00%,
6/1/97........................................... 1,000,900
-----------
5,804,700
-----------
Total General Obligations............................................. 9,912,040
-----------
REVENUE (59.7%)
Airport (6.2%)
1,000,000 Denver CO City & County Airport, 4.80%,
11/15/00......................................... 1,000,000
1,000,000 Washoe County, NV, Airport Authority, 5.25%,
7/1/00........................................... 1,007,500
-----------
2,007,500
-----------
Corrections (3.3%)
1,000,000 OH State Bldg Authority, 7.35%, 8/1/04,
Pre-refunded 8/1/99.............................. 1,080,000
-----------
Education (3.1%)
1,000,000 VA State Public School Authority Series C, 5.00%,
8/1/98........................................... 1,012,500
-----------
</TABLE>
See notes to financial statements.
36 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 41
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
Electric (12.9%)
700,000 Georgia Municipal Electric Authority, 4.50%,
1/1/98........................................... $ 702,653
1,000,000 Intermountain Power Agency Utah Power Supply,
8.63%, 7/1/21, Pre-refunded 7/1/97............... 1,027,160
1,000,000 Platte River Power Authority, 5.00%, 6/01/99...... 1,011,250
500,000 San Antonio Electric & Gas, 6.00%, 2/1/98......... 507,355
900,000 Tacoma, Washington Electric System, 4.90%,
1/1/98........................................... 905,724
-----------
4,154,142
-----------
Health (4.6%)
500,000 Michigan State Hospital Finance Auth., 4.10%,
10/15/97......................................... 500,195
1,000,000 Missouri State Health & Educ. Facilities, 4.25%,
12/1/99.......................................... 996,250
-----------
1,496,445
-----------
Housing (3.4%)
450,000 Alaska State Housing Finance Corporation, 4.35%,
12/1/98.......................................... 451,688
655,000 Maryland State Community Development, 4.45%,
4/1/99........................................... 655,000
-----------
1,106,688
-----------
Lease (1.4%)
450,000 Phoenix, AZ Civic Plaza Building Corporate, 4.70%,
7/1/98........................................... 453,938
-----------
Medical (3.2%)
1,000,000 New York State Dormitory, 6.00%, 2/15/03.......... 1,036,250
-----------
Sales Tax (6.2%)
2,000,000 Municipal Assistance Corp. for City of NY, 4.00%,
7/1/97........................................... 2,000,140
-----------
Sewer (4.5%)
1,000,000 Portland, Oregon Sewer, 7.00%, 6/1/97............. 1,002,180
435,000 Portland, Oregon Sewer, 6.50%, 6/1/00............. 459,469
-----------
1,461,649
-----------
Transportation (5.3%)
1,000,000 Delaware Transportation Auth., 5.80%, 7/1/99...... 1,027,500
675,000 New Jersey State Turnpike Auth., 6.00%, 1/1/98.... 683,168
-----------
1,710,668
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 37
<PAGE> 42
SHORT DURATION TAX EXEMPT FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
Water (5.6%)
755,000 Ohio State Water Development Auth., 4.95%,
12/1/98.......................................... $ 763,494
1,000,000 Orlando, Florida Utilities Commission, 5.70%,
10/1/04.......................................... 1,043,750
-----------
1,807,244
-----------
Total Revenue......................................................... 19,327,164
-----------
VARIABLE RATE DEMAND NOTES (6.8%)
900,000 Brazos River Auth. Texas Pollution Control, 5.10%
(a),
6/1/31........................................... 900,000
900,000 Guadalupe-Blanco River Authority Texas Pollution
Control Central Power & Light Project, 5.05% (a),
11/1/16.......................................... 900,000
400,000 Lincoln County Wyoming Pollution Control Exxon
Project Series B, 4.15% (a), 7/1/18.............. 400,000
-----------
Total Variable Rate Demand Notes...................................... 2,200,000
-----------
INVESTMENT COMPANIES (1.6%)
530,608 Dreyfus Tax Exempt Cash Management Fund........... 530,608
-----------
Total Investment Companies............................................ 530,608
-----------
TOTAL (COST -- $31,982,405) (B) (98.6%)............................... $31,969,812
===========
</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 $32,420,229.
(a) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at April 30, 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................................................ $ 65,631
Unrealized depreciation................................................ (78,224)
--------
Net unrealized depreciation............................................ $(12,593)
========
</TABLE>
See notes to financial statements.
38 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 43
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
GENERAL OBLIGATIONS (34.2%)
Limited (7.6%)
700,000 Clark County Nevada School District, 5.88%,
6/15/13.......................................... $ 708,750
1,100,000 Dallas, Texas, 5.90%, 2/15/03..................... 1,159,125
765,000 Du Page County, Illinois, Stormwater, 5.60%,
1/1/21........................................... 743,963
1,000,000 Port of Seattle, Washington, 5.25%, 5/1/03........ 1,010,000
-----------
3,621,838
-----------
Unlimited (26.6%)
1,500,000 Charleston County, South Carolina, 5.75%,
6/1/08........................................... 1,569,375
1,200,000 Chicago Metropolitan Water Reclamation Dist.,
6.30%, 12/1/09 (a)............................... 1,284,000
1,000,000 Fort Worth, TX, Independent School Dist., 0.00%,
2/15/06.......................................... 631,250
1,000,000 Honolulu, Hawaii, City & County, 5.00%, 10/1/02... 1,003,750
1,000,000 Mississippi State, 5.80%, 6/1/09.................. 1,031,250
1,250,000 Montgomery County, Maryland, 6.88%, 10/1/99....... 1,321,875
1,000,000 New York, New York, 6.20%, 8/1/07................. 1,027,500
1,000,000 Pennsylvania State, 5.20%, 6/15/04................ 1,010,000
1,000,000 Texas Public Finance Authority, 5.38%, 10/1/03.... 1,026,250
1,000,000 Texas State, 5.00%, 8/1/21........................ 895,000
1,000,000 Virginia State, 6.10%, 6/1/06..................... 1,071,250
1,000,000 Washington State, 5.25%, 9/1/05................... 1,012,500
-----------
12,884,000
-----------
Total General Obligations............................................. 16,505,838
-----------
REVENUE (58.0%)
Airport (10.4%)
2,800,000 Los Angeles, California Harbor Dept., 5.00%,
8/1/01........................................... 2,824,500
1,200,000 Los Angeles, CA, City Dept of Airports, 5.50%,
5/15/07.......................................... 1,213,500
1,010,000 San Francisco, CA, City & County Airports
Commission
International Airport, 5.00%, 5/1/07............. 992,325
-----------
5,030,325
-----------
Education (9.5%)
1,000,000 Avon, IN Community School Bldg Corp, 5.25%,
1/1/22........................................... 925,000
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 39
<PAGE> 44
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
REVENUE (CONTINUED):
1,250,000 New York State Dorm Authority, 6.13%, 7/1/07...... $ 1,337,500
1,100,000 PA State, Higher Ed. Facilities Auth., 5.85%,
9/1/13........................................... 1,116,500
1,160,000 University of Texas Permanent University Fund,
5.90%, 7/1/02.................................... 1,212,200
-----------
4,591,200
-----------
Electric (6.0%)
300,000 City of Knoxville, Tennessee Gas System, 4.85%,
3/1/06........................................... 292,125
2,000,000 Georgia Municipal Electric Authority, 5.55%,
1/1/07 (a)....................................... 2,050,000
575,000 IN Municipal Power Agency Power Supply, 5.13%,
1/1/01........................................... 581,469
-----------
2,923,594
-----------
Highway (2.0%)
900,000 Arapahoe County, CO, Capital Improvement, 6.90%,
8/31/15.......................................... 955,125
-----------
Housing (6.8%)
500,000 California Housing Finance Authority, 5.20%,
8/1/26........................................... 499,375
1,000,000 Idaho Housing and Finance Association, 5.20%,
7/1/27........................................... 993,750
3,000,000 Perris, California Single Family, 0.00%, 6/1/23... 607,800
1,000,000 VA State Housing Development Authority, 6.30%,
7/1/11........................................... 1,026,250
170,000 WI Housing & Economic Development, 5.30%,
11/1/05.......................................... 168,725
-----------
3,295,900
-----------
Sales Tax (5.3%)
5,000,000 Metropolitan Pier & Exposition Authority Illinois,
McCormick Place, 0.00%, 6/15/11.................. 2,550,000
-----------
Sewer (1.1%)
500,000 Portland, Oregon Sewer, 6.50%, 6/1/00............. 528,125
-----------
Transportation (7.4%)
1,000,000 MA Bay Transportation Authority, 5.60%, 3/1/08.... 1,027,500
1,465,000 Port Authority of New York & New Jersey, 5.80%,
12/1/12.......................................... 1,486,975
1,000,000 Puerto Rico Highway Auth., 6.75%, 7/1/05,
Pre-refunded, 7/1/00............................. 1,081,250
-----------
3,595,725
-----------
</TABLE>
See notes to financial statements.
40 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 45
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
Water (9.5%)
1,400,000 California State Dept of Water Resources, 6.00%,
12/1/06.......................................... $ 1,503,250
2,000,000 Cleveland Ohio Waterworks, 5.50%, 1/1/08 (a)...... 2,050,000
1,000,000 Ohio State Water Department Authority, 5.70%,
6/1/09........................................... 1,031,250
-----------
4,584,500
-----------
Total Revenue......................................................... 28,054,494
-----------
SPECIAL TAX (2.2%)
1,000,000 Connecticut State Special Tax Obligation Revenue,
6.25%, 10/1/09, Pre-refunded 10/1/01............. 1,075,000
-----------
Total Special Tax..................................................... 1,075,000
-----------
VARIABLE RATE DEMAND NOTES (3.7%)
500,000 Anchorage Alaska Electric Utility, 4.50% (b),
12/01/26......................................... 500,000
1,300,000 East Baton Rouge Parish, Louisiana, 4.05% (b),
11/1/19.......................................... 1,300,000
-----------
Total Variable Rate Demand Notes...................................... 1,800,000
-----------
INVESTMENT COMPANIES (0.6%)
289,924 Dreyfus Tax Exempt Cash Management Fund........... 289,924
-----------
Total Investment Companies............................................ 289,924
-----------
TOTAL (COST -- $47,402,771) (C) (98.7%)............................... $47,725,256
===========
</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 $48,364,639.
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At April 30, 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>
39 30 Year U.S. Treasury Bond Future 06/30/97 ($4,261,969) $4,969
</TABLE>
(b) This is a variable rate investment and the rate reflected on the Schedule of
Portfolio Investments is the rate in effect at April 30, 1997.
See notes to financial statements.
SEMI-ANNUAL REPORT 41
<PAGE> 46
TAX EXEMPT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
(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............................................... $ 749,988
Unrealized depreciation............................................... (427,503)
---------
Net unrealized appreciation........................................... $ 322,485
=========
</TABLE>
See notes to financial statements.
42 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 47
U.S. TREASURY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY NOTES (90.7%)
7,400,000 5.88%, 8/15/98.................................... $ 7,379,650
5,500,000 5.88%, 10/31/98................................... 5,477,835
1,000,000 6.38%, 5/15/99.................................... 1,001,360
1,000,000 7.75%, 2/15/01.................................... 1,041,220
2,600,000 5.75%, 8/15/03.................................... 2,483,234
2,000,000 7.88%, 11/15/04................................... 2,135,940
-----------
Total U.S. Treasury Notes............................................. 19,519,239
-----------
U.S. TREASURY STRIPS (6.8%)
1,200,000 0.00%, 8/15/99.................................... 1,041,156
550,000 0.00%, 8/15/01.................................... 417,681
-----------
Total U.S. Treasury Strips............................................ 1,458,837
-----------
INVESTMENT COMPANIES (1.4%)
307,286 Dreyfus Treasury Cash Management.................. 307,286
-----------
Total Investment Companies............................................ 307,286
-----------
TOTAL (COST -- $21,341,144) (A) (98.9%)............................... $21,285,362
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $21,523,640.
(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............................................... $ 21,744
Unrealized depreciation............................................... (77,526)
--------
Net unrealized depreciation........................................... $(55,782)
========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 43
<PAGE> 48
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (8.1%)
500,000 MBNA Master Credit Card Trust 1992-1, 7.25%,
6/15/99.......................................... $ 501,210
78,722 Honda 1994-A Auto Receivables, 4.80%, 8/15/99..... 78,223
4,990,298 Olympic Automobile Receivables Trust, 7.88%,
7/15/01.......................................... 5,071,390
426,757 Chase Manhattan Grantor Trust 1995-A, 6.00%,
9/17/01.......................................... 425,481
3,083,816 Contimortgage Home Equity, 6.76%, 2/15/11......... 3,086,225
-----------
Total Asset Backed Securities......................................... 9,162,529
-----------
COLLATERIZED MORTGAGE OBLIGATIONS (17.2%)
2,000,000 Federal Natl. Mortgage Assoc., 5.42%, 6/18/97..... 1,985,511
1,500,000 Federal Natl. Mortgage Assoc., 5.48%, 7/7/97...... 1,484,702
1,645,202 Federal Home Loan Mtg Corp 1914-C, 6.50%,
12/15/04......................................... 1,645,235
1,277,050 Residential Funding Mtg. Sec. 1995-S18, 7.00%,
11/25/10......................................... 1,275,007
1,493,763 Federal Natl. Mortgage Assoc., 6.00%, 8/25/13..... 1,489,357
4,500,000 Federal Natl. Mortgage Assoc., 5.50%, 2/25/14..... 4,460,355
5,000,000 Federal Home Loan Mtg Corp., 6.11%, 6/17/20....... 5,010,938
2,017,441 Federal Natl. Mortgage Assoc., 9.50%, 9/1/24...... 2,168,104
-----------
Total Collateralized Mortgage Obligations............................. 19,519,209
-----------
COMMERCIAL PAPER (35.6%)
4,500,000 Unliver Capital, 5.46%, 5/19/97................... 4,487,715
2,750,000 Toyota Motor Credit, 5.46%, 5/20/97............... 2,742,075
4,500,000 Xerox Credit Corporation, 5.47%, 5/22/97.......... 4,485,641
4,500,000 American Express, 5.54%, 5/29/97.................. 4,500,000
4,500,000 Canadian Wheat Board, 5.47%, 5/29/97.............. 4,480,855
5,000,000 Unliver Capital, 5.48%, 6/2/97.................... 4,975,644
5,000,000 Coca Cola, 5.48%, 6/5/97.......................... 4,973,361
4,000,000 Amoco Corporation, 5.49%, 6/18/97................. 3,970,720
6,000,000 General Electric Credit, 5.64%, 7/24/97........... 5,921,040
-----------
Total Commercial Paper................................................ 40,537,051
-----------
CORPORATE BONDS (18.9%)
Banking (3.5%)
4,000,000 Comerica Bank, 5.80%, 1/15/98..................... 3,995,520
-----------
</TABLE>
See notes to financial statements.
44 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 49
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Computer Hardware (2.6%)
3,000,000 IBM Credit Corporation, 6.09%, 9/16/97............ $ 3,003,330
-----------
Defense (2.6%)
3,000,000 Lockheed Martin Corporation, 6.63%, 6/15/98....... 3,012,210
-----------
Financial (5.1%)
225,000 American General Finance, 7.15%, 5/15/97.......... 225,088
4,500,00 International Lease Finance, 8.13%, 1/15/98....... 4,565,520
1,000,000 Paccar Financial Corporation, 8.03%, 4/15/98...... 1,017,840
-----------
5,808,448
-----------
Industrial Equipment (1.3%)
1,500,000 Ingersoll-Rand, 6.54%, 8/24/98.................... 1,506,465
-----------
Industrial Food & Beverage (0.9%)
1,000,000 Pepsi Company Incorporated, 6.13%, 1/15/98........ 1,000,190
-----------
Industrial Goods and Services (0.5%)
600,000 Rockwell International, 7.63%, 2/17/98............ 606,624
-----------
Telecommunications (2.4%)
2,700,000 AT&T Capital Corporation, 6.39%, 1/22/99.......... 2,693,250
-----------
Total Corporate Bonds................................................. 21,626,037
-----------
U.S. GOVERNMENT AGENCIES (17.9%)
Federal Home Loan Mortgage Corporation (4.4%)
5,000,000 5.51%, 4/14/98.................................... 4,996,720
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 45
<PAGE> 50
LIMITED MATURITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (CONTINUED):
Federal National Mortgage Association (13.5%)
4,000,000 5.21%, 5/20/97.................................... $ 3,989,001
11,500,000 5.66%, 7/7/97..................................... 11,382,285
-----------
15,371,286
-----------
Total U.S. Government Agencies........................................ 20,368,006
-----------
U.S. TREASURY BILLS (7.0%)
8,000,000 U.S. Treasury Bill, 5.11%, 7/3/97................. 7,928,460
-----------
Total U.S. Treasury Bills............................................. 7,928,460
-----------
INVESTMENT COMPANIES (2.1%)
2,333,126 Dreyfus Treasury Cash Management.................. 2,333,126
-----------
Total Investment Companies............................................ 2,333,126
-----------
TOTAL (COST -- $121,459,441) (A) (106.8%)............................. $121,474,418
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $113,775,054.
(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............................................... $ 59,932
Unrealized depreciation............................................... (44,955)
--------
Net unrealized appreciation........................................... $ 14,977
========
</TABLE>
See notes to financial statements.
46 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 51
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (13.5%)
600,000 MBNA Master Credit Card Trust 1992-1, 7.25%,
6/15/99.......................................... $ 601,452
5,374,167 Olympic Automobile Receivables Trust, 7.88%,
7/15/01.......................................... 5,480,414
426,757 Chase Manhattan Grantor Trust 1995-A, 6.00%,
9/17/01.......................................... 425,481
4,533,724 Pacific SW97-1, 6.06%, 6/17/02.................... 4,528,057
2,652,081 Contimortgage Home Equity, 6.76%, 2/15/11......... 2,654,153
1,140,274 Fleetwood Credit Corp Grantor Trust 1996-A, 6.75%,
10/17/11......................................... 1,138,393
-----------
Total Asset Backed Securities......................................... 14,827,950
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS (7.1%)
2,110,000 Capstead Securities Corp. IV 1992-12D, 7.60%,
8/25/07.......................................... 2,115,934
1,915,575 Residential Funding Mtg. Sec. 1995-S18, 7.00%,
11/25/10......................................... 1,912,511
609,523 Federal Home Loan Mtg. Corp. 1394D, 5.50%,
4/15/13.......................................... 608,139
1,867,204 Federal Natl. Mortgage Assoc., 6.00%, 8/25/13..... 1,861,696
1,284,607 Federal Natl. Mortgage Assoc. 1992-65 DA, 7.50%,
1/25/18.......................................... 1,284,324
-----------
Total Collateralized Mortgage Obligations............................. 7,782,604
-----------
COMMERCIAL PAPER (16.4%)
5,500,000 Xerox Credit Corporation, 5.47%, 5/22/97.......... 5,482,450
1,500,000 General Electric Credit, 5.35%, 5/28/97........... 1,500,000
5,500,000 American Express, 5.53%, 5/29/97.................. 5,500,000
5,500,000 Canadian Wheat Board, 5.47%, 5/29/97.............. 5,476,601
-----------
Total Commercial Paper................................................ 17,959,051
-----------
CORPORATE BONDS (36.4%)
Banking (4.1%)
3,600,000 First Chicago NBD, 8.50%, 6/1/98.................. 3,681,324
250,000 Citicorp, 6.65%, 5/15/00.......................... 248,438
500,000 Citicorp, 6.60%, 8/1/00........................... 496,875
-----------
4,426,637
-----------
Computer Hardware (0.4%)
400,000 IBM Credit Corporation, 6.38%, 6/15/00............ 396,500
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 47
<PAGE> 52
SHORT BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Consumer Goods and Services (1.1%)
1,000,000 Disney Global Bond, 6.38%, 3/30/01................ $ 985,000
200,000 Walmart, 5.50%, 3/1/98............................ 199,316
-----------
1,184,316
-----------
Defense (4.1%)
4,500,000 Lockheed Martin Corporation, 6.63%, 6/15/98....... 4,518,315
-----------
Financial (8.0%)
3,500,000 Cit Group Holdings Incorporated, 6.75%, 4/30/98... 3,521,735
5,000,000 International Lease Finance, 8.13%, 1/15/98....... 5,072,800
225,000 American General Finance, 7.15%, 5/15/97.......... 225,088
-----------
8,819,623
-----------
Health Care (2.7%)
2,990,000 Columbia/HCA Health, 6.41%, 6/15/00............... 2,952,625
-----------
Industrial Equipment (6.3%)
3,500,000 Caterpillar Finance Incorporated, 6.41%,
6/11/98.......................................... 3,510,710
2,500,000 Ingersoll-Rand, 6.47%, 8/24/98.................... 2,508,625
900,000 Ingersoll-Rand, 6.55%, 8/7/00..................... 894,375
-----------
6,913,710
-----------
Industrial Goods and Services (3.9%)
200,000 Rockwell International, 7.63%, 2/17/98............ 202,208
4,000,000 Honeywell Incorporated, 7.70%, 4/1/98............. 4,055,840
-----------
4,258,048
-----------
Media (0.5%)
500,000 R.R. Donneley, 6.03%, 6/22/98..................... 499,630
-----------
Telecommunications (5.3%)
900,000 AT&T Capital Corporation, 5.90%, 7/10/98.......... 894,951
5,000,000 AT&T Capital Corporation, 6.57%, 1/21/00.......... 4,962,500
-----------
5,857,451
-----------
Total Corporate Bonds................................................. 39,826,855
-----------
</TABLE>
See notes to financial statements.
48 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 53
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (18.2%)
Federal Farm Credit Bank (4.6%)
5,000,000 6.44%, 11/5/99.................................... $ 4,994,150
Federal National Mortgage Association (3.5%)
3,460,118 10.00%, 7/1/21.................................... 3,788,829
Government National Mortgage Association (10.1%)
10,471,042 9.00%, 6/15/09.................................... 11,151,660
-----------
Total U.S. Government Agencies........................................ 19,934,639
-----------
U.S. TREASURY NOTES (3.2%)
2,000,000 5.00%, 1/31/99.................................... 1,959,900
1,500,000 5.88%, 2/15/00.................................... 1,479,240
-----------
Total U.S. Treasury Notes............................................. 3,439,140
-----------
INVESTMENT COMPANIES (3.9%)
4,309,554 Dreyfus Treasury Cash Management.................. 4,309,554
-----------
Total Investment Companies............................................ 4,309,554
-----------
TOTAL (COST -- $108,242,427) (A) (98.7%).............................. $108,079,793
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $109,503,565.
(a) 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............................................... $ 125,261
Unrealized depreciation............................................... (287,895)
---------
Net unrealized depreciation........................................... $(162,634)
=========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 49
<PAGE> 54
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (10.0%)
133,223 Honda 1994-A Auto Receivables, 4.80%, 8/15/99..... $ 132,377
1,600,000 Navistar Financial Corp 1997-AA3, 6.75%,
3/15/02........................................... 1,598,500
1,000,000 First USA Credit Card Master Trust, 5.62%,
6/17/02........................................... 1,002,800
869,352 Merit Securities Corporation, 5.65%, 9/28/30...... 869,623
-----------
Total Asset Backed Securities......................................... 3,603,300
-----------
COLLATERIZED MORTGAGE OBLIGATIONS (4.2%)
1,500,000 Federal Home Loan Mtg. Corp., 6.11%, 6/17/20...... 1,503,281
-----------
Total Collateralized Mortgage Obligations............................. 1,503,281
-----------
CORPORATE BONDS (30.3%)
Banking (9.4%)
1,000,000 Old Kent Bank, 6.88%, 4/15/98..................... 1,006,500
850,000 Citicorp, 6.65%, 5/15/00.......................... 844,688
1,500,000 ABN-Amro Bank, 7.25%, 5/31/05..................... 1,501,875
-----------
3,353,063
-----------
Consumer Goods and Services (2.7%)
1,000,000 Disney Global Bond, 6.38%, 3/30/01................ 985,000
-----------
Electric Utility (4.1%)
1,500,000 Puget Sound Power & Light, 6.50%, 9/14/99......... 1,492,500
-----------
Financial Services (2.4%)
850,000 Transamerica Financial Corporation, 7.40%,
7/29/99........................................... 861,688
-----------
Industrial Goods and Services (3.4%)
1,250,000 Honeywell Incorporated, 6.60%, 4/15/01............ 1,235,938
-----------
Telecommunications (8.3%)
1,500,000 AT&T Capital Corporation, 5.90%, 7/10/98.......... 1,491,585
1,500,000 US West Capital Funding Note, 6.85%, 1/15/02...... 1,488,750
-----------
2,980,335
-----------
Total Corporate Bonds................................................. 10,908,524
-----------
</TABLE>
See notes to financial statements.
50 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 55
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
MORTGAGE BACKED SECURITIES (19.8%)
Federal Home Loan Mortgage Corporation (2.8%)
1,000,000 7.00%, 5/1/12..................................... $ 990,930
-----------
990,930
-----------
Federal National Mortgage Association (7.3%)
705,899 8.50%, 10/1/19.................................... 734,354
1,730,059 10.00%, 7/1/21.................................... 1,894,415
-----------
2,628,769
-----------
Government National Mortgage Association (9.7%)
1,454,274 8.00%, 12/15/26................................... 1,473,805
2,000,000 8.00%, 1/15/27.................................... 2,023,740
-----------
3,497,545
-----------
Total Mortgage Backed Securities...................................... 7,117,244
-----------
U.S. GOVERNMENT AGENCIES (6.6%)
Federal Home Loan Mortgage Corporation (2.8%)
1,000,000 5.41%, 5/7/97..................................... 999,098
Other Agencies (3.8%)
1,400,000 Tennessee Valley Authority, 6.38%, 6/15/05........ 1,349,250
-----------
Total U.S. Government Agencies........................................ 2,348,348
-----------
U.S. TREASURY NOTES (31.5%)
2,500,000 6.38%, 3/31/01.................................... 2,486,600
6,000,000 6.13%, 12/31/01................................... 5,896,800
3,000,000 6.25%, 2/28/02.................................... 2,959,770
-----------
Total U.S. Treasury Notes............................................. 11,343,170
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 51
<PAGE> 56
INTERMEDIATE BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
INVESTMENT COMPANIES (3.7%)
1,340,222 Dreyfus Treasury Cash Management.................. $ 1,340,222
-----------
Total Investment Companies............................................ 1,340,222
-----------
TOTAL (COST -- $38,291,925)(A) (106.1%)............................... $38,164,089
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $35,968,046.
(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............................................... $ 91,900
Unrealized depreciation............................................... (219,736)
---------
Net unrealized depreciation........................................... $(127,836)
=========
</TABLE>
See notes to financial statements.
52 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 57
INVESTMENT QUALITY BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (17.5%)
750,000 Premier Auto Trust 1996-2 A4, 6.58%, 10/6/00...... $ 749,025
1,000,000 MBNA Master Credit Trust, 5.63%, 12/15/00......... 1,003,400
3,989,677 Pacific SW97-1, 6.06%, 6/17/02.................... 3,984,690
2,700,000 Green Tree Financial Corp 1996-7 A4, 6.8%,
10/15/27......................................... 2,688,188
-----------
Total Asset Backed Securities......................................... 8,425,303
-----------
COLLATERIZED MORTGAGE OBLIGATIONS (19.5%)
1,624,234 Federal Natl. Mortgage Ass., 6.10%, 5/25/99....... 1,636,887
2,478,258 Federal Natl. Mortgage Ass., 91-84, 5.87%,
2/25/06.......................................... 2,484,602
2,000,000 Federal Home Loan Mortgage Corp 61-F, 6.11%,
6/17/20.......................................... 2,004,375
1,546,878 General Electric Capital Mtg. Ser. 92-7A A6,
8.30%, 7/25/23................................... 1,567,034
118,000 Countrywide Funding Corporation, 6.50%, 3/25/24... 107,320
1,580,639 Merit Securities Corporation 8A-1, 5.65%,
9/28/30.......................................... 1,581,133
-----------
Total Collateralized Mortgage Obligations............................. 9,381,351
-----------
CORPORATE BONDS (21.9%)
Banking (2.3%)
400,000 ABN-Amro Bank, 7.25%, 5/31/05..................... 400,500
200,000 Citicorp, 6.65%, 5/15/00.......................... 198,750
500,000 Swiss Bank Corporation -- New York, 7.25%,
9/1/06........................................... 498,125
-----------
1,097,375
-----------
Consumer Goods and Services (2.7%)
300,000 Walmart, 5.50%, 3/1/98............................ 298,974
1,000,000 Walt Disney Company, 6.38%, 3/30/01............... 985,000
-----------
1,283,974
-----------
Electric Utility (2.1%)
500,000 Union Electric, 6.88%, 8/1/04..................... 492,500
500,000 Virginia Electric Power Company, 7.38%, 7/1/02.... 509,375
-----------
1,001,875
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 53
<PAGE> 58
INVESTMENT QUALITY BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
CORPORATE BONDS (CONTINUED):
Financial (8.1%)
1,500,000 General Electric Capital Corp, 8.13%, 5/15/12..... $ 1,601,250
500,000 General Motors Acceptance Corporation, 8.63%,
6/15/99.......................................... 520,000
1,500,000 Grand Metropolitan PLC, 8.63%, 8/15/01............ 1,590,000
190,000 Transamerica Financial Corporation, 7.40%,
7/29/99.......................................... 192,613
-----------
3,903,863
-----------
Industrial Goods and Services (1.5%)
500,000 Hanson Overseas, PLC, 6.75%, 9/15/05.............. 481,875
250,000 Rockwell International, 7.63%, 2/17/98............ 252,760
-----------
734,635
-----------
Telecommunications (5.2%)
2,500,000 US West Capital Funding Note, 6.85%, 1/15/02...... 2,481,250
-----------
Total Corporate Bonds................................................. 10,502,972
-----------
FOREIGN GOVT. BONDS -- U.S. DOLLAR DENOMINATED (1.8%)
1,000,000 British Columbia, Canada, 6.50%, 1/15/26.......... 890,000
-----------
Total Foreign Govt. Bonds -- U.S. Dollar Denominated.................. 890,000
-----------
MORTGAGE BACKED SECURITIES (31.9%)
Federal Home Loan Mortgage Corporation (13.7%)
2,700,000 7.00%, 5/1/12..................................... 2,675,511
1,127,325 8.50%, 6/1/17..................................... 1,174,526
2,743,207 7.50%, 3/1/26..................................... 2,727,763
-----------
6,577,800
-----------
Federal National Mortgage Association (12.0%)
5,700,000 8.00%, 6/01/27.................................... 5,778,375
Government National Mortgage Association (6.2%)
3,000,000 7.50%, 3/15/27.................................... 2,970,000
-----------
Total Mortgage Backed Securities...................................... 15,326,175
-----------
</TABLE>
See notes to financial statements.
54 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 59
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCIES (7.4%)
U.S. Govt. Agency Debentures (6.2%)
3,000,000 Federal National Mortgage Ass., 5.21%, 5/20/97.... $ 2,991,751
Other Agencies (1.2%)
600,000 Tennessee Valley Authority, 6.38%, 6/15/05........ 578,250
-----------
Total U.S. Government Agencies........................................ 3,570,001
-----------
U.S. TREASURY NOTES (12.5%)
5,000,000 6.88%, 8/31/99.................................... 5,055,500
1,000,000 6.50%, 10/15/06................................... 982,730
-----------
Total U.S. Treasury Notes............................................. 6,038,230
-----------
U.S. TREASURY BONDS (9.2%)
500,000 8.13%, 8/15/19.................................... 558,950
4,300,000 6.25%, 8/15/23.................................... 3,892,403
-----------
Total U.S. Treasury Bonds............................................. 4,451,353
-----------
INVESTMENT COMPANIES (0.9%)
418,659 Dreyfus Treasury Cash Management.................. 418,659
-----------
Total Investment Companies............................................ 418,659
-----------
TOTAL (COST -- $59,224,044)(A) (122.6%)............................... $59,004,044
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $48,140,741.
(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............................................... $ 174,462
Unrealized depreciation............................................... (394,462)
---------
Net unrealized depreciation........................................... $(220,000)
=========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 55
<PAGE> 60
TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
AUSTRALIA (AUSTRALIAN DOLLAR) (3.0%)
Government Bonds (3.0%)
425,000 10.00%, 10/15/07................................ $ 382,739
--------------
Total Australia (Cost -- $376,019).................................. 382,739
--------------
SWEDEN (SWEDISH KRONA) (2.7%)
Government Bonds (2.7%)
2,400,000 10.25%, 5/5/00.................................. 344,986
--------------
Total Sweden (Cost -- $351,211)..................................... 344,986
--------------
UNITED STATES (UNITED STATES DOLLAR) (112.0%)
Asset Backed Securities (21.3%)
360,474 Nationsbank Auto Owner Trust 96A-A2, 6.13%,
7/15/99 (a).................................... 360,247
226,686 Pacific Southwest 97-1, 6.06%, 6/17/02 (a)...... 226,403
599,419 Daimler-Benz Vehicle Trust, 5.85%, 7/20/03...... 597,626
354,857 Student Loan Marketing Ass. 96-4A1, 5.60%,
7/25/04........................................ 354,964
215,867 Contimortgage Home Equity, 6.76%, 2/15/11....... 216,036
600,000 Green Tree Financial Corporation, 7.15%,
7/15/27........................................ 606,938
316,128 Merit Securities Corporation 8-A1, 5.65%,
9/28/30........................................ 316,227
--------------
Total Asset Backed Securities....................................... 2,678,441
--------------
Collaterized Mortgage Obligations (23.3%)
395,958 Federal Natl. Mortgage Ass. 92-62F, 6.10%,
5/25/99 (a).................................... 399,042
390,000 Capstead Securities Corporation IV, 7.60%,
8/25/07 (a).................................... 391,097
600,000 Merrill Lynch Mortgage Investors 91-F A2, 6.28%,
6/15/16........................................ 608,040
500,000 Federal Home Loan Mtg. Corp. 61-F, 6.11%,
6/17/20........................................ 501,094
200,000 Residential Funding Mtg. Sec I 3-530 A6, 7.00%,
8/25/23........................................ 189,238
488,797 Residential Funding Corp. 93-539 A1, 6.25%,
10/25/23....................................... 489,139
200,000 Prudential Home Mtg. Security 93-47 A10, 6.75%,
12/25/23....................................... 173,586
200,000 Countrywide Funding Corp. 94-7 A7, 6.50%,
3/25/24........................................ 181,898
--------------
Total Collateralized Mortgage Obligations........................... 2,933,134
--------------
</TABLE>
See notes to financial statements.
56 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 61
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
UNITED STATES (CONTINUED):
Corporate Bonds (17.0%)
Airlines (2.0%)
250,000 Northwest Airlines Corporation, 8.375%,
03/15/04....................................... $ 246,250
Banking (3.7%)
200,000 First Nationwide, 9.13%, 12/1/03................ 201,500
250,000 Coast Savings Financial, 10.00%, 3/1/00 (a)..... 263,750
--------------
465,250
--------------
Energy (2.1%)
250,000 Gulf Canada Resources Limited, 9.63%, 7/1/05.... 261,875
Financial (3.4%)
200,000 Contifinancial Corporation, 8.38%, 8/15/03...... 202,500
225,000 Salomon Incorporated, 6.25%, 11/30/00 (a)....... 221,906
--------------
424,406
--------------
Health (1.7%)
200,000 Tenet Healthcare Corporation, 9.63%, 9/1/02..... 212,000
Multimedia (1.9%)
250,000 Time Warner Note, 6.10%, 12/30/01............... 236,250
Retail (2.2%)
250,000 Barnes & Noble Notes, 11.88%, 1/15/03........... 272,500
--------------
Total Corporate Bonds............................................... 2,118,531
--------------
Mortgage Backed Securities (21.1%)
Federal Home Loan Mortgage Corporation (21.1%)
700,000 7.00%, 5/1/12................................... 693,651
494,897 7.50%, 12/1/26.................................. 492,111
498,950 7.50%, 1/1/27................................... 496,141
1,000,000 7.00%, 1/15/27.................................. 969,680
--------------
Total Mortage Backed Securities..................................... 2,651,583
--------------
U.S. Government Agency Debentures (27.1%)
Federal Home Loan Mortgage Corporation (7.9%)
1,000,000 5.33%, 5/13/97 (a).............................. 998,223
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 57
<PAGE> 62
TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE IN
IN LOCAL CURRENCY SECURITY DESCRIPTION U.S. DOLLARS
----------------- ------------------------------------------------ ---------------
<C> <S> <C>
UNITED STATES (CONTINUED):
Federal Home Loan Bank (7.9%)
1,000,000 5.32%, 5/5/97 (a)............................... $ 999,409
Federal National Mortgage Association (3.2%)
400,000 5.37%, 5/02/97.................................. 399,940
Government National Mortgage Association (8.1%)
1,000,000 8.00%, 1/15/27.................................. 1,011,870
--------------
Total U.S. Government Agencies...................................... 3,409,442
--------------
U.S. Treasury Bills (0.8%)
100,000 5.20%, 06/5/97 (a).............................. 99,503
--------------
Total U.S. Treasury Bills........................................... 99,503
--------------
Investment Companies (1.4%)
190,069 Dreyfus Treasury Cash Management................ 190,069
--------------
Total Investment Companies.......................................... 190,069
--------------
Total United States (Cost -- $14,101,662)........................... 14,080,703
--------------
TOTAL (COST -- $14,828,892)(B) (117.7%)............................. $14,808,428
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $12,583,127.
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At April 30, 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>
5 5 Year U.S. Treasury 6/19/97 $ 526,406 $ 3,750
Note Future
5 5 Year U.S. Treasury 6/19/97 (526,406) (4,531)
Note Future
10 10 Year U.S. Treasury 6/19/97 1,069,688 5,219
Note Future
13 20 Year U.S. Treasury 6/19/97 1,420,656 (594)
Bond Future
------------ --------
$2,490,344 $ 3,844
============ ========
</TABLE>
See notes to financial statements.
58 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 63
(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................................................ $ 40,532
Unrealized depreciation................................................ (60,996)
--------
Net unrealized depreciation............................................ $(20,464)
========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 59
<PAGE> 64
TOTAL RETURN FUND
FORWARD CURRENCY CONTRACTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ------------------------------------------------ -------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)........................ 0.787150 $ (389,165) $ 4,410 6/24/97
Swedish Krona (sell)............................ 7.851000 (31,371) 8,819 6/27/97
------------ -----------
$ (420,536) $ 13,229
============ ===========
</TABLE>
See notes to financial statements.
60 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 65
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (44.7%)
AEROSPACE & DEFENSE (0.9%)
4,228 British Aerospace PLC............................ $ 89,917
--------------
Total Aerospace & Defense............................................ 89,917
--------------
BASIC INDUSTRIES (2.8%)
Chemicals (2.4%)
1,168 Air Products & Chemicals Incorporated............ 83,804
1,085 CIBA Specialty Chemicals......................... 93,547
6,620 Laporte PLC...................................... 71,360
--------------
248,711
--------------
Packaging & Containers (0.4%)
7,240 Low & Bonar PLC.................................. 45,393
--------------
Total Basic Industries............................................... 294,104
--------------
CONGLOMERATES & HOLDING COMPANIES (2.2%)
Diversified Operations (1.0%)
9,000 Hutchison Whampoa................................ 66,809
6,000 United Engineers (Malaysia)...................... 42,558
--------------
109,367
--------------
Business & Public Service (1.2%)
243 Adecco SA........................................ 81,165
1,000 Nichii Gakkan Company............................ 45,010
--------------
126,175
--------------
Total Conglomerates & Holding Companies.............................. 235,542
--------------
CONSTRUCTION & REAL ESTATE (0.3%)
8,500 Land & House Public Company Limited.............. 26,034
--------------
Total Construction & Real Estate..................................... 26,034
--------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 61
<PAGE> 66
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
DURABLES (3.6%)
Automobiles (2.2%)
1,236 Daimler-Benz AG-Rights........................... $ 107
1,236 Daimler-Benz Ag.................................. 91,386
1,908 Scania AB - B Shares............................. 49,271
3,000 Toyota Motor..................................... 87,025
--------------
227,789
--------------
Consumer Products (0.8%)
700 Sony Corporation................................. 50,985
6,495 Srithai Superware Company Limited................ 29,839
--------------
80,824
--------------
Transportation (0.6%)
48,000 Cosco Pacific Limited............................ 67,235
--------------
Total Durables....................................................... 375,848
--------------
ENERGY (2.7%)
2,096 Exxon Corporation................................ 118,686
5,005 Shell Transporting & Trading Company PLC......... 88,498
2,400 Tosco Corporation................................ 71,100
--------------
Total Energy......................................................... 278,284
--------------
</TABLE>
See notes to financial statements.
62 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 67
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
FINANCE (5.6%)
Banking (4.1%)
3,369 Banco Galicia Y Bueno -- Sp ADR.................. $ 81,961
6,285 Bangkok Bank Company Limited..................... 41,387
19,029 Bank Of East Asia................................ 65,469
1,663 Banque Nationale De Paris........................ 70,964
12,024 Lloyds TSB Group PLC............................. 110,008
11,000 Sakura Bank Ltd. ................................ 58,182
--------------
427,971
--------------
Financial Services (1.5%)
1,500 Catalana Occidente SA............................ 78,872
1,435 ING Group N.V.................................... 56,363
2,000 Nomura Securities Corporation Limited............ 22,387
--------------
157,622
--------------
Total Finance........................................................ 585,593
--------------
HEALTH (5.1%)
Health Related (4.6%)
1,340 Bristol-Myers Squibb Company..................... 87,770
1,763 Columbia/HCA Healthcare Corporation.............. 61,705
5,700 Glaxo Wellcome PLC............................... 112,207
85 Novartis AG...................................... 112,064
6 Roche Holding AG................................. 50,713
2,000 Sankyo Corporation Limited....................... 53,602
--------------
478,061
--------------
Medical Equipment & Supplies (0.5%)
2,300 Laboratorio Chile-Sponsored ADR.................. 50,600
--------------
Total Health......................................................... 528,661
--------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 63
<PAGE> 68
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
INDUSTRIAL MACHINERY & EQUIPMENT (2.1%)
2,866 Atlas Copco AB-B Shares.......................... $ 71,086
2,050 KCI Konecranes International..................... 78,829
11,000 Mitsubishi Heavy Industries Limited.............. 72,663
--------------
Total Industrial Machinery & Equipment............................... 222,578
--------------
MEDIA & LEISURE (4.3%)
Hotels & Motels (0.9%)
5,400 Scandic Hotels AB................................ 90,210
--------------
Multimedia (3.4%)
6,527 Granada Group PLC................................ 94,234
12,394 News Corporation Limited......................... 57,236
1,400 Polygram NFLO 50................................. 68,645
6,000 Shochiku......................................... 49,188
6,000 Toppan Printing Corporation Limited.............. 77,566
--------------
346,869
--------------
Total Media & Leisure................................................ 437,079
--------------
NONDURABLES (1.1%)
Beverage & Tobacco (0.5%)
12,500 PT Hanjaya Mandala Sampoerna..................... 50,283
Auto Tires & Accessories (0.6%)
1,065 Valeo SA......................................... 65,705
--------------
Total Nondurables.................................................... 115,988
--------------
</TABLE>
See notes to financial statements.
64 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 69
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
RETAIL & WHOLESALE (3.6%)
Drug Stores (0.9%)
2,000 Walgreen Company................................. $ 92,000
--------------
Retail (1.5%)
1,000 Seven-Eleven Japan............................... 63,456
1,000 Metro AG......................................... 97,505
--------------
160,961
--------------
Distributors (0.6%)
8,680 Premier Farnell PLC.............................. 65,968
--------------
Restaurants (0.6%)
14,000 KFC Holding (Malaysia) Bhd....................... 57,462
--------------
Total Retail & Wholesale............................................. 376,391
--------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 65
<PAGE> 70
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
TECHNOLOGY (10.4%)
Data Processing (0.9%)
7,000 Ines............................................. $ 90,493
--------------
Electrical & Electronics (5.9%)
1,040 General Electric Company......................... 115,310
3,200 Micron Technology Inc............................ 112,800
2,000 Murata Manufacturing Corporation Limited......... 73,782
2,948 Philips Electronics.............................. 153,931
1,000 Rohm Company..................................... 77,566
1,412 Schneider Sa (Ex Spie Batig)..................... 79,611
--------------
613,000
--------------
Telecommunications (3.6%)
755 Alcatel Alsthom.................................. 83,972
6,000 Nippon Comsys Corporation........................ 68,580
9 Nippon Telegraph & Telephone Corporation......... 63,495
675 Telecel-Communicacoes Pessoai.................... 58,140
40,000 Telecom Italia................................... 105,303
--------------
379,490
--------------
Total Technology..................................................... 1,082,983
--------------
Total Common Stocks (Cost -- $4,531,288)............................. 4,649,002
--------------
BONDS AND NOTES (54.1%)
AUSTRALIA (AUSTRALIAN DOLLAR) (5.2%)
Government Bonds (5.2%)
600,000 10.00%, 10/15/07................................. 540,338
--------------
Total Australia (Cost -- $530,851)................................... 540,338
--------------
GERMANY (GERMAN MARK) (5.2%)
Government Bonds (5.2%)
895,000 Treuhandanstalt, 6.25%, 3/4/04................... 543,090
--------------
Total Germany (Cost -- $581,989)..................................... 543,090
--------------
</TABLE>
See notes to financial statements.
66 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
IN LOCAL CURRENCY MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
------- -----------
<C> <S> <C>
GREAT BRITAIN (BRITISH POUND) (8.6%)
Government Bonds (8.6%)
100,000 UK Gilt, 10.00%, 2/26/01......................... $ 177,377
440,000 UK Gilt, 7.50%, 12/7/06.......................... 716,891
--------------
Total Great Britain (Cost -- $906,698)............................... 894,268
--------------
ITALY (ITALIAN LIRA) (2.8%)
Government Bonds (2.8%)
475,000,000 9.50%, 4/15/99................................... 291,065
--------------
Total Italy (Cost -- $310,039)....................................... 291,065
--------------
SPAIN (SPANISH PESETA) (3.9%)
Government Bonds (3.9%)
50,000,000 10.30%, 6/15/02.................................. 404,081
--------------
Total Spain (Cost -- $408,869)....................................... 404,081
--------------
SWEDEN (SWEDISH KRONA) (2.8%)
Government Bonds (2.8%)
2,400,000 6.00%, 2/9/05.................................... 288,427
--------------
Total Sweden (Cost -- $321,033)...................................... 288,427
--------------
UNITED STATES (UNITED STATES DOLLAR) (25.6%)
U.S. Government Agency (1.2%)
3,041 Federal National Mortgage Association............ 125,061
U.S. Treasury Notes (22.8%)
2,400,000 5.88%, 6/30/00 (a)............................... 2,361,456
Investment Companies (1.6%)
167,256 Dreyfus Treasury Cash Management................. 167,256
--------------
Total United States (Cost -- $2,640,499)............................. 2,653,773
--------------
Total Bonds and Notes (Cost -- $5,699,978)........................... 5,615,042
--------------
TOTAL (COST -- $10,231,266) (B) (98.8%).............................. $10,264,044
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $10,392,531.
See notes to financial statements.
SEMI-ANNUAL REPORT 67
<PAGE> 72
GLOBAL BALANCED FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
Distribution of investments by country of issue, as a percentage of total value
of investment securities, is as follows:
<TABLE>
<S> <C>
United States 33.3%
Great Britain 15.3%
Japan 9.3%
Germany 7.1%
Australia 5.8%
Spain 5.5%
Sweden 4.9%
Italy 3.9%
Switzerland 3.3%
France 2.9%
Netherlands 2.7%
Hong Kong 1.9%
Malaysia 1.0%
Thailand 0.9%
Other, less than 1% 2.2%
-------
100.0%
=======
</TABLE>
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At April 30, 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>
3 S&P 500 Future September 1997 9/16/97 $1,216,200 $49,950
</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............................................... $ 352,726
Unrealized depreciation............................................... (319,948)
---------
Net unrealized appreciation........................................... $ 32,778
=========
</TABLE>
See notes to financial statements.
68 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 73
GLOBAL BALANCED FUND
FORWARD CURRENCY CONTRACTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
CONTRACT CONTRACT VALUE APPRECIATION DELIVERY
CURRENCY PRICE (U.S. DOLLARS) (DEPRECIATION) DATE
- ---------------------------------------------- ---------- -------------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS:
Australian Dollar (sell)...................... 0.787150 $ (544,831) $ 6,174 6/24/97
Australian Dollar (sell)...................... 0.785300 (62,266) 558 6/24/97
Spanish Peseta (sell)......................... 145.507000 (171,156) 657 5/21/97
Italian Lira (sell)........................... 1,702.900 (292,599) 1,017 5/21/97
Italian Lira (sell)........................... 1,702.900 (96,558) 336 5/21/97
Swedish Krona (sell).......................... 7.671800 (127,488) 2,860 6/17/97
Swedish Krona (sell).......................... 7.671800 (254,975) 5,720 6/17/97
Swedish Krona (sell).......................... 7.648600 (165,720) 4,246 6/27/97
------------ -----------
$ (1,715,593) $ 21,568
============ ===========
LIABILITIES:
Canadian Dollar (buy)......................... 1.387750 $ 465,098 $ (3,286) 5/07/97
German Mark (buy)............................. 1.683920 115,962 (2,808) 6/13/97
British Pound (sell).......................... 1.610200 (356,435) (2,191) 5/12/97
British Pound (sell).......................... 1.590000 (161,447) (2,447) 6/16/97
Japanese Yen (buy)............................ 122.410000 (357,980) (9,637) 5/20/97
Japanese Yen (buy)............................ 119.830000 119,327 (5,851) 5/20/97
Japanese Yen (buy)............................ 119.902000 119,327 (5,775) 5/20/97
------------ -----------
$ (56,148) $(31,995)
============ ===========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 69
<PAGE> 74
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (87.0%)
AEROSPACE & DEFENSE (1.8%)
7,448 British Aerospace PLC............................ $ 158,397
-------------
Total Aerospace & Defense............................................ 158,397
-------------
BASIC INDUSTRIES (4.1%)
Chemicals (3.0%)
1,879 CIBA Specialty Chemicals......................... 162,005
9,328 Laporte PLC...................................... 100,551
-------------
262,556
-------------
Packaging & Containers (1.1%)
15,287 Low & Bonar PLC.................................. 95,846
-------------
Total Basic Industries............................................... 358,402
-------------
CONGLOMERATES & HOLDING COMPANIES (5.9%)
Diversified Operations (2.3%)
18,000 Hutchison Whampoa................................ 133,617
10,000 United Engineers (Malaysia)...................... 70,930
-------------
204,547
-------------
Business & Public Service (3.6%)
546 Adecco SA........................................ 182,371
3,000 Nichii Gakkan Company............................ 135,031
-------------
317,402
-------------
Total Conglomerates & Holding Companies.............................. 521,949
-------------
CONSTRUCTION & REAL ESTATE (0.3%)
9,700 Land & House Public Company Limited.............. 29,709
-------------
Total Construction & Real Estate..................................... 29,709
-------------
</TABLE>
See notes to financial statements.
70 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 75
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
DURABLES (9.0%)
Automobiles (5.0%)
2,608 Daimler-Benz AG-Rights........................... $ 226
2,608 Daimler-Benz Ag.................................. 192,828
4,026 Scania AB - B Shares............................. 103,965
5,000 Toyota Motor..................................... 145,042
-------------
442,061
-------------
Consumer Products (2.8%)
2,500 Sony Corporation................................. 182,090
13,605 Srithai Superware Company Limited................ 62,504
-------------
244,594
-------------
Transportation (1.2%)
75,000 Cosco Pacific Limited............................ 105,054
-------------
Total Durables....................................................... 791,709
-------------
ENERGY (3.1%)
4,000 Petroleo Brasileiro S.A. -- ADR.................. 84,811
10,565 Shell Transporting & Trading Company PLC......... 186,810
-------------
Total Energy......................................................... 271,621
-------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 71
<PAGE> 76
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
FINANCE (12.6%)
Banking (7.9%)
3,102 Banco Galicia Y Bueno -- Sp ADR.................. $ 75,466
13,300 Bangkok Bank Company Limited..................... 87,580
28,567 Bank Of East Asia................................ 98,284
2,631 Banque Nationale De Paris........................ 112,270
25,393 Lloyds TSB Group PLC............................. 232,326
17,000 Sakura Bank Ltd. ................................ 89,918
-------------
695,844
-------------
Financial Services (4.7%)
3,500 Catalana Occidente SA............................ 184,034
4,040 ING Group N.V. .................................. 158,679
6,000 Nomura Securities Corporation Limited............ 67,161
-------------
409,874
-------------
Total Finance........................................................ 1,105,718
-------------
HEALTH (7.2%)
8,000 Glaxo Wellcome PLC............................... 157,483
179 Novartis AG...................................... 235,993
12 Roche Holding AG................................. 101,426
5,000 Sankyo Corporation Limited....................... 134,006
-------------
Total Health......................................................... 628,908
-------------
INDUSTRIAL MACHINERY & EQUIPMENT (5.6%)
6,049 Atlas Copco AB - B Shares........................ 150,035
4,600 KCI Konecranes International..................... 176,886
25,000 Mitsubishi Heavy Industries Limited.............. 165,143
-------------
Total Industrial Machinery & Equipment............................... 492,064
-------------
</TABLE>
See notes to financial statements.
72 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 77
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
MEDIA & LEISURE (9.4%)
Hotels & Motels (1.7%)
9,000 Scandic Hotels AB................................ $ 150,350
-------------
Multimedia (7.7%)
9,557 Granada Group PLC................................ 137,980
20,124 News Corporation Limited......................... 92,934
3,800 Polygram NFLO.................................... 186,322
14,000 Shochiku......................................... 114,772
11,000 Toppan Printing Corporation Limited.............. 142,204
-------------
674,212
-------------
Total Media & Leisure................................................ 824,562
-------------
NONDURABLES (2.8%)
Beverage & Tobacco (0.8%)
18,500 PT Hanjaya Mandala Sampoerna..................... 74,419
Auto Tires & Accessories (2.0%)
2,812 Valeo SA......................................... 173,485
-------------
Total Nondurables.................................................... 247,904
-------------
RETAIL & WHOLESALE (4.8%)
Retail (3.7%)
1,400 Metro AG......................................... 136,506
3,000 Seven - Eleven Japan............................. 190,367
-------------
326,873
-------------
Restaurants (1.1%)
23,000 KFC Holding (Malaysia) Bhd....................... 94,401
-------------
Total Retail & Wholesale............................................. 421,274
-------------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 73
<PAGE> 78
INTERNATIONAL EQUITY FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
TECHNOLOGY (20.4%)
Data Processing (1.6%)
11,000 Ines............................................. $ 142,204
-------------
Electrical & Electronics (8.3%)
4,000 Murata Manufacturing Corporation Limit........... 147,564
4,322 Philips Electronics.............................. 225,675
3,000 Rohm Company..................................... 232,697
2,235 Schneider Sa (Ex Spie Batig)..................... 126,014
-------------
731,950
-------------
Telecommunications (10.5%)
2,000 Alcatel Alsthom.................................. 222,443
14,000 Nippon Comsys Corporation........................ 160,019
21 Nippon Telegraph & Telephone Corporation......... 148,155
1,000 Telebras-Sponsored ADR........................... 114,750
1,400 Telecel -- Communicacoes Pessoai................. 120,587
59,500 Telecom Italia................................... 156,638
-------------
922,592
-------------
Total Technology..................................................... 1,796,746
-------------
Total Common Stocks (Cost -- $7,417,249)............................. 7,648,963
-------------
INVESTMENT COMPANIES (11.5%)
1,016,259 Dreyfus Treasury Cash Management................. 1,016,259
-------------
Total Investment Companies........................................... 1,016,259
-------------
TOTAL (COST -- $8,433,508)(A) (98.5%)................................ $ 8,665,222
=============
</TABLE>
- ------------
Percentages indicated are based on net assets of $8,800,278.
See notes to financial statements.
74 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 79
Distribution of investments by country of issue, as a percentage of total value
of investment securities, is as follows:
<TABLE>
<S> <C>
Japan................................................ 25.3%
Great Britain........................................ 12.3%
United States (cash)................................. 11.7%
Switzerland.......................................... 7.9%
France............................................... 7.3%
Netherlands.......................................... 6.6%
Sweden............................................... 4.7%
Hong Kong............................................ 3.9%
Germany.............................................. 3.8%
Spain................................................ 3.0%
Brazil............................................... 2.3%
Thailand............................................. 2.1%
Finland.............................................. 2.0%
Malaysia............................................. 1.9%
Italy................................................ 1.8%
Portugal............................................. 1.4%
Australia............................................ 1.1%
Indonesia............................................ 0.9%
-----
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............................................... $ 571,237
Unrealized depreciation............................................... (339,523)
---------
Net unrealized appreciation........................................... $ 231,714
=========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 75
<PAGE> 80
GROWTH & INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
COMMON STOCKS (48.7%)
BASIC INDUSTRIES (9.3%)
Chemicals (4.5%)
34,350 Du Pont (E.I.) De Nemours & Company.............. $ 3,645,394
--------------
PAPER AND RELATED PRODUCTS (4.8%)
92,935 International Paper Company...................... 3,926,504
--------------
Total Basic Industries............................................... 7,571,898
--------------
CONGLOMERATES & HOLDING COMPANIES (6.4%)
14,495 Eastman Kodak Company............................ 1,210,333
45,730 Minnesota Mining & Manufacturing Company......... 3,978,510
--------------
Total Conglomerates & Holding Companies.............................. 5,188,843
--------------
AUTOMOBILES (4.8%)
68,325 General Motors Corporation....................... 3,954,309
--------------
Total Automobiles.................................................... 3,954,309
--------------
ENERGY (13.0%)
58,360 Chevron Corporation.............................. 3,997,660
76,935 Exxon Corporation................................ 4,356,444
21,308 Texaco Incorporated.............................. 2,247,994
--------------
Total Energy......................................................... 10,602,098
--------------
FINANCE (4.9%)
39,070 J.P. Morgan & Company............................ 3,980,256
--------------
Total Finance........................................................ 3,980,256
--------------
NONDURABLES (5.9%)
TOBACCO (4.9%)
100,195 Phillip Morris Companies Incorporated............ 3,945,178
AUTO TIRES & ACCESSORIES (1.0%)
16,195 Goodyear Tire & Rubber Company................... 852,262
--------------
Total Nondurables.................................................... 4,797,440
--------------
</TABLE>
See notes to financial statements.
76 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 81
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT MARKET VALUE
OR SHARES SECURITY DESCRIPTION IN U.S. DOLLARS
----------------- ------------------------------------------------- ---------------
<C> <S> <C>
TELECOMMUNICATIONS (4.4%)
107,290 AT&T Corporation................................. $ 3,594,215
--------------
Total Telecommunications............................................. 3,594,215
--------------
Total Common Stocks (Cost -- $38,795,952)............................ 39,689,059
--------------
INVESTMENT COMPANIES (53.5%)
519,365 S&P 500 Depository Receipt....................... 41,597,890
2,052,139 Dreyfus Treasury Cash Management................. 2,052,139
--------------
Total Investment Companies........................................... 43,650,029
--------------
TOTAL (COST -- $80,832,028)(A) (102.2%).............................. $83,339,088
==============
</TABLE>
- ------------
Percentages indicated are based on net assets of $81,567,393.
(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.............................................. $2,778,432
Unrealized depreciation.............................................. (271,372)
----------
Net unrealized appreciation.......................................... $2,507,060
==========
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 77
<PAGE> 82
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
ASSET BACKED SECURITIES (4.9%)
317,361 Pacific Southwest 97-1, 6.06%, 6/17/02 (a)........ $ 316,964
215,867 Contimortgage Home Equity 1996-3 A1, 6.76%,
2/15/11 (a)....................................... 216,036
-----------
Total Asset Backed Securities......................................... 533,000
-----------
COLLATERIZED MORTGAGE OBLIGATIONS (16.0%)
400,000 Merrill Lynch Mortgage Investors 91-F A2, 6.28%,
6/15/06 (a)...................................... 405,360
450,000 Federal National Mortgage Assn. 93-155D, 5.50%,
2/25/14 (a)...................................... 446,036
125,397 Federal National Mortgage Assn. 89-48 G, 8.00%,
3/25/18 (a)....................................... 126,151
99,726 Federal Home Loan Mtg. Corp. 80-E, 8.60%, 6/15/19
(a)............................................... 100,300
400,000 Federal Home Loan Mtg. Corp. 61-F, 6.11%,
6/17/20........................................... 400,875
247,423 Federal National Mortgage Assn. G92-25F, 6.17%,
4/25/21 (a)....................................... 247,974
3,217 Salomon Brothers Mtg. Securities 1994-9, 7.00%,
7/25/24 (a)....................................... 3,215
-----------
Total Collateralized Mortgage Obligations............................. 1,729,911
-----------
CORPORATE BONDS (9.7%)
Automobiles (1.0%)
100,000 General Motors, 9.13%, 7/15/01 (a)................ 107,625
-----------
Bankings (1.3%)
150,000 Nationsbank Corporation, 5.75%, 1/17/01 (a)....... 144,563
-----------
Financial (7.4%)
300,000 AT & T Capital Corporation, 5.61%, 2/1/99 (a)..... 295,125
100,000 Commercial Credit, 5.55%, 2/15/01 (a)............. 95,375
100,000 Lehman Brothers Holding, 8.38%, 2/15/99 (a)....... 102,875
300,000 Lehman Brothers Holdings, 7.63%, 7/15/99 (a)...... 305,625
-----------
799,000
-----------
Total Corporate Bonds................................................. 1,051,188
-----------
</TABLE>
See notes to financial statements.
78 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 83
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT DEBENTURES (13.8%)
Federal Home Loan Mortgage Corporation (13.8%)
1,500,000 5.33%, 5/13/97 (a)................................ $ 1,497,335
-----------
U.S. GOVERNMENT AGENCIES (43.4%)
Federal Home Loan Bank (27.8%)
1,500,000 5.32%, 5/5/97 (a)................................. 1,499,113
1,500,000 5.37%, 5/6/97..................................... 1,498,881
-----------
2,997,994
-----------
Federal National Mortgage Association (14.3%)
1,000,000 5.37%, 5/02/97.................................... 999,851
229,504 11.00%, 10/1/06 (a)............................... 246,758
293,268 ARM, 7.59%, 6/1/25 (a)............................ 307,474
-----------
1,554,083
-----------
Government National Mortgage Association (1.3%)
134,262 ARM, 7.13%, 6/20/18............................... 136,821
-----------
Total U.S. Government Agencies........................................ 4,688,898
-----------
U.S. TREASURY NOTES (3.0%)
320,000 5.50%, 7/31/97 (a)................................ 320,112
-----------
Total U.S. Treasury Notes............................................. 320,112
-----------
U.S. TREASURY BILLS (3.7%)
400,000 5.015%, 5/22/97................................... 398,830
-----------
Total U.S. Treasury Bills............................................. 398,830
-----------
</TABLE>
See notes to financial statements.
SEMI-ANNUAL REPORT 79
<PAGE> 84
MARKET RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT SECURITY DESCRIPTION MARKET VALUE
----------------- -------------------------------------------------- ------------
<C> <S> <C>
INVESTMENT COMPANIES (4.7%)
1,900 Standard & Poor 500 Depositary Receipt............ $ 152,178
357,648 Dreyfus Treasury Cash Management.................. 357,648
-----------
Total Investment Companies............................................ 509,826
-----------
TOTAL (COST -- $10,717,500) (B) (99.2%)............................... $10,729,100
===========
</TABLE>
- ------------
Percentages indicated are based on net assets of $10,813,804.
(a) A portion of the security is held by the custodian in a segregated account
as collateral for open futures contracts.
At April 30, 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>
1 S & P 500 Future June 1998 06/19/97 $401,400 $3,350
25 S&P 500 Future September 09/18/97 10,135,000 2,475
1998
----------- ------
$10,536,400 $5,825
=========== ======
</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............................................ $16,928
Unrealized depreciation............................................ (5,328)
-------
Net unrealized appreciation........................................ $11,600
=======
</TABLE>
See notes to financial statements.
80 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (Unaudited)
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 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.
SEMI-ANNUAL REPORT 81
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
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 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. 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; however, as of April
30, 1997, there have been no Class B shares issued. Class B shares are
subject to certain fees under a shareholder service plan (the "Plan");
Class A shares do not participate in the Plan. Both classes of shares
have identical rights and privileges except with respect to the
shareholder service fees borne by Class B and voting rights on matters
affecting a single class. The Group is authorized to issue an unlimited
number of shares of each class which are units of beneficial interest
with a par value of $.001 per share.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
by the Funds:
SECURITIES VALUATION
---------------------------------
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.
82 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 87
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 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. 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.
FOREIGN CURRENCY TRANSLATION
---------------------------------------------
The accounting records of the Funds are maintained in U.S. dollars. The
Global Short Bond, Global Fixed Income, International Bond and Total
Return Funds may purchase debt obligations that are payable in a
foreign currency. For these four 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 exchange rate on the dates of the transactions.
Each of these four 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.
SEMI-ANNUAL REPORT 83
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
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, including 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 realized. If a written call option is
exercised, a gain or loss is realized for the sale of the underlying
security and the proceeds from the sale are increased by the premium
originally received. If a written put option is exercised, the cost of
the security acquired is decreased by the premium originally received.
When 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 option, 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
84 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 89
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 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 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 to the difference between the
value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
Variation margin accounting procedures as discussed above apply to
these index futures contracts. 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
potential 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.
SEMI-ANNUAL REPORT 85
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
EQUITY SWAP CONTRACTS
-------------------------------------
The Market Return, Total Return, Global Balanced, 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, 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 currency
relative to the U.S. dollar. These six Funds will 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
86 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 91
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 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 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 from investments in the
accompanying statements.
ESTIMATES
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that
SEMI-ANNUAL REPORT 87
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
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.
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 April
30, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Global Short Bond Fund..................... $172,244,182 $ 71,098,180
Global Fixed Income Fund................... 449,094,212 517,517,932
International Bond Fund.................... 23,757,292 19,537,726
Short Duration Tax Exempt Fund............. 4,609,965 9,632,770
Tax Exempt Bond Fund....................... 4,621,641 6,683,102
U.S. Treasury Fund......................... 0 0
Limited Maturity Fund...................... 29,338,234 4,200,000
Short Bond Fund............................ 42,514,704 3,957,960
Intermediate Bond Fund..................... 26,349,640 31,172,517
Investment Quality Bond Fund............... 90,295,590 65,606,915
Total Return Fund.......................... 21,155,157 8,784,017
Global Balanced Fund....................... 9,864,770 2,108,548
International Equity Fund.................. 8,895,473 1,454,221
Growth & Income Fund....................... 79,530,524 750,230
Market Return Fund......................... 4,860,515 2,511,555
</TABLE>
88 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 93
Purchases and sales of long-term U.S. Government securities for the
period ended April 30, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Global Short Bond Fund.................... $ 30,975,429 $ 4,477,574
Global Fixed Income Fund.................. 312,880,141 257,390,545
International Bond Fund................... 1,046,355 777,768
Short Duration Tax Exempt Fund............ 0 0
Tax Exempt Bond Fund...................... 0 0
U.S. Treasury Fund........................ 26,555,891 28,144,604
Limited Maturity Fund..................... 50,467,062 56,005,430
Short Bond Fund........................... 52,724,414 92,394,719
Intermediate Bond Fund.................... 19,944,805 29,514,121
Investment Quality Bond Fund.............. 30,265,668 24,821,231
Total Return Fund......................... 0 0
Global Balanced Fund...................... 5,352,563 2,933,965
International Equity Fund................. 0 0
Growth & Income Fund...................... 0 0
Market Return Fund........................ 2,947,936 5,062,193
</TABLE>
The Global Balanced Fund's activity in written options for the period
ended April 30, 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 29,391
Options canceled in closing transactions........ 38 5,344
Options expired prior to exercise............... 0 0
-- --------
Options outstanding at end of period............ 0 $ 0
</TABLE>
None of the other Funds had activity in written options for the period
ended April 30, 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
SEMI-ANNUAL REPORT 89
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
a period not exceeding five years. The organization costs and the
amounts reimbursed as of April 30, 1997 are as follows:
<TABLE>
<CAPTION>
CUMULATIVE AMORTIZED
ORGANIZATION ORGANIZATION
COSTS EXPENSES
------------ ------------
<S> <C> <C>
Global Short Bond Fund...................... $ 2,046 $ 792
Global Fixed Income Fund.................... 90,199 84,014
International Bond Fund..................... 5,322 2,648
Short Duration Tax Exempt Fund.............. 6,170 4,527
Tax Exempt Bond Fund........................ 15,168 11,271
U.S. Treasury Fund.......................... 3,926 2,342
Total Return Fund........................... 3,254 597
Global Balanced Fund........................ 4,063 678
International Equity Fund................... 3,798 654
Growth & Income Fund........................ 11,447 1,345
Market Return Fund.......................... 49,138 15,441
</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 Fund 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.
90 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 95
Payden & Rygel has voluntarily agreed to permanently waive 0.20% of its
fee for advisory services for the 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 a Fund attributable to Class A Shares, including advisory
fees (but excluding interest, taxes, portfolio transaction expenses,
blue sky fees, 12b-1 plan fees [if any such plan is adopted in the
future] and extraordinary expenses) will not exceed 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 April 30, 1997 (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).
<TABLE>
<CAPTION>
VOLUNTARY
EXPENSE EXPENSE
GUARANTEE LIMIT
--------- ---------
<S> <C> <C>
Global Short Bond Fund.......................... 0.70% 0.45%
Global Fixed Income Fund........................ 0.70% 0.70%
International Bond Fund......................... 0.70% 0.70%
Short Duration Tax Exempt Fund.................. 0.60% 0.45%
Tax Exempt Bond Fund............................ 0.60% 0.45%
U.S. Treasury Fund.............................. 0.60% 0.45%
Limited Maturity Fund........................... 0.60% 0.30%
Short Bond Fund................................. 0.60% 0.40%
Intermediate Bond Fund.......................... 0.60% 0.45%
Investment Quality Bond Fund.................... 0.60% 0.45%
Total Return Fund............................... 0.60% 0.45%
Global Balanced Fund............................ 0.85% 0.70%
International Equity Fund....................... 1.05% 0.90%
Growth & Income Fund............................ 0.80% 0.54%
Market Return 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 cumulative
amount of expenses subsidized for the Funds and will be recognized as
SEMI-ANNUAL REPORT 91
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
net expense in the statements of operations 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 April 30, 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.
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 SubAdvisor 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.
Payden & Rygel Distributors, a subsidiary of Payden & Rygel, serves as
the distributor for the Funds and is not entitled to receive any fees
from the Group under the distribution agreement.
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 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 April 30, 1997, the
92 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 97
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>
U.S. Treasury Fund............. $ 185,009 163,088
Investment Quality Bond Fund... 268,400 145,913
Total Return Fund.............. 27,473 13,500
Global Balanced Fund........... 34,584 21,000
International Equity Fund...... 36,218 24,500
Market Return Fund............. 150,941 15,100
</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.
SEMI-ANNUAL REPORT 93
<PAGE> 98
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
GLOBAL SHORT
BOND FUND
==============================
SIX MONTHS
ENDED PERIOD
APRIL 30, ENDED
1997 OCTOBER 31,
(UNAUDITED) 1996 (A)
=============== ===========
<S> <C> <C>
Net asset value -- beginning of period.............................. $ 10.07 $ 10.00
------------ ----------
Income (loss) from investment activities:
Net investment income............................................. 0.50 0.05
Net realized and unrealized gains (losses)........................ (0.18) 0.06
------------ ----------
Total from investment activities............................. 0.32 0.11
------------ ----------
Distributions to shareholders:
From net investment income........................................ (0.29) (0.04)
In excess of net investment income................................
From net realized gains...........................................
In excess of net realized gains...................................
------------ ----------
Total distributions to shareholders.......................... (0.29) (0.04)
------------ ----------
Net asset value -- end of period.................................... $ 10.10 $ 10.07
============ ==========
Total return........................................................ 3.25%* 1.10%*
============ ==========
Ratios/supplemental data:
Net assets, end of period (000)................................... $ 153,877 $28,913
Ratio of expenses to average net assets........................... 0.45%** 0.45%**
Ratio of net investment income to average net assets.............. 4.95%** 4.86%**
Ratio of expenses to average net assets prior to subsidies........ 0.54%** 2.31%**
Ratio of net investment income to average net assets prior to
subsidies...................................................... 4.86%** 3.00%**
Portfolio turnover rate........................................... 218.34%** 0.00%**
- ------------
(a) The Fund commenced operations on September 18, 1996.
(b) The Fund commenced operations on September 1, 1992.
* Not annualized
** Annualized
</TABLE>
See notes to financial statements.
94 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 99
<TABLE>
<CAPTION>
GLOBAL FIXED INCOME FUND
===========================================================================================
SIX MONTHS
ENDED YEAR YEAR YEAR YEAR PERIOD
APRIL 30, ENDED ENDED ENDED ENDED ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 1993 1992 (B)
========== =========== =========== =========== =========== ============
<S> <C> <C> <C> <C> <C> <C>
$ 10.35 $ 10.32 $ 9.77 $ 10.62 $ 9.96 $ 10.00
---------- ---------- ---------- ---------- ---------- ----------
0.70 0.54 0.89 0.44 0.46 0.05
(0.48) 0.19 0.53 (0.65) 0.69 (0.02)
---------- ---------- ---------- ---------- ---------- ----------
0.22 0.73 1.42 (0.21) 1.15 0.03
---------- ---------- ---------- ---------- ---------- ----------
(0.43) (0.70) (0.87) (0.42) (0.46) (0.05)
(0.02)
(0.22) (0.03)
---------- ---------- ---------- ---------- ---------- ----------
(0.43) (0.70) (0.87) (0.64) (0.49) (0.07)
---------- ---------- ---------- ---------- ---------- ----------
$ 10.14 $ 10.35 $ 10.32 $ 9.77 $ 10.62 $ 9.96
========== ========== ========== ========== ========== ==========
2.18%* 7.41% 15.10% -2.09% 11.88% 0.31%*
========== ========== ========== ========== ========== ==========
$597,510 $ 651,165 $ 540,041 $ 430,210 $ 296,958 $ 20,097
0.49%** 0.53% 0.50% 0.55% 0.70% 0.70%**
5.77%** 5.67% 8.94% 4.24% 4.22% 4.62%**
0.49%** 0.53% 0.50% 0.55% 0.68% 2.29%**
5.77%** 5.67% 8.94% 4.24% 4.24% 3.03%**
254.87%** 175.68% 226.72% 348.12% 252.97% 53.98%**
</TABLE>
SEMI-ANNUAL REPORT 95
<PAGE> 100
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
INTERNATIONAL BOND FUND
================================================
SIX MONTHS
ENDED APRIL 30, YEAR ENDED PERIOD ENDED
1997 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 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...................... 0.25 0.03 0.15
Net realized and unrealized gains
(losses)................................ (0.58) 0.42 0.09
------------ ---------- ----------
Total from investment activities...... (0.33) 0.45 0.24
------------ ---------- ----------
Distributions to shareholders:
From net investment income................. (0.10) (0.03) (0.15)
In excess of net investment income.........
From net realized gains.................... (0.07) (0.01) (0.04)
In excess of net realized gains............ (0.06) (0.01)
------------ ---------- ----------
Total distributions to shareholders... (0.17) (0.10) (0.20)
------------ ---------- ----------
Net asset value -- end of period............. $ 9.89 $ 10.39 $ 10.04
============ ========== ==========
Total return................................. -3.20%* 4.47% 2.43%*
============ ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)............ $22,432 $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.............................. 5.83%** 5.61% 5.24%**
Ratio of expenses to average net assets
prior to subsidies...................... 0.78%** 0.98% 1.64%**
Ratio of net investment income to average
net assets prior to subsidies........... 5.75%** 5.33% 4.30%**
Portfolio turnover rate.................... 218.63%** 216.80% 96.62%**
- ------------
(c) The Fund commenced operations on April 1, 1995.
(d) The Fund commenced operations on September 1, 1994.
* Not annualized
** Annualized
</TABLE>
96 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 101
<TABLE>
<CAPTION>
SHORT DURATION TAX EXEMPT FUND
================================================================
SIX MONTHS
ENDED APRIL 30, YEAR ENDED YEAR ENDED PERIOD ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (D)
=============== =========== =========== ============
<S> <C> <C> <C> <C>
$ 10.01 $ 10.08 $ 9.93 $ 10.00
------------ ---------- ---------- ----------
0.19 0.38 0.42 0.04
(0.01) (0.06) 0.15 (0.07)
------------ ---------- ---------- ----------
0.18 0.32 0.57 (0.03)
------------ ---------- ---------- ----------
(0.19) (0.38) (0.42) (0.04)
(0.01)
------------ ---------- ---------- ----------
(0.19) (0.39) (0.42) (0.04)
------------ ---------- ---------- ----------
$ 10.00 $ 10.01 $ 10.08 $ 9.93
============ ========== ========== ==========
1.82%* 3.28% 5.88% -0.35%*
============ ========== ========== ==========
$32,420 $36,336 $16,019 $ 20,150
0.45%** 0.45% 0.45% 0.45%**
3.84%** 3.81% 4.12% 3.20%**
0.66%** 0.70% 0.91% 2.87%**
3.63%** 3.56% 3.66% 0.78%**
29.95%** 34.72% 79.81% 0.00%**
</TABLE>
SEMI-ANNUAL REPORT 97
<PAGE> 102
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
TAX EXEMPT BOND FUND
===============================================================
SIX MONTHS YEAR YEAR PERIOD
ENDED APRIL 30, ENDED ENDED ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (E)
=============== =========== =========== ===========
<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......... 0.22 0.45 0.46 0.33
Net realized and unrealized
gains (losses)............. (0.06) (0.12) 0.69 (1.10)
------------ ---------- ---------- ----------
Total from investment
activities............ 0.16 0.33 1.15 (0.77)
------------ ---------- ---------- ----------
Distributions to shareholders:
From net investment income.... (0.22) (0.45) (0.46) (0.33)
In excess of net investment
income.....................
From net realized gains.......
In excess of net realized
gains......................
------------ ---------- ---------- ----------
Total distributions to
shareholders.......... (0.22) (0.45) (0.46) (0.33)
------------ ---------- ---------- ----------
Net asset value -- end of
period........................ $ 9.41 $ 9.47 $ 9.59 $ 8.90
============ ========== ========== ==========
Total return.................... 1.74%* 3.52% 13.25% -7.85%*
============ ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period
(000)...................... $48,365 $49,862 $40,052 $25,474
Ratio of expenses to average
net assets................. 0.45%** 0.45% 0.45% 0.50%**
Ratio of net investment income
to average net assets...... 4.75%** 4.73% 4.97% 4.47%**
Ratio of expenses to average
net assets prior to
subsidies.................. 0.60%** 0.61% 0.74% 1.07%**
Ratio of net investment income
to average net assets prior
to subsidies............... 4.60%** 4.57% 4.69% 3.90%**
Portfolio turnover rate....... 19.52%** 23.04% 41.87% 97.53%**
- ------------
(e) The Fund commenced operations on December 21, 1993.
(f) The Fund commenced operations on January 1, 1995.
* Not annualized
** Annualized
</TABLE>
See notes to financial statements.
98 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 103
<TABLE>
<CAPTION>
U.S. TREASURY FUND
===============================================
SIX MONTHS YEAR PERIOD
ENDED APRIL 30, ENDED ENDED
1997 OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 (F)
=============== =========== ===========
<S> <C> <C> <C>
$ 10.54 $ 10.61 $ 10.00
------------ ---------- ----------
0.30 0.58 0.53
(0.14) (0.04) 0.61
------------ ---------- ----------
0.16 0.54 1.14
------------ ---------- ----------
(0.30) (0.58) (0.53)
(0.03)
------------ ---------- ----------
(0.30) (0.61) (0.53)
------------ ---------- ----------
$ 10.40 $ 10.54 $ 10.61
============ ========== ==========
1.50%* 5.20% 11.61%*
============ ========== ==========
$21,524 $22,114 $10,894
0.45%** 0.45% 0.45%*
5.49%** 5.59% 6.31%**
0.63%** 0.78% 1.84%*
5.31%** 5.26% 4.92%**
154.57%** 151.83% 87.10%**
</TABLE>
SEMI-ANNUAL REPORT 99
<PAGE> 104
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
LIMITED MATURITY FUND
=============================================================
SIX MONTHS
ENDED APRIL 30, YEAR ENDED YEAR ENDED PERIOD ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (G)
=============== =========== =========== ============
<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........... 0.27 0.53 0.56 0.19
Net realized and unrealized
gains (losses)............... (0.02) 0.07 (0.01)
----------- ---------- ---------- ----------
Total from investment
activities.............. 0.25 0.53 0.63 0.18
----------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income...... (0.27) (0.53) (0.57) (0.18)
In excess of net investment
income.......................
From net realized gains.........
In excess of net realized
gains........................
----------- ---------- ---------- ----------
Total distributions to
shareholders............ (0.27) (0.53) (0.57) (0.18)
----------- ---------- ---------- ----------
Net asset value -- end of
period.......................... $ 10.04 $ 10.06 $ 10.06 $ 10.00
=========== ========== ========== ==========
Total return...................... 2.51%* 5.41% 6.43% 1.84%*
=========== ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period
(000)........................ $ 113,775 $50,771 $18,414 $ 14,248
Ratio of expenses to average net
assets....................... 0.30%** 0.30% 0.33% 0.41%**
Ratio of net investment income
to average net assets........ 5.47%** 5.45% 5.59% 4.74%**
Ratio of expenses to average net
assets prior to subsidies.... 0.51%** 0.62% 0.83% 2.92%**
Ratio of net investment income
to average net assets prior
to subsidies................. 5.26%** 5.13% 5.09% 2.23%**
Portfolio turnover rate......... 317.96%** 216.68% 166.07% 86.35%**
- ------------
(g) The Fund commenced operations on May 1, 1994.
(h) The Fund commenced operations on January 1, 1994.
* Not annualized
** Annualized
</TABLE>
100 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 105
<TABLE>
<CAPTION>
SHORT BOND FUND
================================================================
SIX MONTHS
ENDED APRIL 30, YEAR ENDED YEAR ENDED PERIOD ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (H)
=============== =========== =========== ============
<S> <C> <C> <C> <C>
$ 9.97 $ 10.04 $ 9.68 $ 10.00
----------- ---------- ---------- ----------
0.29 0.54 0.54 0.34
(0.07) (0.06) 0.36 (0.32)
----------- ---------- ---------- ----------
0.22 0.48 0.90 0.02
----------- ---------- ---------- ----------
(0.29) (0.54) (0.54) (0.34)
(0.01)
----------- ---------- ---------- ----------
(0.29) (0.55) (0.54) (0.34)
----------- ---------- ---------- ----------
$ 9.90 $ 9.97 $ 10.04 $ 9.68
=========== ========== ========== ==========
2.23%* 4.86% 9.56% 0.21%*
=========== ========== ========== ==========
$ 109,504 $97,966 $19,157 $ 2,592
0.40%** 0.40% 0.40% 0.48%**
5.80%** 5.67% 5.72% 4.47%**
0.50%** 0.57% 1.03% 4.56%**
5.70%** 5.50% 5.09% 0.39%**
191.79%** 212.44% 170.27% 186.85%**
</TABLE>
SEMI-ANNUAL REPORT 101
<PAGE> 106
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND
============================================================
SIX MONTHS YEAR YEAR PERIOD
ENDED APRIL 30, ENDED ENDED ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (H)
=============== =========== =========== ===========
<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................... 0.30 0.56 0.57 0.35
Net realized and unrealized gains
(losses)............................. (0.11) (0.17) 0.55 (0.70)
------------ ---------- ---------- ----------
Total from investment activities... 0.19 0.39 1.12 (0.35)
------------ ---------- ---------- ----------
Distributions to shareholders:
From net investment income.............. (0.30) (0.56) (0.57) (0.35)
In excess of net investment income......
From net realized gains................. (0.08)
In excess of net realized gains.........
------------ ---------- ---------- ----------
Total distributions to
shareholders.................... (0.30) (0.64) (0.57) (0.35)
------------ ---------- ---------- ----------
Net asset value -- end of period.......... $ 9.49 $ 9.60 $ 9.85 $ 9.30
============ ========== ========== ==========
Total return.............................. 2.02%* 4.06% 12.43% -3.52%*
============ ========== ========== ==========
Ratios/supplemental data:
Net assets, end of period (000)......... $35,968 $52,767 $34,391 $14,312
Ratio of expenses to average net
assets............................... 0.45%** 0.45% 0.45% 0.46%**
Ratio of net investment income to
average
net assets........................... 6.03%** 5.90% 6.10% 5.39%**
Ratio of expenses to average net assets
prior to subsidies................... 0.62%** 0.58% 0.68% 2.03%**
Ratio of net investment income to
average net assets prior to
subsidies............................ 5.86%** 5.77% 5.87% 3.82%**
Portfolio turnover rate................. 279.72%** 195.63% 189.00% 358.23%**
- ------------
* Not annualized
** Annualized
</TABLE>
See notes to financial statements.
102 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 107
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND FUND
===============================================================
SIX MONTHS YEAR YEAR PERIOD
ENDED APRIL 30, ENDED ENDED ENDED
1997 OCTOBER 31, OCTOBER 31, OCTOBER 31,
(UNAUDITED) 1996 1995 1994 (H)
=============== =========== =========== ===========
<S> <C> <C> <C> <C>
$ 9.81 $ 9.96 $ 9.09 $ 10.00
------------ ---------- ---------- ----------
0.30 0.63 0.57 0.37
(0.15) (0.17) 0.87 (0.91)
------------ ---------- ---------- ----------
0.15 0.46 1.44 (0.54)
------------ ---------- ---------- ----------
(0.30) (0.61) (0.57) (0.37)
------------ ---------- ---------- ----------
(0.30) (0.61) (0.57) (0.37)
------------ ---------- ---------- ----------
$ 9.66 $ 9.81 $ 9.96 $ 9.09
============ ========== ========== ==========
1.50%* 4.86% 16.39% -5.49%*
============ ========== ========== ==========
$48,141 $32,304 $25,822 $ 3,030
0.45%** 0.00% 0.45% 0.49%**
5.89%** 6.41% 6.20% 5.25%**
0.58%** 0.64% 1.11% 4.52%**
5.76%** 5.77% 5.55% 1.22%**
395.57%** 196.78% 252.09% 513.35%**
</TABLE>
SEMI-ANNUAL REPORT 103
<PAGE> 108
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
TOTAL RETURN GLOBAL BALANCED
FUND FUND
=============== ===============
PERIOD PERIOD
ENDED APRIL 30, ENDED APRIL 30,
1997 (J) 1997 (J)
(UNAUDITED) (UNAUDITED)
=============== ===============
<S> <C> <C>
Net asset value -- beginning of period.......................... $ 10.00 $ 10.00
------------ ------------
Income (loss) from investment activities:
Net investment income......................................... 0.20 0.05
Net realized and unrealized gains (losses).................... (0.17) (0.03)
------------ ------------
Total from investment activities......................... 0.03 0.02
------------ ------------
Distributions to shareholders:
From net investment income.................................... (0.16) (0.01)
In excess of net investment income............................
From net realized gains.......................................
In excess of net realized gains...............................
------------ ------------
Total distributions to shareholders...................... (0.16) (0.01)
------------ ------------
Net asset value -- end of period................................ $ 9.87 $ 10.01
============ ============
Total return.................................................... 0.31%* 0.22%*
============ ============
Ratios/supplemental data:
Net assets, end of period (000)............................... $12,583 $10,393
Ratio of expenses to average net assets....................... 0.45%** 0.69%**
Ratio of net investment income to average net assets.......... 6.06%** 3.67%**
Ratio of expenses to average net assets prior to subsidies.... 1.45%** 1.87%**
Ratio of net investment income to average net assets prior to
subsidies.................................................. 5.06%** 2.49%**
Portfolio turnover rate....................................... 292.49%** 186.95%**
- ------------
(i) The Fund commenced operations on December 1, 1995.
(j) The Fund commenced operations on December 9, 1996.
(k) The Fund commenced operations on November 1, 1996.
* Not annualized
** Annualized
</TABLE>
See notes to financial statements.
104 PAYDEN & RYGEL INVESTMENT GROUP
<PAGE> 109
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH &
EQUITY FUND INCOME FUND MARKET RETURN FUND
=============== =============== ===============================
PERIOD PERIOD SIX MONTHS PERIOD
ENDED APRIL 30, ENDED APRIL 30, ENDED APRIL 30, ENDED
1997 (J) 1997 (K) 1997 OCTOBER 31,
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1996 (I)
=============== =============== =============== ===========
<S> <C> <C> <C> <C>
$ 10.00 $ 10.00 $ 10.86 $ 10.00
---------- ------------ ------------ --------
0.05 0.08 0.30 0.50
0.17 1.29 1.13 0.86
---------- ------------ ------------ --------
0.22 1.37 1.43 1.36
---------- ------------ ------------ --------
(0.01) (0.08) (0.30) (0.50)
(0.45)
---------- ------------ ------------ --------
(0.01) (0.08) (0.75) (0.50)
---------- ------------ ------------ --------
$ 10.21 $ 11.29 $ 11.54 $ 10.86
========== ============ ============ ========
2.18%* 13.69%* 13.50%* 14.06%*
========== ============ ============ ========
$ 8,800 $81,567 $10,814 $ 5,789
0.89%** 0.53%** 0.45%** 0.00%**
1.35%** 1.66%** 5.55%** 5.95%**
2.12%** 0.90%** 1.24%** 4.14%**
0.12%** 1.29%** 4.76%** 1.81%**
60.56%** 4.89%** 293.99%** 146.31%**
</TABLE>
SEMI-ANNUAL REPORT 105
<PAGE> 110
PAYDEN & RYGEL INVESTMENT GROUP
333 SOUTH GRAND AVENUE, LOS ANGELES, CALIFORNIA 90071
1-800-5-PAYDEN
IMPORTANT INFORMATION: The information contained in this report is intended for
shareholders of the Payden & Rygel Funds only. It is not authorized for
distribution to prospective investors unless accompanied or preceded by a
current prospectus which provides further details.
The performance numbers presented in this report are derived from historical
market data. There is no guarantee of future performance nor are Fund shares
guaranteed. Investment return and principal value of an investment in a Fund
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. Fund shares are sold through Payden & Rygel
Distributors, member NASD.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> GLOBAL FIXED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 591,833
<INVESTMENTS-AT-VALUE> 580,989
<RECEIVABLES> 14,431
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,507
<TOTAL-ASSETS> 597,927
<PAYABLE-FOR-SECURITIES> 10
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407
<TOTAL-LIABILITIES> 417
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 603,500
<SHARES-COMMON-STOCK> 58,921
<SHARES-COMMON-PRIOR> 62,919
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 5,792
<ACCUMULATED-NET-GAINS> 8,695
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,893)
<NET-ASSETS> 597,510
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,317
<OTHER-INCOME> 0
<EXPENSES-NET> 1,514
<NET-INVESTMENT-INCOME> 17,803
<REALIZED-GAINS-CURRENT> 20,373
<APPREC-INCREASE-CURRENT> (24,474)
<NET-CHANGE-FROM-OPS> 13,702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,264
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,745
<NUMBER-OF-SHARES-REDEEMED> 13,993
<SHARES-REINVESTED> 2,250
<NET-CHANGE-IN-ASSETS> (53,655)
<ACCUMULATED-NII-PRIOR> 2,669
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 925
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,514
<AVERAGE-NET-ASSETS> 621,709
<PER-SHARE-NAV-BEGIN> 10.35
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> (0.48)
<PER-SHARE-DIVIDEND> 0.43
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TAX EXEMPT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 47,403
<INVESTMENTS-AT-VALUE> 47,725
<RECEIVABLES> 716
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 307
<TOTAL-ASSETS> 48,748
<PAYABLE-FOR-SECURITIES> 73
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 310
<TOTAL-LIABILITIES> 383
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,610
<SHARES-COMMON-STOCK> 5,139
<SHARES-COMMON-PRIOR> 5,266
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,586)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 327
<NET-ASSETS> 48,365
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,254
<OTHER-INCOME> 0
<EXPENSES-NET> 108
<NET-INVESTMENT-INCOME> 1,146
<REALIZED-GAINS-CURRENT> (111)
<APPREC-INCREASE-CURRENT> (182)
<NET-CHANGE-FROM-OPS> 853
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,139
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 557
<NUMBER-OF-SHARES-REDEEMED> 783
<SHARES-REINVESTED> 99
<NET-CHANGE-IN-ASSETS> (1,497)
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 145
<AVERAGE-NET-ASSETS> 48,551
<PER-SHARE-NAV-BEGIN> 9.47
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.41
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SHORT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 108,242
<INVESTMENTS-AT-VALUE> 108,080
<RECEIVABLES> 1,245
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 463
<TOTAL-ASSETS> 109,788
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 284
<TOTAL-LIABILITIES> 284
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,972
<SHARES-COMMON-STOCK> 11,065
<SHARES-COMMON-PRIOR> 9,829
<ACCUMULATED-NII-CURRENT> 28
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (334)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (163)
<NET-ASSETS> 109,504
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,430
<OTHER-INCOME> 0
<EXPENSES-NET> 221
<NET-INVESTMENT-INCOME> 3,209
<REALIZED-GAINS-CURRENT> 22
<APPREC-INCREASE-CURRENT> (782)
<NET-CHANGE-FROM-OPS> 2,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,203
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,814
<NUMBER-OF-SHARES-REDEEMED> 3,865
<SHARES-REINVESTED> 287
<NET-CHANGE-IN-ASSETS> 11,537
<ACCUMULATED-NII-PRIOR> 22
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 155
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 276
<AVERAGE-NET-ASSETS> 109,553
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERMEDIATE BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 38,292
<INVESTMENTS-AT-VALUE> 38,164
<RECEIVABLES> 394
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,228
<TOTAL-ASSETS> 40,786
<PAYABLE-FOR-SECURITIES> 4,601
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 217
<TOTAL-LIABILITIES> 4,818
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,853
<SHARES-COMMON-STOCK> 3,790
<SHARES-COMMON-PRIOR> 5,498
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (128)
<NET-ASSETS> 35,968
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,056
<OTHER-INCOME> 0
<EXPENSES-NET> 73
<NET-INVESTMENT-INCOME> 983
<REALIZED-GAINS-CURRENT> 285
<APPREC-INCREASE-CURRENT> (578)
<NET-CHANGE-FROM-OPS> 690
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 986
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,241
<NUMBER-OF-SHARES-REDEEMED> 3,109
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> (16,799)
<ACCUMULATED-NII-PRIOR> 12
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102
<AVERAGE-NET-ASSETS> 34,375
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.11)
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.49
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> INVESTMENT QUALITY BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 59,224
<INVESTMENTS-AT-VALUE> 59,004
<RECEIVABLES> 473
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6,113
<TOTAL-ASSETS> 65,590
<PAYABLE-FOR-SECURITIES> 17,222
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 227
<TOTAL-LIABILITIES> 17,449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,845
<SHARES-COMMON-STOCK> 4,983
<SHARES-COMMON-PRIOR> 3,294
<ACCUMULATED-NII-CURRENT> 16
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (500)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (220)
<NET-ASSETS> 48,141
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,408
<OTHER-INCOME> 0
<EXPENSES-NET> 100
<NET-INVESTMENT-INCOME> 1,308
<REALIZED-GAINS-CURRENT> (231)
<APPREC-INCREASE-CURRENT> (477)
<NET-CHANGE-FROM-OPS> 600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,359
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,831
<NUMBER-OF-SHARES-REDEEMED> 1,262
<SHARES-REINVESTED> 120
<NET-CHANGE-IN-ASSETS> 15,837
<ACCUMULATED-NII-PRIOR> 67
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 130
<AVERAGE-NET-ASSETS> 43,937
<PER-SHARE-NAV-BEGIN> 9.81
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.15)
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LIMITED MATURITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 121,459
<INVESTMENTS-AT-VALUE> 121,474
<RECEIVABLES> 535
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 414
<TOTAL-ASSETS> 122,423
<PAYABLE-FOR-SECURITIES> 8,298
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 350
<TOTAL-LIABILITIES> 8,648
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113,851
<SHARES-COMMON-STOCK> 11,334
<SHARES-COMMON-PRIOR> 5,048
<ACCUMULATED-NII-CURRENT> 30
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15
<NET-ASSETS> 113,775
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,294
<OTHER-INCOME> 0
<EXPENSES-NET> 119
<NET-INVESTMENT-INCOME> 2,175
<REALIZED-GAINS-CURRENT> (58)
<APPREC-INCREASE-CURRENT> (99)
<NET-CHANGE-FROM-OPS> 2,018
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,159
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,883
<NUMBER-OF-SHARES-REDEEMED> 5,812
<SHARES-REINVESTED> 215
<NET-CHANGE-IN-ASSETS> 63,004
<ACCUMULATED-NII-PRIOR> 13
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 111
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205
<AVERAGE-NET-ASSETS> 78,140
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.27
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SHORT DURATION TAX EXEMPT FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 31,982
<INVESTMENTS-AT-VALUE> 31,970
<RECEIVABLES> 474
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 218
<TOTAL-ASSETS> 32,662
<PAYABLE-FOR-SECURITIES> 20
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 222
<TOTAL-LIABILITIES> 242
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,448
<SHARES-COMMON-STOCK> 3,243
<SHARES-COMMON-PRIOR> 3,631
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (12)
<NET-ASSETS> 32,420
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 687
<OTHER-INCOME> 0
<EXPENSES-NET> 72
<NET-INVESTMENT-INCOME> 615
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> (65)
<NET-CHANGE-FROM-OPS> 570
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 610
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 965
<NUMBER-OF-SHARES-REDEEMED> 1,400
<SHARES-REINVESTED> 47
<NET-CHANGE-IN-ASSETS> (3,915)
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 105
<AVERAGE-NET-ASSETS> 32,842
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> 0.19
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> U.S. TREASURY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 21,341
<INVESTMENTS-AT-VALUE> 21,285
<RECEIVABLES> 240
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 159
<TOTAL-ASSETS> 21,684
<PAYABLE-FOR-SECURITIES> 22
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 139
<TOTAL-LIABILITIES> 161
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,759
<SHARES-COMMON-STOCK> 2,069
<SHARES-COMMON-PRIOR> 2,099
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (186)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (56)
<NET-ASSETS> 21,524
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 788
<OTHER-INCOME> 0
<EXPENSES-NET> 60
<NET-INVESTMENT-INCOME> 728
<REALIZED-GAINS-CURRENT> (51)
<APPREC-INCREASE-CURRENT> (292)
<NET-CHANGE-FROM-OPS> 385
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 729
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,066
<NUMBER-OF-SHARES-REDEEMED> 1,132
<SHARES-REINVESTED> 36
<NET-CHANGE-IN-ASSETS> (590)
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 37
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 83
<AVERAGE-NET-ASSETS> 26,742
<PER-SHARE-NAV-BEGIN> 10.54
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 22,485
<INVESTMENTS-AT-VALUE> 21,784
<RECEIVABLES> 603
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 174
<TOTAL-ASSETS> 22,561
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 130
<TOTAL-LIABILITIES> 130
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,022
<SHARES-COMMON-STOCK> 2,268
<SHARES-COMMON-PRIOR> 1,767
<ACCUMULATED-NII-CURRENT> 367
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (277)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (681)
<NET-ASSETS> 22,432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 624
<OTHER-INCOME> 0
<EXPENSES-NET> 67
<NET-INVESTMENT-INCOME> 557
<REALIZED-GAINS-CURRENT> (46)
<APPREC-INCREASE-CURRENT> (1,128)
<NET-CHANGE-FROM-OPS> (617)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 184
<DISTRIBUTIONS-OF-GAINS> 127
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 501
<NUMBER-OF-SHARES-REDEEMED> 27
<SHARES-REINVESTED> 27
<NET-CHANGE-IN-ASSETS> 4,067
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 110
<GROSS-ADVISORY-FEES> 29
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 75
<AVERAGE-NET-ASSETS> 19,413
<PER-SHARE-NAV-BEGIN> 10.39
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> (0.58)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MARKET RETURN FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 10,718
<INVESTMENTS-AT-VALUE> 10,729
<RECEIVABLES> 39
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 228
<TOTAL-ASSETS> 10,996
<PAYABLE-FOR-SECURITIES> 136
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,031
<SHARES-COMMON-STOCK> 937
<SHARES-COMMON-PRIOR> 533
<ACCUMULATED-NII-CURRENT> 3
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 762
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17
<NET-ASSETS> 10,814
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 215
<OTHER-INCOME> 0
<EXPENSES-NET> 16
<NET-INVESTMENT-INCOME> 199
<REALIZED-GAINS-CURRENT> 988
<APPREC-INCREASE-CURRENT> (243)
<NET-CHANGE-FROM-OPS> 944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 198
<DISTRIBUTIONS-OF-GAINS> 242
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 429
<NUMBER-OF-SHARES-REDEEMED> 60
<SHARES-REINVESTED> 35
<NET-CHANGE-IN-ASSETS> 5,025
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45
<AVERAGE-NET-ASSETS> 7,201
<PER-SHARE-NAV-BEGIN> 10.86
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 1.13
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0.45
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.54
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GLOBAL SHORT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 151,150
<INVESTMENTS-AT-VALUE> 147,885
<RECEIVABLES> 4,087
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,008
<TOTAL-ASSETS> 153,980
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103
<TOTAL-LIABILITIES> 103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153,697
<SHARES-COMMON-STOCK> 15,230
<SHARES-COMMON-PRIOR> 2,871
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 568
<ACCUMULATED-NET-GAINS> 2,210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,462)
<NET-ASSETS> 153,877
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,968
<OTHER-INCOME> 0
<EXPENSES-NET> 163
<NET-INVESTMENT-INCOME> 1,805
<REALIZED-GAINS-CURRENT> 2,210
<APPREC-INCREASE-CURRENT> (1,564)
<NET-CHANGE-FROM-OPS> 2,451
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,399
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,345
<NUMBER-OF-SHARES-REDEEMED> 207
<SHARES-REINVESTED> 221
<NET-CHANGE-IN-ASSETS> 124,964
<ACCUMULATED-NII-PRIOR> 25
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 198
<AVERAGE-NET-ASSETS> 72,138
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GROWTH & INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 80,832
<INVESTMENTS-AT-VALUE> 83,339
<RECEIVABLES> 25
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 263
<TOTAL-ASSETS> 83,627
<PAYABLE-FOR-SECURITIES> 2,020
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39
<TOTAL-LIABILITIES> 2,059
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79,081
<SHARES-COMMON-STOCK> 7,225
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 20
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,507
<NET-ASSETS> 81,567
<DIVIDEND-INCOME> 287
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> 256
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 2,507
<NET-CHANGE-FROM-OPS> 2,762
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 275
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,499
<NUMBER-OF-SHARES-REDEEMED> 297
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> 81,567
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 76
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 139
<AVERAGE-NET-ASSETS> 31,980
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.29
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.29
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> TOTAL RETURN FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 14,829
<INVESTMENTS-AT-VALUE> 14,808
<RECEIVABLES> 114
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 360
<TOTAL-ASSETS> 15,283
<PAYABLE-FOR-SECURITIES> 2,674
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26
<TOTAL-LIABILITIES> 2,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,649
<SHARES-COMMON-STOCK> 1,274
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 42
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (104)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4)
<NET-ASSETS> 12,583
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 210
<OTHER-INCOME> 0
<EXPENSES-NET> 14
<NET-INVESTMENT-INCOME> 196
<REALIZED-GAINS-CURRENT> (104)
<APPREC-INCREASE-CURRENT> (4)
<NET-CHANGE-FROM-OPS> 88
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 154
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,265
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 12,583
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 47
<AVERAGE-NET-ASSETS> 8,548
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> 0.16
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.87
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GLOBAL BALANCED FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 10,231
<INVESTMENTS-AT-VALUE> 10,264
<RECEIVABLES> 136
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 46
<TOTAL-ASSETS> 10,446
<PAYABLE-FOR-SECURITIES> 14
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40
<TOTAL-LIABILITIES> 54
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,388
<SHARES-COMMON-STOCK> 1,038
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 110
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 87
<NET-ASSETS> 10,392
<DIVIDEND-INCOME> 29
<INTEREST-INCOME> 111
<OTHER-INCOME> 0
<EXPENSES-NET> 22
<NET-INVESTMENT-INCOME> 118
<REALIZED-GAINS-CURRENT> (192)
<APPREC-INCREASE-CURRENT> 86
<NET-CHANGE-FROM-OPS> 12
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,040
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 10,393
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 60
<AVERAGE-NET-ASSETS> 8,276
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 8,434
<INVESTMENTS-AT-VALUE> 8,665
<RECEIVABLES> 40
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 136
<TOTAL-ASSETS> 8,841
<PAYABLE-FOR-SECURITIES> 12
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29
<TOTAL-LIABILITIES> 41
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,635
<SHARES-COMMON-STOCK> 862
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (96)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 228
<NET-ASSETS> 8,800
<DIVIDEND-INCOME> 50
<INTEREST-INCOME> 15
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 39
<REALIZED-GAINS-CURRENT> (96)
<APPREC-INCREASE-CURRENT> 228
<NET-CHANGE-FROM-OPS> 171
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 863
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 8,800
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61
<AVERAGE-NET-ASSETS> 7,651
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
