<PAGE> 1
As filed with the Securities and Exchange Commission on
April 17, 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. 29 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 32 [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:
[ ] 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)
----------
[X] 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
-i-
</TABLE>
<PAGE> 3
Part B: Information Required in
Statement of Additional Information
-----------------------------------
<TABLE>
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information Not Applicable
and History
13. Investment Objectives Investment Objectives
and Policies and Policies; Fundamental
and Operating Policies
14. Management of the Management of the Group
Registrant
15. Control Persons and Management of the Group
Principal Holders of
Securities
16. Investment Advisory Management of the Group:
and Other Services Other Information
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Information
Other Securities
19. Purchase, Redemption Purchases and Redemptions
and Pricing of Securities
Being Offered
20. Tax Status Taxation
21. Underwriters Management of the Group
22. Calculation of Fund Performance
Performance Data
23. Financial Statements Other Information
</TABLE>
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
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
___________, 1997
[GRAPHIC OMITTED]
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Funds in Review........................................................ 1
Expense Information ................................................... 4
Financial Highlights.................................................... 7
Net Asset Value......................................................... 25
Dividends, Distributions and Taxes...................................... 25
Investment Objectives and Policies ..................................... 28
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 ___________, 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 _______, 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 34. 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 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. Furthermore, the Total Return Fund may
invest up to 25% of its assets in fixed income securities that are below
investment grade and may invest a portion of its assets in securities which pay
principal and interest in foreign currencies.
The Limited Maturity Fund seeks to earn a total return that, over time, is
greater than that available from money market funds. Each other Fixed Income
Fund invests to earn a high level of total return, consistent with preservation
of capital. No Fund is constrained as to the final maturity of any single
investment. However, the average maturity of its portfolio is, under normal
market conditions, held to the limits discussed below.
The LIMITED MATURITY FUND is aimed at investors seeking more income than offered
from a money market fund and willing to accept some share-price volatility. The
Fund invests primarily in U.S. Treasuries and government agency securities,
money market securities, investment grade corporate debt and mortgage-backed
securities. Average portfolio maturity generally ranges between four and nine
months.
The SHORT BOND FUND invests primarily in U.S. Treasuries and government agency
securities, money market securities and investment grade corporate debt and
mortgage-backed securities. The Fund maintains a relatively short average
portfolio maturity of no more than three years.
The U.S. 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. In addition, 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. In addition, the Market Return Fund can 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
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
2
<PAGE> 9
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 in one of the top
two categories by at least one of the established rating agencies (e.g., AAA or
AA by Standard and Poor's Corporation). 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 and the United
Kingdom, and approximately ten issuers located in one or more of the other
countries included in the MSCI Europe Regional Index, in each case with the
highest dividend yields of all stocks 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 invest or may invest principally in debt securities, the
value of its portfolio will generally vary inversely with changes in interest
rates, and each Fund's ability to achieve its investment objective will depend
on the ability of issuers to pay their debt obligations when due.
The Growth & Income, International Equity and European Growth & Income Funds
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
3
<PAGE> 10
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
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
======================================== ======================
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
4
<PAGE> 11
<TABLE>
<CAPTION>
TOTAL OTHER TOTAL
ADVISORY OTHER FUND ADVISORY EXPENSES FUND
FIXED INCOME FUNDS FEES EXPENSES EXPENSES FEES (ESTIMATED)* EXPENSES
- ------------------ ---- -------- -------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
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 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
Fund**
Total Return Fund** 0.28% 0.17% 0.45% 0.28% 0.42% 0.70%
TAX EXEMPT FUNDS
- ----------------
Short Duration Tax Exempt 0.32% 0.13% 0.45% 0.32% 0.38% 0.70%
Fund
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 0.40% 0.30% 0.70% 0.40% 0.55% 0.95%
- ----------------------------- ----- ----- ----- ----- ----- -----
Fund
----
* Includes Shareholder Service Plan fee of 0.25%.
** Annualized estimate for the fiscal year ending October 31, 1997.
</TABLE>
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 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.
FUND EXPENSE LIMITS
- -------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
========================== ==========================
CURRENT CURRENT
VOLUNTARY VOLUNTARY
<S> <C> <C> <C> <C>
</TABLE>
5
<PAGE> 12
<TABLE>
<CAPTION>
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 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.
6
<PAGE> 13
The following table illustrates the expenses a shareholder would pay on a $1,000
investment over various time periods assuming (1) a 5% annual return and (2)
redemption at the end of each time period. As noted above, there are no Fund
redemption fees of any kind.
Expenses Per $1,000 Investment
- ------------------------------
<TABLE>
<CAPTION>
CLASS 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 $5 $15 $25 $57 $7 $23 $40 $89
Fund
Total Return Fund $5 $15 $25 $57 $7 $23 $40 $89
TAX EXEMPT FUNDS
Short Duration Tax Exempt $5 $15 $25 $57 $7 $23 $40 $89
Fund
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
GLOBAL FUNDS
Global Short Bond Fund $5 $15 $7 $23
Global Fixed Income Fund $5 $17 $30 $67 $10 $31
International Bond Fund $7 $22 $39 $87 $10 $31
Global Balanced Fund $7 $22 $10 $31
International Equity Fund $9 $29 $12 $37
European Growth & Income $7 $22 $10 $31
- ------------------------ -- --- --- ---
Fund
----
</TABLE>
The information in the table is provided for purposes of assisting current and
prospective shareholders in understanding the various costs and expenses that an
investor will bear, directly or indirectly. The hypothetical annual return of 5%
is used for illustrative purposes only and should not be interpreted as an
estimate of any Fund's annual returns, as there can be no guarantee of any
Fund's future performance.
FINANCIAL HIGHLIGHTS
The following financial highlights are included to assist shareholders in
evaluating the performance of the Funds since their commencement of operations.
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
7
<PAGE> 14
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)
(a) The Fund commenced operations on May 1, 1994.
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on January 1, 1995.
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on January 1, 1994.
(b) Not annualized
(c) Annualized
</TABLE>
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
FEBRUARY 28,
1997 (A)
------------
Net asset value, beginning of period $10.00
-----
<S> <C>
Income (loss) from investment activities:
Net investment income 0.13
Net realized and unrealized gains (losses) (0.10)
-----
Total from investment activities 0.03
-----
Distributions to shareholders:
From net investment income (0.10)
-----
Total distributions to shareholders (0.10)
-----
Net asset value, end of period $9.93
====
Total return 0.31%(b)
Ratios/supplemental data:
Net assets at end of period (000) $9,082
Ratio of expenses to average net assets 0.45%(c)
Ratio of net investment income to average net assets 5.96%(c)
Ratio of expenses to average net assets prior to subsidies 1.62%(c)
Ratio of net investment income to average net assets prior
to subsidies 4.79%(c)
Portfolio turnover rate 304.54%(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)
(a) The Fund commenced operations on September 1, 1994.
(b) Not annualized
(c) Annualized
</TABLE>
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
FEBRUARY 28,
1997(a)
------------
<S> <C>
Net asset value, beginning of period $10.00
-----
Income (loss) from investment activities:
Net investment income 0.06
Net realized and unrealized gains (losses) 1.27
-----
Total from investment activities 1.33
-----
Distributions to shareholders:
From net investment income (0.03)
-----
Total distributions to shareholders (0.03)
-----
Net asset value, end of period 11.30
=====
Total return 13.31%(b)
Ratios/supplemental data:
Net assets at end of period (000) $36,603
Ratio of expenses to average net assets 0.54%(c)
Ratio of net investment income to average net assets 2.26%(c)
Ratio of expenses to average net assets prior to subsidies 1.04%(c)
Ratio of net investment income to average net assets prior
to subsidies 1.76%(c)
Portfolio turnover rate 4.51%(c)
(a) The Fund commenced operations on November 1, 1996.
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on December 1, 1995
(b) Not annualized
(c) Annualized
</TABLE>
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
FEBRUARY 28, 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 0.39 0.05
Net realized and unrealized gains (losses) (0.16) 0.06
---- ----
Total from investment activities 0.23 0.11
---- ----
Distributions to shareholders:
From net investment income (0.17) (0.04)
---- ------
Total distributions to shareholders (0.17) (0.04)
---- ------
Net asset value, end of period $10.13 $10.07
===== ======
Total return 2.33%(b) 1.10%(b)
Ratios/supplemental data:
Net assets at end of period (000) $92,240 $28,913
Ratio of expenses to average net assets 0.45%(c) 0.45%(c)
Ratio of net investment income to average net assets 4.99%(c) 4.86%(c)
Ratio of expenses to average net assets prior to subsidies 0.60%(c) 2.31%(c)
Ratio of net investment income to average net assets prior
to subsidies 4.84%(c) 3.00%(c)
Portfolio turnover rate 178.66%(c) 0.00%(c)
(a) The Fund commenced operations on September 18, 1996.
(b) Not annualized
(c) Annualized
</TABLE>
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 30, 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%
(b) Not annualized
(c) Annualized
</TABLE>
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)
(a) The Fund commenced operations on September 1, 1992.
(b) Not annualized
(c) Annualized
</TABLE>
21
<PAGE> 28
PAYDEN & RYGEL
INTERNATIONAL BOND FUND
PER SHARE INCOME AND CAPITAL CHANGES
FOR A FUND SHARE OUTSTANDING
THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31,
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)
(a) The Fund commenced operations on April 1, 1995.
(b) Not annualized
(c) Annualized
</TABLE>
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
FEBRUARY 28,
1997(a)
------------
<S> <C>
Net asset value, beginning of period $10.00
-----
Income (loss) from investment activities:
Net investment income 0.01
Net realized and unrealized gains (losses) 0.02
Total from investment activities 0.03
Distributions to shareholders:
From net investment income (0.01)
Total distributions to shareholders (0.01)
Net asset value, end of period $10.02
=====
Total return 0.32%(b)
Ratios/supplemental data:
Net assets at end of period (000) $8,362
Ratio of expenses to average net assets 0.70%(c)
Ratio of net investment income to average net assets 3.09%(c)
Ratio of expenses to average net assets prior to subsidies 2.22%(c)
Ratio of net investment income to average net assets prior
to subsidies 1.57%(c)
Portfolio turnover rate 89.36%(c)
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
</TABLE>
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
FEBRUARY 28,
1997(a)
------------
<S> <C>
Net asset value, beginning of period $10.00
-----
Income (loss) from investment activities:
Net investment income 0.01
Net realized and unrealized gains (losses) 0.22
Total from investment activities 0.23
Distributions to shareholders:
From net investment income (0.01)
Total distributions to shareholders (0.01)
Net asset value, end of period $10.22
=====
Total return 2.28%(b)
Ratios/supplemental data:
Net assets at end of period (000) $7,629
Ratio of expenses to average net assets 0.90%(c)
Ratio of net investment income to average net assets 0.40%(c)
Ratio of expenses to average net assets prior to subsidies 2.26%(c)
Ratio of net investment income to average net assets prior
to subsidies -0.96%(c)
Portfolio turnover rate 30.65%(c)
(a) The Fund commenced operations on December 9, 1996.
(b) Not annualized
(c) Annualized
</TABLE>
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 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.
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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
fifteen 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 April 10,
1997, Tessera, Inc. held 30% of the outstanding shares of the Limited Maturity
Fund; Fluor Master Retirement Trust held 33% 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; and the Consuelo
Zobel Alger Foundation held 67% 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.
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INVESTMENT OBJECTIVES AND POLICIES
FIXED INCOME FUNDS
The Payden & Rygel Fixed Income Funds are designed to seek income and capital
gains where appropriate. The Funds which invest in intermediate 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.
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.
The TOTAL RETURN FUND seeks to realize a high level of total return consistent
with preservation of capital. It invests in fixed income securities which, in
the Adviser's view, have attractive yields and potential capital gains. The
Adviser actively manages the maturity and duration structure of the portfolio in
anticipation of long term trends in interest rates and inflation. Under normal
market conditions, the portfolio will have exposure to a wide variety of fixed
income securities in all market sectors. Some foreign fixed income securities
offer attractive returns and may be denominated in currencies which appear
relatively weak or are potentially volatile compared to the U.S. dollar. The
Total Return Fund will, when deemed appropriate by the Adviser, hedge this
currency exposure in order to protect the Fund's share price. Like the
Investment Quality Bond Fund, the Total Return Fund is not constrained with
respect to its average portfolio maturity.
Investments of the Total Return Fund will consist of (1) debt obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities; (2)
debt obligations issued or guaranteed by a foreign sovereign government or one
of its agencies, authorities, instrumentalities, or political subdivisions,
including foreign states, provinces or municipalities; (3) debt obligations
issued or guaranteed by supranational organizations such as
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<PAGE> 36
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.
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.
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Generally, the debt securities held by the Market Return Fund are rated
"investment grade" at the time of purchase by at least one of the established
rating agencies (e.g., AAA, AA, A, or BBB by Standard & Poor's) or, if unrated,
are determined to be of comparable quality by the Adviser. Securities rated BBB
are considered to have adequate capacity to pay interest and repay principal,
but adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and principal than higher rated
bonds. However, the Market Return Fund may invest up to 25% of its total assets
in debt rated below investment grade by an established rating agency or, if
unrated, determined by the Adviser to be of comparable quality. The Fund will
not hold any debt obligation rated below B by Standard & Poor's or Moody's, or a
comparable rating by another established rating agency, or, if unrated,
determined by the Adviser to be of comparable quality. Securities rated below B
by Standard & Poor's have greater vulnerability to default than higher-rated
securities, but currently have the capacity to meet interest payments and
principal repayments; however, adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. Further information regarding investment ratings is in 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, Standard & Poor's Depositary Receipts, 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
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swap contracts are likely to rise), when for any other reason the purchase of
such securities is less expensive than the cost of other equity-based
investments, or when the cash available for investment in stock index futures
and equity swap contracts is not sufficient to purchase an instrument with a
contract price in the desired amount. During such periods, the portion of Market
Return Fund's assets allocated to fixed income securities would be reduced.
Futures index contracts, which will generally be the majority of the Market
Return Fund's equity-based investments, require a small deposit called "initial
margin" at the time of acquisition (the equivalent of a good faith deposit).
This allows the Market Return Fund to invest the balance of its assets,
initially about 95% of the Fund's net assets, in other assets. The Market Return
Fund is required to maintain a segregated account with its Fund Custodian in an
amount which, when added to the amount held as initial margin, equals the
aggregate amount of the Fund's obligations under its long futures contract
positions. The debt securities purchased by the Fund will be deposited in the
segregated account for this purpose. The Fund cannot sell these securities until
the futures contracts are sold. Thus the Adviser anticipates that the Fund will
be able to meet its obligations under its futures contracts regardless of
movements in the equity markets.
This strategy creates financial leverage. For each dollar of net assets, the
Fund's portfolio contains approximately one dollar in equity market exposure and
one dollar in fixed income exposure. Consequently, the Fund is affected by price
movement in both the equity and fixed income markets.
Historically, short 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 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.
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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 AAA and AA by at least one of the rating
agencies.
The GLOBAL FIXED INCOME FUND seeks to realize a high level of total return
consistent with preservation of capital. It invests primarily in U.S. and
foreign government notes and bonds and U.S. and foreign corporate debt
securities. The Fund also has substantial investment in foreign currency
contracts in order to hedge foreign currency exposure. Under normal market
conditions, as a fundamental policy which cannot be changed without shareholder
approval, at least 65% of the Global Fixed Income Fund's total assets are
invested in debt securities of issuers 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.
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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 International 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.
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 the countries included in the MSCI
Europe Regional Index. The Fund intends to emphasize investments in the stocks
of issuers located in each of France, Germany and the United Kingdom, which have
the largest market capitalizations among countries in the MSCI Europe Regional
Index. In addition, the Fund intends to invest in stocks of issuers located in
one or more of the other countries included in the Index (currently, Austria,
Belgium, Denmark, Finland, Ireland, Italy, The Netherlands, Norway, Spain,
Sweden and Switzerland).
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 all common stocks included in each such country's
leading stock index. For example, the Fund may invest in the ten highest
yielding German 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 in a particular country, 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 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.
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.
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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.
Under normal circumstances, the Fund will invest primarily in the universe of
countries that are included in the Morgan Stanley Capital International World
Index ("MSCI"), 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. These countries
are sometimes referred to as "emerging".
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. 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.
The Total Return and Market Return Funds each may 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 difficulty. The market for such
securities may be
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<PAGE> 46
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 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.
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<PAGE> 47
REVERSE REPURCHASE AGREEMENTS. The Total Return and Global 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 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
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the ability of the facility's user to meet its financial obligations
and the pledge, if any, of real and personal property so financed as
security for such payment.
MUNICIPAL LEASE OBLIGATIONS AND CERTIFICATES OF PARTICIPATION. Both
Funds may invest in lease obligations issued by state or local
government authorities to acquire land and a wide variety of equipment
and facilities. These obligations typically are not fully backed by the
municipality's credit, and their interest may become taxable if the
lease is assigned. If funds are not appropriated for the following
year's lease payments, a Fund's only recourse may be to the leased
property securing payment, and disposition of the property might prove
difficult. In addition, as these securities represent a relatively new
type of financing, certain lease obligations may be considered to be
illiquid securities. Certificates of participation are issued by a
particular municipality or municipal authority to evidence a
proportionate interest in base rental or lease payments relating to a
specific project to be made by the municipality or authority.
TAX EXEMPT ZERO COUPON SECURITIES. Both Funds may invest in zero coupon
securities, which are debt securities issued or sold at a discount from
their face value. These securities do not entitle the holder to interest
payments prior to maturity or the specified redemption date, but instead
are redeemed at their face value upon maturity. The discount from face
value is amortized over the life of the security, and such amortization
will constitute the income earned on the security for accounting and tax
purposes. Even though income on such securities is accrued on a current
basis, a Fund does not receive such income currently in cash and may
have to sell other portfolio securities to obtain cash needed to make
income distributions. The price volatility of a zero coupon security is
greater than an interest-paying note of identical maturity.
EQUITY SECURITIES. 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
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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.
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 Standard & Poor's 500 Index, and changes in the prices of
SPDRs track the movement of the Index relatively closely. SPDRs are subject to
the risks of an investment in a broadly based portfolio of common stocks,
including the risk of declines in the general level of stock prices. They are
also subject to the risks of trading halts due to market conditions or other
reasons that, in the view of the 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 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 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
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advantage of buying opportunities. A Fund's reserves may be invested in domestic
and foreign money market instruments, including government obligations,
commercial paper and short-term corporate debt issues meeting the quality
standards described above; money market funds, certificates of deposit and
bankers' acceptances of banking institutions described in the Statement of
Additional Information; and repurchase agreements. Although there is no limit on
the percentage of a Fund's assets which may be maintained in such reserves,
under normal circumstances no more than 10% of its total assets is expected to
be maintained in such reserves.
ILLIQUID SECURITIES. Some debt obligations can be illiquid, meaning that they
may not be sold in the ordinary course of business within seven days at
approximately the price at which they are valued. A Fund will not invest more
than 15% of its net assets in illiquid securities. In accordance with guidelines
established by the Board, the Adviser or Sub-adviser will determine the
liquidity of each investment using various factors such as (1) the frequency of
trades and quotations, (2) the number of dealers and prospective purchasers in
the marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features) and (5) the likelihood of
continued marketability and credit quality of the issuer.
OPTIONS AND FUTURES CONTRACTS. Each Fund may purchase and sell covered put and
call options on securities and securities indexes, interest rate, foreign
currency and index futures contracts (agreements to take or make delivery of a
specified quantity of financial instruments at a specified price and date), and
put and call options on such futures contracts. Such options and futures
contracts are derivative instruments which may be traded on U.S. or foreign
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. 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
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price. Although the value of a futures contract may be a function of the value
of certain specified securities, no physical delivery of these securities is
made. Such futures contracts are derivative instruments which may be traded on
U.S. exchanges or with broker-dealers which maintain futures markets. Upon
entering into a futures contract, the Fund will be required to deposit with its
custodian in a segregated account in the name of its futures broker a specified
amount of cash or securities. This amount is known as "initial margin", and is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. Subsequent payments, called
"variation margin" to and from the broker, will be made on a daily basis as the
price of the index fluctuates, making the position in the futures contract more
or less valuable, a process known as "marking to market".
The following chart summarizes the types of futures and options transactions in
which the Funds may engage:
<TABLE>
<CAPTION>
TYPES OF CONTRACTS
====================================
OTHER
INTEREST SECURITY STOCK
RATE INDICES INDEX CURRENCY SECURITIES
---- ------- ----- -------- ----------
<S> <C> <C> <C> <C> <C>
Fixed Income Funds Yes Yes No No Yes
(except Total Return)
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 Yes Yes No Yes Yes
Bond, 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
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("notional") principal amount (e.g., an exchange of floating rate payments by
one party for fixed rate payments by the other). A cap or floor is a derivative
instrument which entitles the purchaser, in exchange for a premium, to receive
payments of interest on a notional principal amount from the seller of the cap
or floor, to the extent that a specified reference rate or reference index
exceeds or falls below a predetermined level.
A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
streams. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Group's
Custodian. If a Fund enters into a swap on other than a net basis, or sells caps
or floors, the Fund maintains a segregated account in the full amount accrued on
a daily basis of the Fund's obligations with respect to the transaction. Such
segregated accounts are maintained in accordance with applicable regulations of
the Securities and Exchange Commission.
EQUITY SWAP CONTRACTS. Each 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
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American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") and Global Depository Receipts ("GDRs"). Generally, an ADR is a
dollar-denominated security issued by a U.S. bank or trust company which
represents, and may be converted into, the underlying security that is issued by
a foreign company. Generally, an EDR represents a similar securities arrangement
but is issued by a European bank, while GDRs are issued by a depository. ADRs,
EDRs and GDRs may be denominated in a currency different from the underlying
securities into which they may be converted. Typically, ADRs, in registered
form, are designed for issuance in U.S. securities markets and EDRs, in bearer
form, are designed for issuance in European securities markets.
ADRs may be sponsored by the foreign issuer or may be unsponsored. Unsponsored
ADRs are organized independently and without the cooperation of the foreign
issuer of the underlying securities; as a result, available information
regarding the issuer may not be as current as for sponsored ADRs, and the prices
of unsponsored ADRs may be more volatile than if they were sponsored by the
issuers of the underlying securities.
COUNTRY FUNDS. Subject to the provisions of the Investment Company Act of 1940,
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.
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
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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.
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.
Under normal circumstances, all debt securities held by a Fund are rated
"investment grade" at the time of purchase by at least one of the established
rating agencies (e.g., AAA, AA, A or BBB by Standard & Poor's) 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. In addition, 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 the
Global Funds invest 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, Total Return, Market Return, Global Short
Bond 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 in the top two tiers of the
ratings issued 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, under normal circumstances the debt securities in which the Market
Return, Global Fixed Income, Global Short Bond, Global Balanced and
International Bond Funds invest are considered "high quality" at the time of
purchase (e.g., rated AAA or AA by Standard & Poor's) by at least one of the
established rating agencies, or if not rated are determined to be of comparable
quality by the Adviser.
Third, the Adviser actively manages the maturity of the Global and International
Bond Funds' portfolios 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 and Global Balanced Fund).
The Adviser receives a monthly fee from each Fund at the following annual rates:
the Limited Maturity, Short Bond, Treasury, Intermediate, 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 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 $1 billion of
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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, Treasury, Intermediate,
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 a sub-advisory agreement 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.
Investors Fiduciary Trust Company receives fees for fund accounting services and
dividend disbursing and transfer agency services.
Certain out-of-pocket expenses are also reimbursed at actual cost.
Advisory and administrative fees generally will be charged to each class of
shares based upon the assets of that class. Expenses attributable to a single
class of shares will be charged to that class.
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 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:
- - The shareholder's financial institution must be a member of the Automated
Clearing House System.
- - The shareholder must complete and return an Automated Investment Program
form along with a voided check or deposit slip at least 15 days prior to
the initial transaction.
- - An account with the Group must be established before the Electronic
Investment Plan goes into effect.
- - The Electronic Investment Plan will automatically terminate if all shares
are redeemed.
- - 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) or invest
under the Automated Investment Programs, special application forms must be
completed. Please be sure to ask for an IRA information kit. Transaction fees
may be charged for the purchase and/or sale of shares through a broker.
INITIAL INVESTMENT
BY CHECK - ALL FUNDS
- - Complete Application
- - Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
P.O. Box 419318
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Kansas City, MO 64141-6318
BY FEDERAL FUNDS WIRE
- - Complete application and mail to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318
- - WIRE FUNDS AS FOLLOWS WHEN APPLICATION HAS BEEN PROCESSED:
The Boston Safe Deposit and Trust Company
ABA 011001234
A/C #115762
Mutual Funds #6630
Credit to (name of Payden & Rygel Fund here) For Account of
(insert your account name here)
Please call the Group, at (213) 625-1900 or (800) 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,
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
_________, 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
_______, 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 _______, 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).
<PAGE> 73
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES AND POLICIES.................................................... 1
FUNDAMENTAL AND OPERATING POLICIES.................................................... 29
PORTFOLIO TRANSACTIONS................................................................ 31
VALUATION OF PORTFOLIO SECURITIES..................................................... 32
FUND PERFORMANCE...................................................................... 33
TAXATION.............................................................................. 35
MANAGEMENT OF THE GROUP............................................................... 41
PURCHASES AND REDEMPTIONS............................................................. 47
OTHER INFORMATION..................................................................... 47
APPENDIX A - DESCRIPTION OF RATINGS .................................................. 53
</TABLE>
<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, 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 (except for the portion of the
Total Return Fund's assets which may be invested in debt
securities below investment grade). However debt investments for
the Global and International Funds must be "high quality" as
discussed in the Prospectus. If the rating of a debt security in
which a Fund has made an investment falls below the investment
grade level (or below the B level for the Total Return Fund), 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 Fund 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.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in pools of mortgage loans made to
U.S. residential home
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<PAGE> 77
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 Fund)
will be rated "investment grade", at the time of purchase, by at least one of
the established rating agencies (e.g. AAA, AA, A or BAA by Standard & Poor's
Corporation) or, if unrated, will be determined to be of comparable quality by
the Adviser. 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.
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-
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<PAGE> 78
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 investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities.
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<PAGE> 79
ASSET BACKED RECEIVABLES
The Funds may purchase asset-backed securities including, but not limited to,
Certificates for Automobile Receivables ("CARSsm") and credit card receivable
securities. CARSsm represent undivided fractional interests in a trust with
assets consisting of a pool of motor vehicle retail installment sales contracts
and security interests in the vehicles securing these contracts. In addition to
the general risks pertaining to all asset-backed securities, CARSsm are subject
to the risks of delayed payments or losses if the full amounts due on underlying
sales contracts are not realized by the trust due to unanticipated legal or
administrative costs of enforcing the contracts, or due to depreciation, damage
or loss of the vehicles securing the contracts. Credit card receivable
securities are backed by receivables from revolving credit card accounts. Since
balances on revolving credit card accounts are generally paid down more rapidly
than CARSsm, issuers often lengthen the maturity of these securities by
providing for a fixed period during which interest payments are passed through
and principal payments are used to fund the transfer of additional receivables
to the underlying pool. The failure of the underlying receivables to generate
principal payments may therefore shorten the maturity of these securities. 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 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
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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 monitor the amount of illiquid
securities in each Fund's portfolio, to ensure compliance with the Fund's
investment restrictions.
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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
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 invest in other
countries as well when such investments are consistent with the Fund's
investment objective and policies.
<TABLE>
<S> <C> <C>
Pacific Basin Western Europe North America
- ------------- -------------- -------------
Australia Austria Canada
Japan Belgium United States
New Zealand Denmark
Hong Kong Finland
France
Germany
Ireland
Italy
Netherlands
Norway
Spain
Sweden
Switzerland
United Kingdom
</TABLE>
The International Equity Fund may invest as much as 20% of total assets in
countries whose long-term
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bonds are rated below investment grade.
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 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.
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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, 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:
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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 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.
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<PAGE> 85
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 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.
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<PAGE> 86
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 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
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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.
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
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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.
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.
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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 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.
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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 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
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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 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
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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 Fund is
covered by an option on the same security, currency or index purchased by the
Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of the Fund's securities during
the period the option was outstanding.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Funds may use interest rate, foreign currency or index futures contracts, as
specified in the Prospectus. An interest rate or foreign currency contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or foreign currency at a specified
price and time. A futures contract on an index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.
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A public market exists in futures contracts covering several indices as well as
a number of financial instruments and foreign currencies, including U.S.
Treasury bonds, U.S. Treasury notes, GNMA Certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit,
Eurodollar certificates of deposit, the Australian dollar, the Canadian dollar,
the British pound, the German mark, the Japanese yen, the Swiss franc and
certain multi-national currencies such as the European Currency Unit ("ECU").
Other futures contracts are likely to be developed and traded in the future. The
Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
The Funds may also purchase and write call and put options on futures contracts.
Futures options possess many of the same characteristics as options on
securities and indices. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
As long as required by regulatory authorities the Funds will use futures
contracts and futures options for hedging purposes and not for speculation and
will comply with applicable regulations of the Commodity Futures Trading
Corporation which limit trading of futures contracts (See "Limitations on the
Use of Futures and Options"). For example, a Fund might use futures contracts to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities which
the Fund intends to purchase. A Fund's hedging activities may include sales of
futures contracts as an offset against the effect of expected increases in
interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce a Fund's exposure to interest rate fluctuations, a Fund may be
able to hedge its exposure more effectively and at a lower cost by using futures
contracts and futures options.
When a purchase or sale of a futures contract is made by a Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on their initial margin
deposits. A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the futures commission merchant of the amount
one would owe the other if the futures contract expired. In computing daily net
asset value, the Funds will mark to market their open futures positions.
Each Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
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Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, a Fund realizes a capital loss. Conversely, if an offsetting sale price is
more than the original purchase price, a Fund realizes a capital gains; if it is
less, a Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS
A Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its Custodian (and
mark to market on a daily basis) cash, U.S. Government securities, or other
liquid securities that, when added to the amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract. Alternatively, a Fund may "cover" its position by purchasing a put
option on the same futures contract with a strike price as high or higher than
the price of the contract held by the Fund.
When selling a futures contract, a Fund will maintain with its Custodian (and
mark to market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, a Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's Custodian).
When selling a call option on a futures contract, a Fund will maintain with its
custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other liquid securities that, when added to the amounts deposited
with a futures commission merchant as margin, equal the total market value of
the futures contract underlying the call option. Alternatively, a Fund may cover
its position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.
When selling a put option on a futures contract, a Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other liquid securities that equal the purchase price of the
futures contract, less any margin on deposit. Alternatively, a Fund may cover
the position either by entering into a short position in the same futures
contract, or by owning a 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.
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In order to comply with applicable regulations of the Commodity Futures Trading
Commission ("CFTC") for exemption from the definition of a "commodity pool,"
each Fund is limited in its futures trading activities to: (1) positions which
constitute "bona fide hedging" positions within the meaning and intent of
applicable CFTC rules, and (2) other positions for the establishment of which
the aggregate initial margin and premiums (less the amount by which such options
are "in-the-money") do not exceed 5% of the Fund's net assets (after taking into
account unrealized gains and unrealized losses on any contracts it has entered
into).
The requirements for qualification as a regulated investment company also may
limit the extent to which the Funds may enter into futures, futures options or
forward contracts. See "Taxation."
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS
There are several risks associated with the use of futures contracts and futures
options as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the Fund securities being hedged. In addition, there
are significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses, because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or a futures option position, in which
event the Fund would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures 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.
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DEALER OPTIONS
The Funds may engage in transactions involving dealer options on securities,
currencies or indices as well as exchange-traded options. Certain risks are
specific to dealer options. While a Fund would look to a clearing corporation to
exercise exchange-traded options, if a Fund were to purchase a dealer option it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, a Fund may generally be able to realize the value
of a dealer option it has purchased only by exercising or reselling the option
to the dealer who issued it. Similarly, when a Fund writes a dealer option, the
Fund may generally be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to whom the Fund
originally wrote the option. While the Funds will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. Unless a Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the other party, the Funds may be
unable to liquidate a dealer option. With respect to options written by a Fund,
the inability to enter into a closing transaction may result in material losses
to the Fund. For example, since a Fund must maintain a secured position with
respect to any call option on security it writes, the Fund may not sell the
assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that many purchased dealer options
and the assets used to secure written dealer options are illiquid securities. A
Fund may treat the cover used for these written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Funds will treat certain dealer options as subject to the
Funds' limitation on illiquid securities. If the SEC changes its position on the
liquidity of dealer options on securities, currencies or indices, the Funds will
change their treatment of such instruments accordingly.
INTEREST RATE AND CURRENCY SWAPS
INTEREST RATE AND INDEX SWAPS
As indicated in the Prospectus, an interest rate swap is a contract between two
entities ("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to 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
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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 Total Return and Global Funds may invest in swap options. A swap
option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment to
enter into a swap that starts at some future date with specified rates. A swap
option may be structured European-style (exercisable on the pre specified date)
or American-style (exercisable during a designated period). The right pursuant
to a swap option must be exercised by the right holder. The buyer of the right
to pay fixed pursuant to a swap option is said to own a put. The buyer of the
right to receive fixed pursuant to a swap option is said to own a call.
CAPS AND FLOORS
Each of the Total Return and Global Funds may also invest in interest rate caps
and floors. An interest rate cap is a right to receive periodic cash payments
over the life of the cap equal to the difference between any higher actual level
of interest rates in the future and a specified strike (or "cap") level. The cap
buyer purchases protection for a floating rate move above the strike. An
interest rate floor is the right to receive periodic cash payments over the life
of the floor equal to the difference between any lower actual level of interest
rates in the future and a specified strike (or "floor") level. The floor buyer
purchases protection for a floating rate move below the strike. The strikes are
typically based on the three-month LIBOR (although other indices are available)
and are measured quarterly. Rights arising pursuant to both caps and floors are
exercised automatically if the strike is in the money. Caps and floors eliminate
the risk that the buyer fails to exercise an in-the-money option.
RISKS ASSOCIATED WITH SWAPS
The risks associated with interest rate and currency swaps and interest rate
caps and floors are similar to those described above with respect to dealer
options. In connection with such transactions, a Fund relies on the other party
to the transaction to perform its obligations pursuant to the underlying
agreement. If there were a default by the other party to the transaction, the
Fund would have
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contractual remedies pursuant to the agreement, but could incur delays in
obtaining the expected benefit of the transaction or loss of such benefit. In
the event of insolvency of the other party, the Fund might be unable to obtain
its expected benefit. In addition, while each Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be able
to close out such a transaction with the other party, or obtain an offsetting
position with any other party, at any time prior to the end of the term of the
underlying agreement. This may impair a Fund's ability to enter into other
transactions at a time when doing so might be advantageous.
FOREIGN CURRENCY TRANSACTIONS
Precise matching of the amount of forward currency contracts and the value of
the Total Return, Market Return and Global Funds' securities denominated in such
currencies will not generally be possible, since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Prediction of short-term currency
market movements is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. Under certain circumstances, a
Fund may commit a substantial portion of its assets to the consummation of these
contracts. No Fund will enter into such forward contracts or maintain a net
exposure to such contracts where the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's portfolio securities or other assets denominated in that
currency. Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, the Adviser believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of a Fund will be served by
doing so.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
It may be necessary for a Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If a Fund retains a portfolio security and engages in an off-setting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
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
25
<PAGE> 99
transactions described above. However, each Fund reserves the right to enter
into forward foreign currency contracts for different purposes and under
different circumstances. Use of forward currency contracts to hedge against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. Additionally, although such contracts tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, they also tend to limit any potential gain which might result from an
increase in the value of that currency.
Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.
LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may lend securities
with a value of up to 33% of its total assets to broker-dealers, institutional
investors or other persons. Each loan will be secured by collateral which is
maintained at no less than 100% of the value of the securities loaned by
"marking to market" daily. A Fund will have the right to call each loan and
obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within a longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. Loans will only be made to persons deemed by
the Adviser to be of good standing in accordance with standards approved by the
Board of Trustees and will not be made unless, in the judgment of the Adviser,
the consideration to be earned from such loans would justify the risk.
BORROWING
Each Fund may borrow for temporary, extraordinary or emergency purposes, or for
the clearance of transactions. The Investment Company Act of 1940 (the "1940
Act") requires each Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, a Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. To avoid the potential leveraging
effects of a Fund's borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Funds also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a 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
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<PAGE> 100
Individual foreign economies of certain countries may differ favorably or
unfavorably from the United States' economy in such respects as growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency, diversification and balance of payments position. The internal
politics of certain foreign countries may not be as stable as those of the
United States.
Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
CURRENCY FLUCTUATIONS
To the extent that a Fund invests in securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in that currency. Such changes will also affect the Fund's
income. The value of a Fund's assets may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
MARKET CHARACTERISTICS
The Group expects that most foreign securities in which the Funds invest will be
purchased in over-the-counter markets or on bond exchanges located in the
countries in which the principal offices of the issuers of the various
securities are located, if that is the best available market. Foreign bond
markets may be more volatile than those in the United States. While growing in
volume, they usually have substantially less volume than U.S. markets, and the
Funds' portfolio securities may be less liquid and more volatile than U.S.
Government securities. Moreover, settlement practices for transactions in
foreign markets may differ from those in United States markets, and may include
delays beyond periods customary in the United States.
Transactions in options on securities, futures contracts and futures options may
not be regulated as effectively on foreign exchanges as similar transactions in
the United States, and may not involve clearing mechanisms and related
guarantees. The value of such positions also could be adversely affected by the
imposition of different exercise terms and procedures and margin requirements
than in the United States. Foreign security trading practices, including those
involving securities settlement 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
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<PAGE> 101
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 countries within those countries, involve greater
risks than other foreign investments. Investments in emerging or developing
markets involve exposure to economic and legal structures that are generally
less diverse and mature (and in some cases the absence of developed legal
structures governing private and foreign investments and private property), and
to political systems which can be expected to have less stability, than those of
more developed countries. The risks of investment in such countries may include
matters such as relatively unstable governments, higher degrees of government
involvement in the economy, the absence until recently of capital market
structures or market-oriented economies, economies based on only a few
industries, securities markets which trade only a small number of securities,
restrictions on foreign investment in stocks, and significant foreign currency
devaluations and fluctuations.
Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in a Fund being forced to purchase securities at a
substantially higher priced than the current market, or to sell securities at
much lower prices than the current market.
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.
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<PAGE> 102
DURATION
One common measure of the price volatility of a fixed income security is
duration, a weighted average term-to-maturity of the present value of a
security's cash flows. As it is a weighted term-to-maturity, duration is
generally measured in years and can vary from zero to the time-to-maturity of
the security. Duration is a complex formula that utilizes each cash flow and the
market yield of the security. Bonds of the same maturity can have different
durations if they have different coupon rates or yields.
For securities which pay periodic coupons and have a relatively short maturity,
duration tends to approximate the time to maturity. As the maturity of the bond
extends, the duration also extends but at a slower rate. For example, the
duration of a 2-year security can be about 1.8 years; the duration of a 30-year
bond will be roughly 10 to 11 years. However, the duration of any security that
pays interest only at maturity is the time to maturity. Thus a 30-year zero
coupon bond has a duration of 30 years.
If the duration of the security is divided by the sum of one plus its yield, the
resultant number is called the modified duration of the security. Modified
duration is important to portfolio managers as it is used to determine the
sensitivity of the security to changes in interest rates. For small changes in
yield, the price of a security, as a percentage of its initial price, will move
inversely to the yield change by an amount equal to the modified duration times
the yield change. The market price of a security with a modified duration of ten
years will change twice as much as a security with a with a five year duration.
Modified duration is a much better indicator of price volatility than time to
maturity. For example, the times to maturity for a 30 year bond and a 30 year
zero coupon security are both 30 years. A portfolio manager using average
maturity to judge price volatility would expect to see no difference in
portfolio impact from these two securities (given equal yield). However, the
zero coupon bond will experience a percentage price change roughly three times
greater than the 30 year bond.
FUNDAMENTAL AND OPERATING POLICIES
The Funds have adopted the investment restrictions described below. Fundamental
policies of a Fund may not be changed without the approval of the lesser of (1)
67% of the Fund's shares present at a meeting of shareholders if the holders of
more than 50% of the outstanding shares are present in person or by proxy or (2)
more than 50% of the Fund's outstanding shares. Operating policies are subject
to change by the Board of Trustees without shareholder approval. Any investment
restriction 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).
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<PAGE> 103
(2) COMMODITIES. Purchase or sell commodities or commodity contracts, except
that (i) a Fund other than the Treasury Fund may enter into financial and
currency futures contracts and options on such futures contracts, (ii) a Fund
other than the Treasury, Short Duration and Tax Exempt Bond Fund may enter into
forward foreign currency exchange contracts (the Funds do not consider such
contracts to be commodities), and (iii) a Fund other than the Treasury Fund may
invest in instruments which have the characteristics of both futures contracts
and securities.
(3) LOANS. Make loans, except that (I) a Fund may purchase money market
securities and enter into repurchase agreements, (ii) a Fund may acquire bonds,
debentures, notes and other debt securities, and (iii) a Fund other than the
Treasury Fund may lend portfolio securities in an amount not to exceed 30% of
its total assets (with the value of all loan collateral being "marked to market"
daily at no less than 100% of the loan amount).
(4) MARGIN. Purchase securities on margin, except that (I) a Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) a Fund other than the Treasury Fund may make margin deposits in
connection with futures contracts and options on futures contracts.
(5) MORTGAGING. Mortgage, pledge, hypothecate or in any manner transfer any
security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in amounts not
exceeding 30% of the Fund's total assets valued at market at the time of the
borrowing.
(6) ASSETS INVESTED IN ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 5% of the value
of its total assets would be invested in the securities of any one issuer (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(7) SHARE OWNERSHIP OF ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the value of a Fund's total assets, more than 10% of the
outstanding voting securities of any issuer would be held by the Fund (other
than obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
(8) REAL ESTATE. Purchase or sell real estate (although it may purchase
securities secured by real estate partnerships or interests therein, or issued
by companies or investment trusts which invest in real estate or interests
therein) or real estate limited partnership interests.
(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.
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<PAGE> 104
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 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.
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<PAGE> 105
Some securities considered for investment by a Fund's portfolio may also be
appropriate for other clients served by the Adviser or Sub-Adviser. If a
purchase or sale of securities consistent with the investment policies of a Fund
is considered at or about the same time as a similar transaction for one or more
other clients served by the Adviser or Sub-Adviser, transactions in such
securities will be allocated among the Fund and other clients in a manner deemed
fair and reasonable by the Adviser or Sub-Adviser. Although there is no
specified formula for allocating such transactions, the various allocation
methods used by the Adviser, and the results of such allocations, are subject to
periodic review by the Board of Trustees.
The Adviser and Sub-Adviser each manages the Funds without regard generally to
restrictions on portfolio turnover, except those imposed on its ability to
engage in short-term trading by provisions of the federal tax laws (see
"Taxation"). Trading in fixed-income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
The higher the rate of portfolio turnover, the higher these transaction costs
borne by the Funds generally will be. The turnover rate of a Fund is calculated
by dividing (a) the lesser of purchases or sales of portfolio securities for a
particular fiscal year by (b) the monthly average of the value of the portfolio
securities owned by the Fund during the fiscal year. In calculating the rate of
portfolio turnover, all securities, including options, whose maturities or
expiration dates at the time of acquisition were one year or less, are excluded.
Interest rate and currency swap, cap and floor transactions do not affect the
calculation of portfolio turnover.
The only Funds which paid brokerage commissions during the last three fiscal
years are noted below:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31
================================================
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.
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.
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<PAGE> 106
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 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
33
<PAGE> 107
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 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
34
<PAGE> 108
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 April 30, 1997 were as follows:
<TABLE>
<CAPTION>
Annualized
Return Since
1 Year Inception Inception Date
------ --------- --------------
<S> <C> <C> <C>
Limited Maturity Fund May 1, 1994
Short Bond Fund January 1, 1994
U.S. Treasury Fund January 1, 1995
Intermediate Bond Fund January 1, 1994
Investment Quality Bond Fund January 1, 1994
Total Return Fund December 9, 1996
Short Duration Tax Exempt Fund September 1, 1994
Tax Exempt Bond Fund December 21, 1993
Growth & Income Fund November 1, 1996
Market Return Fund December 1, 1995
Global Short Bond Fund September 18, 1996
Global Fixed Income Fund September 1, 1992
International Bond Fund April 1, 1995
Global Balanced Fund December 9, 1996
International Equity Fund December 9, 1996
</TABLE>
* Unnannualized
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
35
<PAGE> 109
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 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
36
<PAGE> 110
distributions are received. To avoid application of the excise tax, the Funds
intend to make their distributions in accordance with the calendar year
distribution requirement.
DISTRIBUTIONS
The Short Duration and Tax Exempt Bond Funds intend to qualify to pay
"exempt-interest" dividends to its shareholders, who may exclude those dividends
from their gross income for federal income tax purposes. In order to be able to
pay those dividends, a Fund must satisfy the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
With the exception of the Short Duration and Tax Exempt Bond Funds, dividends
paid out of a Fund's investment company taxable income will be taxable to a U.S.
shareholder as ordinary income. Distributions received by tax-exempt
shareholders will not be subject to federal income tax to the extent permitted
under the applicable tax exemption.
Dividends paid by a Fund generally are not expected to qualify for the deduction
for dividends received by corporations. Distributions of net capital gains, if
any, are taxable as long-term capital gains, regardless of how long the
shareholder has held a Fund's shares and are not eligible for the dividends
received deduction. The tax treatment of dividends and distributions will be the
same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
HEDGING TRANSACTIONS
Many of the options, futures contracts and forward contracts used by the Funds
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by a Fund at the end of each
taxable year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss, depending
on the circumstances.
Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a Fund, may result in "straddles"
for U.S. federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the
investment company taxable income or net capital gain for the taxable year in
which such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
Each Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
37
<PAGE> 111
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.
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
38
<PAGE> 112
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-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
39
<PAGE> 113
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 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.
40
<PAGE> 114
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
P.O. Box 1009 Graduate School of Management at
Pauma Valley, CA 92061 University of California, Los Angeles;
Director, The Timken Company (since
February, 1994); Trustee for PIC
Institutional Growth Portfolio, PIC
Institutional Balanced Portfolio and PIC
Small Capital Portfolio (since June,
1992)
Thomas McKernan, Jr. (1) Trustee President and Chief Executive Officer,
2601 South Figueroa Street Automobile Club of Southern California
Los Angeles, CA 90007
Dennis C. Poulsen Trustee President and Chief Executive Officer,
3900 South Workman Mill Road Rose Hills Company
Whittier, CA 90601
Stender E. Sweeney Trustee Private Investor since 1994; previously
Times Mirror Square Vice President, Finance, Times Mirror
Fifth Floor Company
Los Angeles, CA 90053
W.D. Hilton, Jr. Trustee Managing Trustee, NGC Settlement Trust;
310 East Interstate 30, Suite 285 previously Chief Financial Officer,
Garland, TX 75043 Texas Association of School Boards and
Board Member, First Greenville National
Bank
</TABLE>
* An "interested person" of the Group, as defined in the 1940 Act.
(1) Ms. Payden is a Director of the Automobile Club of Southern California, of
which Mr. McKernan is President and Chief Executive Officer.
41
<PAGE> 115
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
Aggregate Benefits Annual Compensation
Compensation Accrued as Benefits from Group and
from Group Part of Upon Group Complex
Name Expenses Group 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>
OFFICERS:
<TABLE>
<CAPTION>
Position with Principal Occupations
Name the Group During Past Five Years
- ---- --------- ----------------------
<S> <C> <C>
Shirley T. Hosoi Vice President, Chief Chief Operating Officer,
Operating Officer Payden & Rygel (since 1996);
previously, First Interstate
Bancorp: Director of
Corporate Communications,
Executive Assistant to the
Chairman and President and
CEO, First Interstate
Franchise Services
Thomas Barrett Vice President, Treasurer Controller, Payden & Rygel
(since 1995); previously,
Manager, Finance and
Administration, Marine Spill
Response Corp.
David L. Wagner Vice President Portfolio Manager, Payden &
Rygel
Gregory P. Brown Vice President, Institutional Marketing,
Payden & Rygel (since 1996);
previously, Vice President,
Corporate Banking at Wells
Fargo Bank
</TABLE>
42
<PAGE> 116
<TABLE>
<S> <C> <C>
Carole Trist Secretary Mutual Fund Administration,
Payden & Rygel (since 1997);
previously, Manager, Mutual
Fund Operations, Payden &
Rygel
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
</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 $5 billion invested globally.
The Adviser's focus is the management of fixed income securities in both the
domestic and global markets. These include securities that have absolute or
average maturities out to five years with a bias toward very high quality and
liquidity. Portfolios are actively managed according to client approved
guidelines and benchmarks. Payden & Rygel also utilizes futures and options
strategies, primarily as defensive measures to control interest rate and
currency volatility.
The Adviser provides investment management services to the Funds pursuant to an
Investment Management Agreement with the Group dated as of June 24, 1992 as
amended on June 14, 1994 with respect to Class 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 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
43
<PAGE> 117
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
</TABLE>
* Fund had not commenced operations
The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to each Fund until
June 14, 1995 and thereafter for successive annual periods, subject to annual
approval by the Board of Trustees (or by a majority of the outstanding voting
shares of each Fund as defined in the 1940 Act) and by a majority of the
Trustees who are not interested persons of any party to the Agreement by vote
cast in person at a meeting called for such purpose. The Agreement terminates
upon assignment and may be terminated with respect to a Fund without penalty on
60 days' written notice at the option of either party thereto or by the vote of
the shareholders of the Fund.
SUB-ADVISER
The Sub-adviser provides investment management services to the International
Equity and Global Balanced Funds pursuant to the
44
<PAGE> 118
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 Adviser dated as of
June __, 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 obligations 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 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
</TABLE>
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<TABLE>
<S> <C> <C> <C>
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
</TABLE>
* Fund had not commenced operations
DISTRIBUTOR
Payden & Rygel Distributors, 333 South Grand Avenue, Los Angeles, California
90071, acts as Distributor to the Group pursuant to a Distribution Agreement
with the Group dated as of June 24, 1992, as amended. The Distributor has agreed
to use its best efforts to effect sales of shares of the Funds, but is not
obligated to sell any specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Investment Management Agreement described above. Pursuant to the Agreement,
the Group has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of 1933.
No compensation is payable by the Funds to the Distributor for its distribution
services. The Distributor pays for the personnel involved in accepting orders
for purchase and redemption of Fund shares, expenses incurred in connection with
the printing of Prospectuses and Statements of Additional Information (other
than those sent to existing shareholders), sales literature, advertising and
other communications used in the public offering of shares of a Fund, and other
expenses associated with performing services as distributor of the Funds'
shares. Each Fund pays the expenses of issuance, registration and transfer of
its shares, including filing fees and legal fees.
SHAREHOLDER SERVICE PLAN
Pursuant to the Shareholder Service Plan, each Fund will pay the Distributor for
expenses incurred in connection with non-distribution shareholder services
provided by the Distributor to securities broker-dealers and other securities
professionals ("Service Organizations") with respect to Class B shares of a
Fund, and to the beneficial owners of such shares, and for fees paid by the
Distributor to such Service Organizations for the provision of support services
to their clients who are beneficial owners of Class B shares ("Clients").
Support services provided pursuant to the Shareholder Service Plan include (a)
establishing and maintaining accounts and records relating to Clients who invest
in Class B shares; (b) aggregating and processing purchase, exchange and
redemption requests for Class B shares from Clients and placing net purchase and
redemption orders with respect to such shares; (c) investing, or causing to be
invested, the assets of Clients' accounts in Class B shares pursuant to specific
or pre-authorized instructions; (d) processing dividend and distribution
payments from the Group on behalf of Clients; (e) providing information
periodically to Clients showing their positions in Class B shares; (f) arranging
for bank wires; (g) responding to Client inquiries relating to the services
performed by Service Organizations; (h) providing sub-accounting services with
respect to Class B shares beneficially owned by Clients or the 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
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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 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
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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, 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 April 10, 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, 29.6%; Directors Guild of America, Los Angeles, CA 90071, 13.3%;
Northwest Building Corporation, Seattle, WA 98104, 5.6%; Infirmary Health
Systems Inc., Mobile, AL 36633, 7.9%; Casa de Las Campanas, San Diego, CA 92127,
5.6%; Archstone Foundation, Long Beach, CA 90802, 5%.
As of April 10, 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, Nevada 89512, 24.1%; Michigan Conference of Teamsters Welfare
Fund, Detroit, MI 48216, 18.4%; Dan Murphy Foundation, Los Angeles, CA 90016,
7.1%.
As of April 10, 1997, the following persons held of record more than 5% of the
outstanding shares of the U.S. Treasury Fund: Dan Murphy Foundation, Los Angeles
CA 90016, 15.6%; Leonard C. Horvitz, Moreland Hills, OH 44122, 16.1%; Best
Products Co. Inc. Pension, Richmond, VA 23260, 15.6%; Carol Ann Leif, Beverly
Hills, CA 90210, 9.3%; Rose Hills Memorial Park, Calabasas, CA 91302, 6.5%;
Casey Myers Trust, Beverly Hills, CA 90210, 5.2%.
As of April 10, 1997, the following persons held of record more than 5% of the
outstanding shares of the Intermediate Bond Fund: Lon V. Smith Foundation,
Beverly Hills, CA 90210, 21.2%; Children's Memorial Hospital Pension, Chicago,
IL 60675, 18.6%; North Hills Passavant, Philadelphia, PA 19182, 14.0%; Passavant
Hospital Pension, Philadelphia, PA 19182, 10.8%; SSMHCS Liability Trust, St.
Louis, MO 63166, 9.0%; Augustana College, Rock Island, IL 61201, 7.8%.
As of April 10, 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, 24.2%; World Cup USA 1994, Inc., Los Angeles,
CA 90067, 11.2%; FMTC Premier Trust, N. Quincy, MA
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<PAGE> 122
02171, 12.6%; Dan Murphy Foundation, Los Angeles, CA 90016, 8.4%; Southern
California Presbyterian Homes Operating Fund, Glendale, CA 91202, 10.3%; House
Ear Institute Endowment, Los Angeles, CA 90057, 5.2%.
As of April 10, 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, 13.8%; Carol Ann Leif, Beverly Hills, CA 90210, 17.6%; Kleiner
Family Trust, Menlo Park, CA 94025, 6.0%; Diane Von Furstenberg, New Milford, CT
06766, 7.4%; Wertheimer Family Trust, Santa Monica, CA 90402, 6.6%; Beverly
Haas, Los Angeles, CA 90027, 5.3%; Casey Myers Trust, Beverly Hills, CA 90210,
10.6%; Nordskog Family Trust, Tarzana, CA 91356, 6.1%.
As of April 10, 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, 19.4%; Wertheimer Family Trust, Santa Monica, CA 90402, 14.3%;
Clack & Co., Spokane, WA 99202, 10.0%; Charles S. Paul Living Trust, Los
Angeles, CA 90077, 8.4%.
As of April 10, 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, 24.1%; Dan Murphy Foundation, Los Angeles, CA 90016, 18.7%;
Payden and Rygel II, Los Angeles, CA 90071, 15.9%; Beverly Haas, Los Angeles, CA
90027, 11.0%; Roth Family Foundation, Beverly Hills, CA 90210, 5.7%.
As of April 10, 1997, the following persons held of record more than 5% of the
outstanding shares of the Global Short Bond Fund: Kaiser Permanente Retirement
Plan, Los Angeles, CA 90071, 16.4%; Bert Bell NFL Retirement Plan, Brooklyn, NY
11231, 10.2%; Hoag Memorial Hospital Board, Los Angeles, CA 90051, 10.6%; Grey
Advertising, Inc., New York, NY 10017, 5.2%; Joint Industry Board of the
Electrical Industry, Flushing, NY 11365, 16.3%.
As of April 10, 1997, the following persons held of record more than 5% of the
outstanding shares of the Global Fixed Income Fund: UniHealth, Pittsburgh, PA
15230, 8.8%; City of St. Louis, St. Louis MO, 63103, 5.9%; Sheinberg Family
Trust, Beverly Hills, CA 90210, 5.65%; Federated Dept. St. Inc., Brooklyn, NY
12131, 5.3%.
As of April 10, 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, 67.2%; Liz Claiborne Profit Sharing, North Bergen, NJ 07047, 14.7%;
Liz Claiborne Foundation, North Bergen, NJ 07047, 5.2%. As of April 10, 1997,
the following persons held of record more than 5% of the outstanding shares of
the International Equity Fund: Scottish Widows Investment Management, Scotland,
25.9%; Dan Murphy Foundation, Los Angeles, CA 90016, 12.95%; Teague Family Trust
#2, Palos Verdes, CA 90274, 10.4%; Teague Family Trust #1, Palos Verdes, CA
90274, 9.0%; Carol Ann Leif, Beverly Hills, CA 90210, 7.2%; Lynne K. Wasserman,
Beverly Hills, CA 90210, 6.5%.
As of April 10, 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, 7.7%; Payden and Rygel II, Los Angeles, CA 90071, 6.4%.
As of April 10, 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, 32.6%; Payden and Rygel II, Los Angeles, CA 90071, 16.2%;
Rose Hills Memorial Park, Calabasas, CA 91302, 16.0%;
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<PAGE> 123
Mark and Pat Benjamin, Palos Verdes Estates, CA 90274, 7.2%; Kleiner Family
Trust, Menlo Park, CA 94025, 20.2%.
As of April 10, 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, Los Angeles, CA 9071, 12.3%; Dan Murphy
Foundation, Los Angeles, CA 90016, 9.6%; Carol Ann Leif, Beverly Hills, CA
90210, 8.7%.
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 Growth & Income
Fund, 8%; Market Return Fund, 16%; Global Balanced Fund, 12.3%; and Total Return
Fund, 16%).
DECLARATION OF TRUST
Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of a Fund. However, the Declaration
of Trust disclaims liability of the shareholders of a Fund for acts or
obligations of the Group, which are binding only on the assets and property of
the Fund, and requires that notice of the disclaimer be given in each contract
or obligation entered into or executed by a Fund or the Trustees. The
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder held personally liable for the obligations
of a Fund. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable to meet its obligations and thus should be considered remote.
The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will any
officer or Trustee be personally liable to the Group or its shareholders except
by reason of his own bad faith, willful misfeasance, gross negligence in the
performance of his duties or reckless disregard of his obligations and duties.
With these exceptions, the Declaration of Trust provides that a Trustee or
officer of the Group is entitled to be indemnified against all liabilities and
expenses, including reasonable accountants' and counsel fees, incurred by the
Trustee or officer in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee or officer.
CLASS B SHARES
The 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
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<PAGE> 124
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.
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.
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<PAGE> 125
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.
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" ad "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
56
<PAGE> 130
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.
57
<PAGE> 131
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.
Registrant's unaudited Statements of Assets and Liabilities as
of February 28, 1997, Statements of Operations for the periods
ended February 28, 1997, Statements of Changes in Net Assets
for the periods ended February 28, 1998, and Schedules of
Portfolio Investments as of February 28, 1997, with respect to
its Global Short Bond, Total Return, Growth & Income, Global
Balanced and International Equity Funds are included in Part
B.
(b) Exhibits:
(1.1) Master Trust Agreement of Registrant (a).
(1.2) Certificate of Amendment of Master Trust Agreement (b).
(1.3) Amendment No. 2 to the Master Trust Agreement dated
September 16, 1993 (c).
(1.4) Amendment No. 3 to the Master Trust Agreement dated
December 13, 1993 (d).
(1.5) Amendment No. 4 to the Master Trust Agreement dated
March 17, 1994 (e).
(1.6) Amendment No. 5 to the Master Trust Agreement dated as of
August 31, 1994 (f).
(1.7) Amendment No. 6 to the Master Trust Agreement (g).
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<PAGE> 132
(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 of June 14,
1994 with respect to Class B shares (e).
C-2
<PAGE> 133
(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.
(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).
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(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 Individual Retirement Account
Disclosure Statement, including related application
material.
(14.2) Form of Payden & Rygel Investment Group Section
403(b)(7) Custodial Account Agreement, including
related application material.
(15) None.
(16) Total return calculations (o).
(17) Financial Data Schedule.
(18) Multiple Class Plan (l).
(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).
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<PAGE> 135
- ------------------------------
(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.
(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.
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<PAGE> 136
(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.
Item 25. Persons Controlled by or Under Common Control with Registrant.
As of April 10, 1997, the following persons held of record more than
25% of the outstanding shares of the following classes of shares of Registrant:
Payden & Rygel International Bond Fund, Class A -- Consuelo Zobel Alger
Foundation (67%); Payden & Rygel Limited Maturity Fund, Class A -- Tessera, Inc.
(30.0%); 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 -- Fluor Master Retirement
Trust (33%).
Item 26. Number of Holders of Securities.
As of March 31, 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
</TABLE>
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<PAGE> 137
<TABLE>
<S> <C>
Shares of beneficial interest of Payden
& Rygel International Bond Fund - Class A 6
- Class B 0
Shares of beneficial interest of Payden
& Rygel Tax Exempt Bond Fund - Class A 66
- Class B 0
Shares of beneficial interest of Payden
& Rygel Short Duration Tax Exempt Fund
- Class A 47
- Class B 0
Shares of beneficial interest of Payden
& Rygel Short Bond Fund - Class A 48
- Class B 0
Shares of beneficial interest of Payden
& Rygel Intermediate Bond Fund - Class A 30
- Class B 0
Shares of beneficial interest of Payden
& Rygel Investment Quality Bond
Fund - Class A 45
- Class B 0
Shares of beneficial interest of Payden
& Rygel Limited Maturity Fund - Class A 126
- Class B 0
Shares of beneficial interest of Payden
& Rygel U.S. Treasury Fund - Class A 26
- Class B 0
Shares of beneficial interest of Payden
& Rygel Market Return Fund - Class A 78
- Class B 0
Shares of beneficial interest of Payden
& Rygel Growth & Income Fund - Class A 1,211
- Class B 0
Shares of beneficial interest of Payden
& Rygel Global Short Bond Fund - Class A 23
- Class B 0
Shares of beneficial interest of Payden
& Rygel Total Return Fund - Class A 9
- Class B 0
</TABLE>
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<PAGE> 138
<TABLE>
<S> <C>
Shares of beneficial interest of Payden
& Rygel Global Balanced Fund - Class A 40
- Class B 0
Shares of beneficial interest of Payden
& Rygel International Equity
Fund - Class A 46
- 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, 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
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<PAGE> 139
by such trustee, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
During the two fiscal years ended December 31, 1996, Payden & Rygel
has engaged principally in the business of providing investment services
to institutional clients. During such period, the other substantial businesses,
professions, vocations or employments of the directors and officers of Payden &
Rygel have been as set forth below. The principal business address of such
persons is 333 South Grand Avenue, Los Angeles, California 90071, except as
otherwise indicated below.
<TABLE>
<CAPTION>
Name and Principal
Business Address Office Other Employment
- ---------------- ------ ----------------
<S> <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>
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Item 29. Principal Underwriters.
(a) Payden & Rygel Distributors, Inc. does not act as a principal
underwriter, depositor or investment adviser to any investment company other
than Registrant.
(b) Information is furnished below with respect to the officers
and directors of Payden & Rygel Distributors, Inc. The principal business
address of such persons is 333 South Grand Avenue, Los Angeles, California
90071, except as otherwise indicated below.
<TABLE>
<CAPTION>
Positions and
Offices with Positions and
Name and Principal Principal Offices with
Business Address Underwriter Registrant
- ---------------- ----------- ----------
<S> <C> <C>
Joan A. Payden President Trustee, Chairman
and Director of the Board and
President
Christopher N. Orndorff Chief Financial Trustee
Officer, Secretary
and Director
(c) Not applicable.
</TABLE>
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.
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<PAGE> 141
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, within four to six
months of the effective date of this 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.
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<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on the 16th
day of April, 1997.
THE PAYDEN & RYGEL INVESTMENT GROUP
By s/Joan A. Payden
-----------------------------------
Joan A. Payden
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Trustee and April 16, 1997
Principal
s/Joan A. Payden Executive Officer
- ---------------------------------
Joan A. Payden
J. Clayburn La Force* Trustee April 16, 1997
- ---------------------------------
J. Clayburn La Force
Dennis C. Poulsen* Trustee April 16, 1997
- ---------------------------------
Dennis C. Poulsen
Thomas McKernan, Jr.* Trustee April 16, 1997
- ---------------------------------
Thomas McKernan, Jr.
Stender E. Sweeney* Trustee April 16, 1997
- ---------------------------------
Stender E. Sweeney
W.D. Hilton, Jr.* Trustee April 16, 1997
- ---------------------------------
W.D. Hilton, Jr.
s/Lynda L. Faber Trustee April 16, 1997
- ---------------------------------
Lynda L. Faber
s/John Paul Isaacson Trustee April 16, 1997
- ---------------------------------
John Paul Isaacson
s/Christopher N. Orndorff Trustee April 16, 1997
- ---------------------------------
Christopher N. Orndorff
s/Thomas J. Barrett Principal April 16, 1997
- ---------------------------------
Thomas J. Barrett Financial and
Accounting Officer
*s/Joan A. Payden
- ---------------------------------
By: Joan A. Payden
Attorney-In-Fact
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<PAGE> 143
EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 28
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
- ----------- ----------------
<S> <C>
(1.1) Master Trust Agreement of Registrant (a).
(1.2) Certificate of Amendment of Master Trust Agreement (b).
(1.3) Amendment No. 2 to the Master Trust Agreement dated September 16,
1993 (c).
(1.4) Amendment No. 3 to the Master Trust Agreement dated December 13,
1993 (d).
(1.5) Amendment No. 4 to the Master Trust Agreement dated March 17, 1994
(e).
(1.6) Amendment No. 5 to the Master Trust Agreement dated as of August 31,
1994 (f).
(1.7) Amendment No. 6 to the Master Trust Agreement (g).
(1.8) Amendment No. 7 to the Master Trust Agreement (h).
(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.
</TABLE>
<PAGE> 144
<TABLE>
<S> <C>
(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 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
</TABLE>
<PAGE> 145
<TABLE>
<S> <C>
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.
(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).
</TABLE>
<PAGE> 146
<TABLE>
<S> <C>
(14.1) Form of Payden & Rygel Individual Retirement Account Disclosure
Statement, including related application material.
(14.2) Form of Payden & Rygel Investment Group Section 403(b)(7) Custodial
Account Agreement, including related application material.
(15) None.
(16) Total return calculations (o).
(17) Financial Data Schedule.
(18) Multiple Class Plan (l).
(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).
</TABLE>
- -------------------------------
(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.
<PAGE> 147
(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.
(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.
<PAGE> 1
EXHIBIT 5.14
PAYDEN & RYGEL INVESTMENT GROUP
INTERNATIONAL EQUITY FUND AND GLOBAL BALANCED FUND
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as of _____________, between Payden
& Rygel, a California corporation (the "Manager"), and Scottish Widows
Investment Management Limited, a corporation organized under the laws of
Scotland (the "Subadviser").
WHEREAS, the Manager has by separate contract agreed to serve as the
investment adviser to the Payden & Rygel European Growth & Income Fund (the
"Fund"), an investment portfolio of The Payden & Rygel Investment Group (the
"Trust"), a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended ("1940 Act"), as an open-end management
investment company consisting of one or more investment series of shares, each
having its own assets and investment policies;
WHEREAS, the Manager's contract with the Trust allows it to delegate
certain investment advisory services for the Trust with respect to the Fund to
other parties; and
WHEREAS, the Manager desires to retain the Subadviser to perform
certain investment advisory services for the Trust with respect to the Fund,
and the Subadviser is willing to perform such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST.
(a) Investment Program. Subject to the control and
supervision of the Board of Trustees of the Trust and the
Manager, the Subadviser will, at its expense, continuously
furnish to the Fund an investment program for such
portion, if any, of Fund assets that is allocated to it by
the Manager from time to time. With respect to such
assets, the Subadviser will make investment decisions and
will place all orders for the purchase and sale of
portfolio securities. In the performance of its duties,
the Subadviser will act in the best interests of the Fund
and will comply with (i) applicable laws and regulations,
including, but not limited to, the 1940 Act, (ii) the
terms of this Agreement, (iii) the investment objective,
policies, and restrictions of the Fund as stated in the
then-current Registration Statement of the Trust, and (iv)
such other guidelines as the Trustees or Manager may
establish. The Manager shall be responsible for providing
the Subadviser with current copies of the materials
specified in Subsections (a)(iii) and (iv) of this Section
1. At such times as may be reasonably requested by the
Board or the Manager, the Subadviser will provide them
with economic and investment analysis and reports, and
make available to the Board any economical, statistical,
or investment services, normally available to similar
investment company clients of the Subadviser.
(b) Availability of Personnel. The Subadviser, at its expense,
will make available to the Trustees and the Manager at
reasonable times its portfolio managers and other
appropriate personnel in order to review investment
policies of the Fund and to consult with the Trustees and
the Manager regarding the investment affairs of the Fund,
including economic, statistical, and investment matters
relevant to the Subadviser's duties hereunder, and will
<PAGE> 2
provide periodic reports to the Trustees and the Manager
relating to the portfolio strategies it employs.
(c) Salaries and Facilities. The Subadviser, at its expense,
will pay for all salaries of personnel and facilities
required for it to execute its duties under this
Agreement.
(d) Compliance Reports. The Subadviser, at its expense, will
provide the Manager with reasonable compliance reports
relating to its duties under this Agreement as may be
agreed to upon by such parties from time to time.
(e) Valuation. The Subadviser, at its expense, will provide
the Trust's custodian with market price information
relating to the assets of the Fund at such times as the
parties hereto may agree upon from time to time.
(f) Executing Portfolio Transactions. The Subadviser will
place orders pursuant to its investment determinations for
the Fund either directly with the issuer or through other
brokers. In the selection of brokers and the placement of
orders for the purchase and sale of portfolio investments
for the Fund, the Subadviser shall use its best efforts to
obtain for the Fund the most favorable price and execution
available. In using its best efforts to obtain the most
favorable price and execution available, the Subadviser,
bearing in mind the Fund's best interests as all times,
shall 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 involved
and the quality of service rendered by the broker in other
transactions. In no instance will portfolio securities of
the Fund be purchased from or sold to the Subadviser or
any affiliated person of the Subadviser. The Trust agrees
that any entity or person associated with the Manager or
the Subadviser which is a member of a national securities
exchange is authorized to effect any transaction on such
exchange for the account of the Trust which is permitted
by Section 11(a) of the Securities Exchange Act of 1934,
as amended, and the Trust consents to the retention of
compensation for such transactions.
(g) Expenses. The Subadviser shall not be obligated to pay
any expenses of or for the Trust or the Fund not expressly
assumed by the Subadviser pursuant to this Agreement.
2. BOOKS AND RECORDS. Pursuant to Rule 31a-3 under the 1940 Act, the
Subadviser agrees that: (a) all records it maintains for the Trust
are the property of the Trust; (b) it will surrender promptly to
the Trust or the Manager any such records upon the Trust's or
Manager's request; (c) it will maintain for the Trust the records
that the Trust is required to maintain pursuant to Rule 31a-1
insofar as such records relate to the investment affairs of the
Fund; and (d) it will preserve for the periods prescribed by Rule
31a-2 under the 1940 Act the records it maintains for the Trust.
3. OTHER AGREEMENTS. The Subadviser and persons controlled by or
under common control with the Subadviser have and may have
advisory, management service or other agreements with other
organizations and persons, and may have other interests and
businesses. Nothing in this Agreement is intended to preclude
such other business relationships.
<PAGE> 3
4. COMPENSATION. The Fund pays to the Manager a monthly fee at the
following annual rate: 0.50% of the first $2 billion of average
daily net assets of the portfolio, and 0.40% thereafter (the
"Advisory Fee"). The Manager will pay to the Subadviser as
compensation for the Subadviser's services rendered pursuant to
this Agreement a subadvisory fee at an annual rate equal to 50% of
the Advisory Fee earned and received by the Manager. Such fees
shall be paid by the Manager (and not by the Trust) and shall be
correspondingly reduced on a pro rata basis by any reduction in
the fees paid to the Manager as a result of any voluntary,
statutory or regulatory limitation on investment company expenses.
Such fees shall be payable monthly, at one-twelfth of the above
rate, within 15 business days after the end of such month. If the
Subadviser shall serve for less than the whole of a month, the
compensation as specified shall be prorated.
5. AMENDMENT OF AGREEMENT. This Agreement shall not be materially
amended unless the Manager and Subadviser mutually agree to amend,
and that such amendment is approved by the affirmative vote of a
majority of the outstanding shares of the Fund, if required by the
1940 Act, and by the vote, cast in person at a meeting called for
the purpose of voting on such approval, of a majority of the
members of the Board of Trustees who are not interested persons of
the Trust, the Manager or the Subadviser (the "Independent
Trustees"). The Subadviser agrees to notify the Manager of any
anticipated change in control of the Subadviser within a
reasonable time prior to such change.
6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement shall
become effective upon its execution; provided, however, that this
Agreement shall not become effective unless it first has been
approved (a) by a vote of the Independent Trustees, cast in person
at a meeting called for the purpose of voting on such approval,
and (b) by an affirmative vote of a majority of the outstanding
voting shares of the Fund. This Agreement shall remain in full
force and effect continuously thereafter as follows:
(a) By vote of a majority of the (i) Independent Trustees, or
(ii) outstanding voting shares of the Fund, the Trust may
at any time terminate this Agreement without the payment
of penalty, by providing not more than 60 days' written
notice delivered or mailed by registered mail, postage
prepaid, to the Manager and the Subadviser.
(b) This Agreement will terminate automatically without
payment of any penalty, unless, within two years after its
initial effectiveness and at least annually thereafter,
the continuance of the Agreement is specifically approved
by (i) the Board of Trustees or the shareholders of the
Fund by the affirmative vote of a majority of the
outstanding shares of the Fund, and (ii) a majority of the
Independent Trustees, by vote cast in person at a meeting
called for the purpose of voting on such approval. If the
continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such
shareholders fail to approve such continuance as provided
herein, the Subadviser may continue to serve hereunder in
a manner consistent with the 1940 Act and the rules and
regulations thereunder.
(c) The Manager may at any time terminate this Agreement
without the payment of any penalty by not less than 60
days' written notice delivered or mailed by registered
mail, postage prepaid, to the Subadviser, and the
Subadviser may
<PAGE> 4
at any time without the payment of any penalty, terminate
this Agreement by not less than 90 days' written notice
delivered or mailed by registered mail, postage prepaid,
to the Manager.
(d) This Agreement automatically and immediately shall
terminate without the payment of any penalty, in the event
of its assignment or if the Investment Management
Agreement between the Manager and the Trust shall
terminate for any reason.
Upon termination of this Agreement, the duties of the Manager
delegated to the Subadviser under this Agreement automatically shall
revert to the Manager
7. NOTIFICATION OF THE MANAGER. The Subadviser promptly shall notify
the Manager in writing of the occurrence of any of the following
events.
(a) the Subadviser shall fail to be registered as an
investment adviser under the Investment Advisers Act of
1940, as amended, and under the laws of any jurisdiction
in which the Subadviser is required to be registered as an
investment adviser in order to perform its obligations
under this agreement.
(b) the Subadviser shall have been served or otherwise have
notice of any action, suit, or proceeding, inquiry, or
investigation at law or in equity, before or by any court,
public board or body, involving the affairs of the Trust
or any Portfolio; or
(c) any other occurrence that might affect the ability of the
Subadviser to provide the services provided for under this
Agreement.
8. DEFINITIONS. For the purposes of this Agreement, the terms "vote
of a majority of the outstanding shares," "affiliated person,"
"control," "interested person," and "assignment" shall have their
respective meanings as defined in the 1940 Act and the rules and
regulations thereunder, subject, however, to such exemptions as
may be granted by the Securities and Exchange Commission under
said Act; and references to annual approvals by the Board of
Trustees shall be construed in a manner consistent with the 1940
Act and the rules and regulations thereunder.
9. LIABILITY OF THE SUBADVISER. In the absence of its willful
misfeasance, bad faith, negligence, or disregard of its
obligations and duties hereunder, the Subadviser shall not be
subject to any liability to the Manager, the Trust or their
directors, Trustees, officers, or shareholders, for any act or
omission in the course of, or connected with, rendering services
hereunder. However, the Subadviser shall indemnify and hold
harmless such parties from any and all claims, losses, expenses,
obligations and liabilities (including reasonable attorneys fees)
which arise or result from Subadviser's willful misfeasance, bad
faith, negligence, or disregard of its obligations and duties
hereunder.
10. GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of California, without giving effect to
the conflicts of laws principles thereof, and in accordance with
the 1940 Act. To the extent that the applicable laws of the State
of California conflict with the applicable provisions of the 1940
Act, the latter shall control.
<PAGE> 5
11. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the
remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors.
12. MISCELLANEOUS. The captions in this agreement are included for
convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or
effect. Where the effect of a requirement of the 1940 Act
reflected in any provision of this agreement is made less
restrictive by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or general application,
such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, Payden & Rygel, and Scottish Widows Investment
Management Limited have each caused this instrument to be signed in duplicate
on its behalf by its duly authorized representative, all as of the day and year
first above written.
Attest: PAYDEN & RYGEL
By:______________________ By:________________________
Attest: SCOTTISH WIDOWS INVESTMENT
MANAGEMENT LIMITED
By:______________________ By:________________________
<PAGE> 1
EXHIBIT 14.1
INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT
The following information is provided to you in accordance with the requirements
of the Internal Revenue Code (the "Code") and Treasury regulations and should be
reviewed in conjunction with the Individual Retirement Custodial Account
Agreement (the "Custodial Agreement"), the Application for your IRA (the
"Application"), and the prospectus for the mutual funds of the Payden & Rygel
Investment Group that are allowable investments for your IRA. The provisions of
the Custodial Agreement, Application and prospectus govern in any instance where
the Disclosure Statement is incomplete or appears to conflict. This Disclosure
Statement reflects the provisions of the Internal Revenue Code in effect on
January 1, 1997. This Disclosure Statement provides a nontechnical summary of
the law. Please consult with your tax advisor for more complete information and
refer to IRS Publication 590.
I. IRA STATUTORY REQUIREMENTS
An IRA is a trust or custodial account established for the exclusive
benefit of you and your beneficiaries. Current law requires that your
IRA agreement be in writing and that it meet the following requirements:
1. All contributions must be in cash and, for any taxable year, cannot
exceed 100% of your compensation or $2,000, whichever is less, unless
the contribution is a rollover contribution or an employer contribution
to a simplified employee pension plan ("SEP").
2. The custodian or trustee must be a bank or other institution or
person that is approved by the Internal Revenue Service to administer
your IRA in accordance with current tax laws.
3. None of your IRA assets may be invested in life insurance contracts,
or collectibles, or commingled with the assets of other people except in
a common trust fund or common investment fund.
4. Your interest in your IRA account is nonforfeitable.
5. Distribution from your IRA must be in accordance with certain minimum
distribution rules, which are explained in Section VII below.
II. RIGHT TO REVOKE
You may revoke your IRA at any time within seven days of the time your
Application is signed. To revoke your IRA, mail or deliver a written
notice stating "I hereby elect to revoke my Payden & Rygel IRA." Sign
your name exactly as it appears on your Application, include your social
security number, and mail the notice to:
Payden & Rygel Investment Group
333 South Grand Avenue, 32nd Floor
Los Angeles, CA 90071
Your notice will be considered mailed on the date of postmark, or the
date of certification or registration if it is sent by certified or
registered mail.
When Investors Fiduciary Trust Company ("IFTC"), the custodian of your
IRA, receives the proper notice of revocation, you will be entitled to a
refund of your full IRA contribution, without any adjustment for
expenses or market fluctuations. If you have any questions concerning
your right of revocation, please call (800) 5-PAYDEN or (800) 572-9336
during regular business hours.
<PAGE> 2
III. ELIGIBILITY
You may make regular contributions to an IRA if you receive compensation
from employment, earnings from self-employment, or alimony, and you have
not reached age 70 1/2 by the end of the tax year for which the
contribution is made. In addition, if you are married and file a joint
tax return, you and your spouse may each make contributions to an IRA
whether or not both spouses receive compensation. You may make a
rollover contribution to an IRA if you have received an eligible
rollover distribution from a qualified retirement plan or tax-sheltered
annuity or an eligible distribution from another IRA and complete the
rollover within 60 days after receiving the distribution. You may also
make a trustee-to-trustee transfer from another IRA. Finally, your
employer may contribute to your IRA, and if your employer sponsors a
simplified employee pension ("SEP"), your employer can make
contributions to a SEP/IRA on your behalf.
IV. CONTRIBUTIONS
A. REGULAR CONTRIBUTIONS
You may contribute each year up to $2,000 or 100% of your compensation,
whichever is less, to your IRA. If you are married and each spouse
establishes an IRA, each spouse may contribute up to $2,000 to his or
her IRA as long as the combined compensation of both spouses for the
year (as shown on your joint income tax return) is at least $4,000. If
the combined compensation of both spouses is less than $4,000, the
higher compensated spouse's IRA contribution may be any amount up to the
lesser of that spouse's compensation or $2,000. In this case, the lower
compensated spouse's IRA contribution may be any amount up to the
couple's combined compensation, less the amount contributed to an IRA
for the higher compensated spouse.
If your employer contributes to your IRA, the contribution is treated as
compensation paid to you, whether or not the contribution is deductible,
unless the contribution is made under a SEP (see below).
Compensation for these purposes means wages, salaries, professional
fees, or other amounts derived from or received for personal services
actually rendered. It includes earned income from self employment and
alimony or separate maintenance payments includable in income. It does
not include pension or annuity payments or deferred compensation.
B. TIME FOR MAKING REGULAR CONTRIBUTIONS
You may make regular contributions to your IRA (and/or your spouse may
make contributions to your spouse's IRA) anytime during a year, up to
and including the due date for filing your tax return for the year
(without extensions). No regular contributions may be made to an IRA for
the calendar year in which you reach age 70 1/2 or later years. No
regular contributions to your spouse's IRA may be made for years in
which your spouse is age 70 1/2 or older.
C. DEDUCTIBILITY
Regular IRA contributions are fully deductible unless you or your spouse
is an active participant in a tax-qualified plan of an employer. If you
or your spouse is an active participant in such a plan, then your
allowable deduction for regular IRA contributions is reduced or
eliminated if your Adjusted Gross Income ("AGI") exceeds certain levels.
(If you file separately and are married but live apart from your spouse
at all times during the year, you will be considered to be single when
applying the following rules regarding deduction limitations.) The
deductible amount is determined as follows:
1. If you (and your spouse) are not active participants in
a tax-qualified plan, any contribution up to the maximum
amount is deductible.
2. If you (or your spouse) are an active participant in a
tax-qualified plan, and
<PAGE> 3
(a) your AGI is $25,000 or less ($40,000 for a
married couple filing a joint return and $0 for a
married person filing separately), any contribution up
to the maximum amount is deductible;
(b) your AGI is $35,000 or more ($50,000 for a
married couple filing a joint return and $10,000 for a
married person filing separately), no IRA contribution
is deductible;
(c) your AGI is between $25,000 and $35,000
($40,000 and $50,000 for a married couple filing a joint
return and $0 to $10,000 for a married person filing
separately), the deductible amount is reduced. The
reduction is $0.20 for each $1.00 of AGI over $25,000
($40,000 for a married couple filing a joint return and
$0 for a married person filing separately). The
deduction will not be reduced below $200 unless it is
eliminated entirely.
To the extent that the deductibility of IRA contributions is reduced or
eliminated, then nondeductible contributions may be made to your IRA (up
to the applicable contribution limit). Earnings on all IRA
contributions, whether or not the contributions themselves are
deductible, are tax-deferred until receipt. You must designate the
amount of nondeductible IRA contributions when filing your tax return
for the year. If you overstate the amount of your nondeductible
contributions you must pay a $100 penalty, unless you can show that such
overstatement was due to reasonable cause. If you fail to report
nondeductible IRA contributions you will be subject to a $50 penalty,
unless your failure was due to reasonable cause.
D. ROLLOVER CONTRIBUTIONS
1. PAYMENTS FROM PLANS AND TAX-SHELTERED ANNUITIES THAT ARE
ELIGIBLE FOR ROLLOVER
You may make a rollover contribution to your IRA of an "eligible
rollover distribution" from an employer tax-qualified plan (an "employer
plan") or a tax-sheltered annuity (including a 403(b)(7) account). The
administrator of the employer plan or the payor of a distribution from
the tax-sheltered annuity should be able to tell you what portion of
your payment is an eligible rollover distribution. The following types
of payments CANNOT be rolled over:
NON-TAXABLE PAYMENTS. In general, only the "taxable portion" of
your payment is an eligible rollover distribution. If you have
made "after-tax" employee contributions to the plan or annuity,
these contributions will be non-taxable when they are paid to
you, and they cannot be rolled over. (After-tax employee
contributions generally are contributions you made from your own
pay that were already taxed.)
PAYMENTS SPREAD OVER LONG PERIODS. You cannot roll over a
payment if it is part of a series of equal (or almost equal)
payments that are made at least once a year and that will last
for
your lifetime (or your life expectancy), or
your lifetime and your beneficiary's lifetime (or life
expectancies), or
a period of ten years or more.
REQUIRED MINIMUM PAYMENTS. Beginning in the year you reach age
70-1/2, a certain portion of your payment cannot be rolled (or
transferred) over because it is a "required minimum payment"
that must be paid to you.
2. DIRECT ROLLOVER
You can choose a direct rollover of all or any portion of your payment
from an employer plan or a tax-sheltered annuity that is an "eligible
rollover distribution," as described above. In a direct rollover, the
<PAGE> 4
eligible rollover distribution is paid directly from the plan or
tax-sheltered annuity to your IRA. If you choose a direct rollover, you
are not taxed on a payment until you later take it out of the IRA.
3. ROLLOVER OF PLAN PAYMENTS PAID TO YOU
A payment to you of an eligible rollover distribution from an employer
plan or tax-sheltered annuity is taxed in the year you receive it
unless, within 60 days, you roll it over to an IRA (or another plan that
accepts rollovers). If you do not roll it over, special tax rules may
apply. If any portion of the payment to you is an eligible rollover
distribution, the payor is required by law to withhold 20% of that
amount. This amount is sent to the IRS as income tax withholding.
SIXTY-DAY ROLLOVER OPTION. If you have an eligible rollover
distribution paid to you, you can still decide to roll over all
or part of it to an IRA (or another employer plan that accepts
rollovers). If you decide to roll over, YOU MUST COMPLETE THE
ROLLOVER WITHIN 60 DAYS AFTER YOU RECEIVE THE PAYMENT. The
portion of your payment that is rolled over will not be taxed
until you take it out of the IRA (or the employer plan).
You can roll over up to 100% of the eligible rollover distribution,
including an amount equal to the 20% that was withheld. If you choose to
roll over 100%, you must find other money within the 60-day period to
contribute to the IRA or the employer plan to replace the 20% that was
withheld. (On the other hand, if you roll over only the 80% that you
received, you will be taxed on the 20% that was withheld.)
See the Special Tax Notice Regarding Plan Payments, that must be
provided by the plan administrator or payor of your employer plan or
tax-sheltered annuity, for additional information on the rules governing
rollover and taxation of plan distributions, or consult your tax advisor
for more details.
You should maintain a separate IRA account for any rollovers of funds
from an employer plan if you want to preserve your ability to later roll
over these funds and earnings into another employer plan. Similarly, you
should maintain a separate account for any rollover of funds from a
tax-sheltered annuity.
If you are the surviving spouse of a deceased plan participant, you can
make a rollover to an IRA from a tax-qualified plan of your spouse's
employer if you received all or a part of your spouse's share as a
result of his or her death. A spouse or former spouse who is a recipient
of a distribution made under a qualified domestic relations order may
roll over all or part of the distribution.
Because complex rules apply to distributions and rollovers of payments
from employer plans and tax-sheltered annuities, you should seek
competent tax advice whenever you contemplate receiving a distribution
from a qualified plan or tax-sheltered annuity or an IRA funded by a
rollover from a qualified plan or tax-sheltered annuity.
4. ROLLOVERS FROM OTHER IRAS
You may also make a rollover contribution of amounts held in another
IRA. There are no limits on the amount of rollover contributions made to
an IRA from another IRA, except you may not roll over (or transfer) any
required minimum distribution amount (described in VII.D.). The
distribution from the first IRA must be rolled over within 60 days of
receipt. Also, after making a rollover of a distribution from one IRA to
another IRA, you must wait 12 full months before you can make another
IRA-to-IRA rollover.
5. TAX-DEFERRAL ON IRA ROLLOVER OR TRUSTEE-TO-TRUSTEE TRANSFER
An effective rollover allows you to postpone paying taxes on the amount
distributed from an employer plan, tax-sheltered annuity or IRA until it
is withdrawn from the recipient IRA. You do not report the distribution
as income and you do not take a deduction for the rollover contribution.
Earnings on your rollover IRA are tax-deferred until receipt.
(Similarly, a trustee-to-trustee transfer is not treated as a
distribution and the amount transferred and earnings are tax-deferred
until receipt.)
<PAGE> 5
E. SEP CONTRIBUTIONS
If your employer has established a simplified employee pension ("SEP"),
your employer may make contributions to your SEP/IRA. If the SEP
contains a salary reduction arrangement, you may elect to reduce your
salary by up to the lesser of 15% of compensation or $7,000 (indexed
annually); and have that amount contributed to your SEP/IRA. The maximum
SEP contribution, including salary reduction amounts and employer
contributions, is the lesser of 15% of your eligible compensation or
$30,000. SEP contributions are not included in your taxable income.
Please note that the tax law provisions permitting salary reduction SEPs
were repealed effective January 1, 1997. Therefore, no further salary
reduction SEP contributions are allowed except under salary reduction
SEPs that were already in existence on December 31, 1996.
V. EXCESS CONTRIBUTIONS
Amounts contributed to an IRA which exceed the maximum allowable
contribution are treated as "excess contributions" and are subject to a
nondeductible 6% penalty tax for each year in which the excess remains
in the IRA. Excess contributions may be corrected and the 6% penalty tax
avoided by withdrawal of the excess and any earnings thereon before the
due date (including extensions) of the tax return for the tax year for
which the excess contribution was made. No deduction may be taken for
the excess contributions and the earnings must be included in taxable
income for the year the contribution was made. The earnings withdrawn
may be subject to a 10% premature distribution tax if you are under age
59 1/2. See Section VII.B.
An excess contribution may be withdrawn after the due date of the tax
return (including extensions) with the following consequences:
(a) If your total contribution for the tax year the excess
contribution was made is $2,000 or less (or below the limit of
your employer's SEP contribution), the excess contribution may
be withdrawn without being included in income or being subject
to the 10% premature distribution tax. No deduction may be taken
for the excess contribution. Any earnings withdrawn will be
included in income and may be subject to the premature
distribution tax.
(b) If your total contribution for the tax year in which the excess
contribution was made exceeds $2,000 (or, if higher, the limit
of your employer's SEP contribution), any excess contribution
and any earnings on the excess withdrawn after the due date for
tax filing (including extensions), will be includable in income
in the year received and will be subject to any 10% premature
distribution tax that may apply. Additionally, no deduction may
be taken for the excess contribution for the year in which it is
made.
(c) Any excess contribution withdrawn after the due date for the tax
filing (including extensions) for the year for which the
contribution was made is subject to the 6% penalty tax on the
amount of the excess contribution for the taxable year in which
made and each tax year that it is still in your IRA at the end
of the year.
You may also correct an excess contribution to your IRA by treating the
excess amount as contributed to your IRA in a subsequent year to the
extent that the excess, when aggregated with your IRA contribution (if
any) for the subsequent year, does not exceed the maximum amount for
that year. You may be entitled to a deduction for the amount of the
excess contribution that is applied in the subsequent year.
VI. INVESTMENT OF ACCOUNT AND FINANCIAL DISCLOSURE
The assets in your IRA will be invested by IFTC in mutual fund shares of
Payden & Rygel in accordance with your instructions and Article VIII,
paragraphs [2] and [10] of the Custodial Agreement.
<PAGE> 6
Growth in the value of your IRA cannot be guaranteed or projected.
However, the income and operating expenses of each allowable investment
that you select for your IRA will affect the value of its shares and,
therefore, the value of your IRA. The Payden & Rygel Investment Group
prospectus for such shares contains information regarding current income
and expenses of each of these investments. Reasonable fees and other
expenses of maintaining your IRA may be charged to you or your IRA. The
current annual Custodian's fee is set forth in the Application. A new
fee may be substituted from time to time as provided in paragraph [7] of
Article VIII of the Custodial Agreement.
VII. DISTRIBUTIONS
A. TAXATION OF DISTRIBUTION AS ORDINARY INCOME
In general, you must include distributions from your IRA in your gross
income for the year in which the distributions are received. There is a
10% additional income tax assessed against premature distributions to
the extent such distributions are includable in income, as described in
B. below.
You may exclude from your income that portion of a distribution that
constitutes a return of your properly reported nondeductible
contributions. The amount of the distribution excludable from income is
the portion that bears the same ratio to the total distribution that
your aggregate nondeductible contributions (not distributed in prior
years) bear to the balance at the end of the year (calculated after
adding back distributions made during the year) of your IRA. For this
purpose, all of your IRAs are treated as a single IRA, and all
distributions from an IRA during a taxable year are to be treated as one
distribution.
In addition, your gross income does not include any distribution from an
IRA that is properly rolled over. Except as provided in D. below, you
may roll over all or any part of property received in a distribution of
assets, within 60 days of receipt, into another IRA or individual
retirement annuity, and maintain the tax-deferred status of such assets.
A rollover from one IRA to another may be made once every twelve months.
Also, certain qualifying distributions which were rolled over into an
IRA from employer tax-qualified plans may be rolled over into another
employer tax-qualified plan. (You should seek competent tax advice
regarding these rollovers.)
As explained in Section V, certain distributions of excess contributions
are not included in income. In addition, IRA contributions for a taxable
year which do not exceed the contribution limits for such year may also
be withdrawn without being included in income or being subject to a 10%
premature distribution tax, as long as such contributions and earnings
thereon are withdrawn prior to the due date (including extensions) of
your federal income tax return for the tax year for which the
contribution was made. The earnings withdrawn must be included in
taxable income for the year in which the contribution was made and may
be subject to the 10% premature distribution tax.
B. TAX ON PREMATURE DISTRIBUTIONS
To the extent they are included in income, distributions from your IRA
made before you reach age 59 1/2 will be subject to a 10% nondeductible
penalty tax (in addition to being taxable as ordinary income).
Exceptions to the 10% penalty tax include distributions made on account
of your death or disability, and distributions included in a scheduled
series of payments over your life expectancy or the joint life
expectancies of you and your beneficiary.
In addition, distributions during a year are not subject to the 10%
penalty tax to the extent that the distributions do not exceed the
amount of your deductible medical expenses for the year (generally
speaking, medical expenses paid during a year are deductible if they are
greater than 7-1/2% of your adjusted gross income for the year).
Finally, distributions are not subject to the 10% penalty if they do not
exceed the amounts you paid for health insurance coverage for yourself,
your spouse and dependents. This exception is available only if you have
been unemployed and received federal or state unemployment compensation
for at least 12 weeks. Distributions during the year in which you
received the unemployment compensation or the
<PAGE> 7
following year are eligible for this exception, but not any
distributions received after you have been reemployed for at least 60
days.
C. TAX ON EXCESS DISTRIBUTIONS
There is a 15% excise tax assessed against annual distributions from
tax-favored retirement plans, including IRAs, which exceed $155,000
(this amount is for 1996; it is $160,000 for 1997 and is indexed
annually for future cost-of-living changes). To determine whether you
have distributions in excess of this limit, you must aggregate the
amounts of all distributions received by you during the calendar year
from all retirement plans, including IRAs. Certain individuals with
account balances or accrued benefits equal to at least $562,500 as of
August 1, 1986, may have made an election to project the August 1, 1986
balance from the 15% additional tax. Please consult with your tax
advisor for more complete information, if you made such an election.
Under the current tax laws, the 15% excise tax described in the
preceding paragraph will not apply to withdrawals from your IRA by you
during calendar years 1997, 1998 and 1999 (or to distributions from
other kinds of retirement plans). However, a related 15% excise tax on
certain excess amounts remaining in your IRAs or retirement plan
accounts upon your death continues to apply during these calendar years.
Consult your tax adviser to determine whether it would be advantageous
for you to make withdrawals from your IRA (or receive distributions from
other retirement plan accounts) during this three-year period.
D. REQUIRED MINIMUM DISTRIBUTIONS
1. During Your Life
The minimum distribution rules require that for your "70-1/2 year," and
each year thereafter, you must make withdrawals from your IRA accounts
that are at least equal to the "minimum distribution." Your 70-1/2 year
is the calendar year that contains the date six months after your 70th
birthday.
Generally, you must withdraw an amount at least equal to the minimum
distribution by December 31 of each year. However, for your 70-1/2 year,
you may wait to withdraw the minimum distribution until April 1 of the
following year. (This means that if you wait to make your withdrawal for
the 70-1/2 year until April 1 of the following year, your total
withdrawal in that year must equal the minimum distributions for two
years - a withdrawal by April 1 that is equal to the minimum
distribution for the 70-1/2 year and a second withdrawal by December 31
that is equal to the minimum distribution for that year. In each year
thereafter, you must withdraw the minimum distribution for the year by
December 31.)
The amount of the minimum distribution is usually determined by dividing
the account balance of your IRA, as of December 31 of the prior year, by
a divisor (determined by Internal Revenue Service actuarial tables) that
is based on your life expectancy or the joint life and last survivor
expectancy for you and your designated beneficiary. See Article IV of
the Custodial Agreement for a more detailed explanation of how to
calculate the minimum distribution. The distributions must also satisfy
the minimum distribution incidental benefit rule, which generally will
require distributions over a period less than the joint and last
survivor expectancy of you and your designated beneficiary unless your
beneficiary is your spouse or is no more than ten years younger than
you. The IRS provides tables for determining the distribution needed to
satisfy incidental benefit requirements.
The minimum distribution required must be calculated separately for each
IRA you own, but the amounts so determined may be totaled and taken from
any one or more of your IRAs.
You will be subject to a 50% excise tax on the amount by which the
distribution you actually received in any year falls short of the
minimum distribution required for the year.
<PAGE> 8
YOU MAY TAKE YOUR DISTRIBUTION IN:
- a lump sum;
- equal or substantially equal payments over a specified period no
longer than your life expectancy or the joint life and last
survivor expectancy of you and your designated beneficiary.
Also, as described in Section VII.A., you may roll over an eligible
distribution to purchase an individual retirement annuity payable in
equal or substantially equal payments over your life or the joint and
last survivor lives of you and your designated beneficiary. (See Article
IV and Article VIII, paragraph 4, of the Custodial Agreement and IRS
Publication 590 for a full description of permissible distribution
methods.)
2. AFTER YOUR DEATH
If you die before you reach age 70 1/2, distribution must be made to
your beneficiary by December 31 of the fifth year following the year of
your death unless, by December 31 of the year following your death, your
designated beneficiary begins receiving distributions over a period not
extending beyond your beneficiary's life expectancy. When your
beneficiary is your spouse, however, distributions can be postponed
until December 31 of the year in which you would have reached age 70
1/2, at which time your spouse must take them over a period not
extending beyond his or her life expectancy. See Article IV of the
Custodial Agreement and IRA Publication 590 for a more detailed
explanation of how to calculate the minimum distribution.
If you die after your required beginning date, the balance in the
Custodial Account must continue to be paid at least as rapidly as under
the method of payment being used prior to your death.
If your beneficiary is your spouse, your beneficiary can elect to treat
your IRA as his or her own IRA.
The minimum distribution required must be calculated separately for each
IRA you own, but the amounts so determined may be totalled and taken
from any one or more IRAs.
A payee is subject to a 50% excise tax on the amount by which a
distribution for the year falls short of the minimum distribution
required.
YOUR BENEFICIARY MAY TAKE HIS OR HER DISTRIBUTION IN:
- a lump sum;
- equal or substantially equal payments over a specified period no
longer than his or her life expectancy.
Also, as described in Section VII.A., a spousal beneficiary may roll
over a lump sum distribution to purchase an individual retirement
annuity payable in equal or substantially equal payments over his or her
life expectancy. (See Article IV and Article VIII, paragraph 4, of the
Custodial Agreement and IRS Publication 590 for a full description of
permissible distribution methods.)
3. Further Information. This explanation only summarizes the minimum
distribution rules. Other rules and exceptions may apply to you that are
not discussed in this summary, including rules which, in some cases,
would prevent you from using certain options described above. You should
consult your personal tax advisor or IRS Publication 590 for more
detailed information.
<PAGE> 9
VIII. LOSS OF TAX-EXEMPT STATUS OF IRA
If you engage in any of the prohibited transactions listed in Section
4975 of the Code (such as any sale, exchange, or leasing of any property
between you and your IRA) or if you take a loan from your IRA, your
account will be disqualified and the entire balance of your account will
be treated as if it had been distributed to you as of the first day of
the year in which the prohibited transaction occurred. The fair market
value of your IRA will be included in income in the year the prohibited
transaction takes place and, if you are under age 59 1/2 at the time,
you may be subject to the 10% penalty tax on premature distributions.
Should you or your beneficiary pledge all or any portion of your IRA as
security for a loan, the portion so pledged will be treated as if
distributed to you, will be included in your income, and may be subject
to the 10% premature distribution penalty during the year in which the
pledge occurred.
IX. OTHER TAX CONSIDERATIONS
A. FEDERAL INCOME TAX WITHHOLDING
Federal income tax will be withheld on amounts distributed from your IRA
unless you elect not to have withholding apply. Generally, tax will be
withheld at a 10% rate. At the time of distribution from your IRA, you
will be notified of your right to elect not to have withholding apply
and will be provided with the appropriate election form. If your IRA
distribution is to be delivered outside of the U.S., you may elect not
to have withholding apply only if you certify to the Custodian that you
are not a U.S. citizen residing overseas or a "tax avoidance expatriate"
as described in Section 877 of the Internal Revenue Code. (The
distribution may also be subject to state withholding laws.)
B. DISTRIBUTION NOT ELIGIBLE FOR LUMP-SUM AVERAGING OR CAPITAL
GAINS TREATMENT
No distribution to you or anyone else from your account can qualify for
capital gains treatment under the federal income tax laws or for the
five- or ten-year averaging available with respect to certain lump sum
distributions from other types of retirement plans. The distribution is
taxed to the person receiving it as ordinary income.
C. GIFT TAX
If you elect during your lifetime to have all or any part of your
account payable to a beneficiary at or after your death, the election
will not subject you to any gift tax liability.
D. REPORTING FOR TAX PURPOSES
You must report deductible IRA contributions and distributions on your
tax Form 1040 or 1040A for the taxable year in which the contributions
or distributions were made. If you make any nondeductible contributions,
you must include the amount of such nondeductible contributions and the
aggregate account balance of all your IRAs as of the end of the calendar
year on Form 8606. Additional reporting is required in the event that
special taxes or penalties described herein are due. You must file Form
5329 with the IRS for each taxable year in which the contribution limits
are exceeded, a premature distribution takes place, less than the
required minimum amount is distributed from your IRA, or excess
distributions are made.
X. IRS APPROVAL & INFORMATION
This IRA has not been submitted to the IRS for approval as to form
because it incorporates Form 5305-A issued by the IRS. This Disclosure
Statement provides only a summary of the laws governing IRAs. You should
consult your personal tax advisor or IRS Publication 590, Individual
Retirement Arrangements, for more detailed information. This publication
is available from your local IRS office or by calling 1-800-TAX-FORMS.
<PAGE> 10
FORM 5305-A UNDER SECTION 408(A) OF THE INTERNAL REVENUE CODE
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 403(d)(3), or an employer
contribution to a simplified employee pension plan as described in section
408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within the
meaning of section 408(m)) except as otherwise permitted by section
408(m)(3) which provides an exception for certain gold and silver coins and
coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be
made in accordance with the following requirements and shall otherwise
comply with section 408(a)(6) and Proposed Regulations section 1.408-8,
including the incidental death benefit provisions of Proposed Regulations
section 1.401(a)(9)-2, the provisions of which are incorporated by
reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under paragraph 3, or to the surviving spouse under paragraph
4, other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Depositor and the surviving spouse and shall apply to all subsequent years.
The life expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin
to be, distributed by the Depositor's required beginning date, (April 1
following the calendar year end in which the Depositor reaches age 70 1/2).
By that date, the Depositor may elect, in a manner acceptable to the
Custodian, to have the balance in the custodial account distributed in :
(a) A single sum payment.
(b) An annuity contract that provides equal of substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to
him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
<PAGE> 11
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election
of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii)Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If, however, the beneficiary is
the Depositor's surviving spouse, then this distribution is not
required to begin before December 31 of the year in which the
Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the Custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy
of the Depositor and the Depositor's designated beneficiary, or the life
expectancy of the designated beneficiary, or the life expectancy of the
designated beneficiary, whichever applies). In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and
last survivor expectancy) using the attained ages of the depositor and
designated beneficiary as of their birthdays in the year the Depositor
reaches age 70 1/2. In the case of a distribution in accordance with
paragraph 4(b)(ii), determine life expectancy using the attained age of the
designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy
the minimum distribution requirements described above. This method permits
an individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for
another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under section 408(i) and
Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear below.
<PAGE> 12
ARTICLE VIII
1. DEFINITIONS. The following definitions shall apply to terms used in this
Article VIII:
a. "Application" shall mean the IRA Application submitted by the
Depositor to the Custodian.
b. "Code" shall mean the Internal Revenue Code of 1986, as amended,
including any regulations, procedures, rulings, or notices
issued thereunder.
c. "Company" shall mean Payden & Rygel Investment Group.
d. "Custodial Account" shall mean the custodial account established
under this agreement.
2. INVESTMENT OF CONTRIBUTIONS. Contributions shall be invested in shares
of the Company mutual funds in accordance with the Depositor's written
instructions in the Application, and with subsequent written
instructions of the Depositor (or, following the death of the Depositor,
his or her beneficiary) in a form acceptable to and filed with the
Custodian. By giving such instructions, the Depositor (or beneficiary,
where applicable) will be deemed to have acknowledged receipt of the
then current prospectus for any shares in which the Depositor (or
beneficiary) directs the Custodian to invest contributions. The
Depositor, by making a rollover contribution, as described in Article I,
hereby certifies that the contribution meets all requirements for
rollover contributions. The amount of each contribution shall be applied
to the purchase of such shares at the price and in the manner in which
such shares are then being publicly offered by the Company in accordance
with the then current prospectus, and such shares shall be credited to
the Custodial Account. All dividends and capital gain distributions
received on the shares of the fund held in each Custodial Account shall
(unless received in additional shares of such fund) be reinvested in
such shares which shall be credited to such Custodial Account. If any
distribution on shares of the fund may be received at the election of
the shareholder in additional shares or in cash or other property, the
Custodian shall elect to receive such distribution in additional shares.
The Custodian shall not be liable for interest on any cash balance in
the Custodial Account. All Company shares acquired by the Custodian
shall be registered in the name of the Custodian or its registered
nominee.
3. VOTING WITH RESPECT TO SHARES. The Custodian shall have no power or
authority to vote any shares of a Designated Investment Company, except
in accordance with the directions provided to it by the Depositor. In
the event the Depositor fails or declines to direct the Custodian as to
voting any such shares held by the Custodial Account, that failure or
declination to direct shall be deemed to be a direction not to vote such
shares.
4. ALTERNATIVE DISTRIBUTION METHODS: Notwithstanding Article IV, a
Depositor may elect in writing in a form acceptable to and filed with
the Custodian, to have the balance in the Custodial Account distributed
only in a lump sum or in substantially equal payments over a period that
does not exceed the Depositor's life expectancy or the joint and last
survivor life expectancy of the Depositor and his or her designated
beneficiary. For this purpose, life expectancies must be determined by
using applicable Internal Revenue Service tables. Notwithstanding
paragraph 2 of Article IV, unless an election to have life expectancies
recalculated annually is made by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse
under paragraph 4, of Article IV, life expectancies shall not be
recalculated. Such election shall be irrevocable as to the Depositor and
the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated. To
receive an annuity distribution, a Depositor may roll over a lump sum
distribution to purchase an individual retirement annuity payable in
equal or substantially equal payments over the Depositor's life
expectancy or the joint and last survivor life expectancy of the
Depositor and his or her designated beneficiary. The distribution option
should be reviewed in the year the Depositor reaches age 70 1/2to make
sure the requirements of Code Section 408(a)(6) have been met.
Consistent with paragraph 6 of Article IV, the Custodian is not
obligated to make any distribution absent a specific written direction,
in a form acceptable to and filed with the Custodian, from the Depositor
or designated beneficiary to do so.
5. AMENDMENT AND TERMINATION. The Depositor may at any time and from time
to time terminate this Agreement in whole or in part by delivering to
the Custodian a signed written notice of such termination, in a form
acceptable to the Custodian. The Depositor and the Custodian delegate to
the Company the right to amend this Agreement (including retroactive
amendments) by written notice to the Custodian and
<PAGE> 13
the Depositor. The Depositor shall be deemed to have consented to any
such amendment, provided that (a) no amendment shall cause or permit any
part of the assets of the Custodial Account to be diverted to purposes
other than for the exclusive benefit of the Depositor or his or her
beneficiaries; (b) any amendment which affects the rights, duties or
responsibilities of the Custodian may only be made with the Custodian's
consent; and (c) no amendment shall be made except in accordance with
any applicable laws and regulations affecting this Agreement and the
Custodial Account.
6. RESIGNATION OR REMOVAL OF CUSTODIAN. The Custodian may resign at any
time upon thirty (30) days notice in writing to the Company. Upon such
resignation, the Company shall notify the Depositor, and shall appoint a
successor custodian under this Agreement. The Depositor or the Company
at any time may remove the Custodian upon 30 days written notice to that
effect in a form acceptable to and filed with the Custodian. Such notice
must include designation of a successor custodian. The successor
custodian shall satisfy the requirements of section 408(h) of the Code.
Upon receipt by the Custodian of written acceptance of such appointment
by the successor custodian, the Custodian shall transfer and pay over to
such successor the assets of and records relating to the Custodial
Account. The Custodian is authorized, however, to reserve such sum of
money as it may deem advisable for payment of all its fees,
compensation, costs and expenses, or for payment of any other liability
constituting a charge on or against the assets of the Custodial Account
or on or against the Custodian, and where necessary may liquidate shares
in the Custodial Account for such payments. Any balance of such reserve
remaining after the payment of all such items shall be paid over to the
successor Custodian. The Custodian shall not be liable for the acts or
omissions of any predecessor or successor custodian or trustee.
7. CUSTODIAN'S ANNUAL FEES: The Payden & Rygel Investment Group has agreed
to pay all fees charged by the Custodian through at least December 31,
1997. Should the Payden & Rygel Investment Group decide to no longer pay
the Custodian's annual fees, the Depositor shall be notified at least 60
days prior to the imposition of fees. In this case, the Depositer will
be charged by the Custodian for its services under this Agreement in
such amount as the Custodian shall establish from time to time.
Sufficient shares may be liquidated from the Custodial Account to pay
the fee. A different fee may be substituted at any time upon written
notice to the Depositor. A Depositor who does not consent to such new
fee should terminate this Agreement pursuant to paragraph 5 of Article
VIII within 30 days of the notice of the new fee. If no such termination
is made within 30 days of the notice of the new fee, the Depositor will
be deemed to have consented to the new fee. The Custodian's ability to
earn income on amounts held in non-interest bearing accounts has been
taken into consideration in establishing the Custodian's fees. The
Custodian shall be entitled to retain any such income as a part of its
agreed compensation hereunder, and such income shall not be or become a
part of the Custodial Account.
8. OTHER FEES AND EXPENSES. Any income or other taxes of any kind
whatsoever that may be levied or assessed upon or with respect to the
Custodial Account or the income thereof, any transfer taxes incurred in
connection with the investment and reinvestment of the assets of the
Custodial Account, all other reasonable administrative expenses incurred
by the Custodian with respect to any such taxes, or with respect to any
controversies concerning the Custodial Account, including, but not
limited to, fees for legal services rendered to the Custodian and
related costs, and such reasonable compensation to the Custodian for
acting in that capacity with respect to any such taxes or controversies,
may, in the discretion of the Custodian, be charged against and paid
from the assets of the Custodial Account. Sufficient shares may be
liquidated from the Custodial Account to pay any such taxes, expenses
and compensation.
9. INALIENABILITY OF ASSETS: No interest, right or claim in or to any part
of the Custodial Account, nor any assets held therein or benefits
provided hereunder shall be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind, and any attempt
to cause any such interest, right, claim, assets or benefits to be so
subjected shall not be recognized, except to the extent as may be
required by law.
10. EXCHANGE PRIVILEGE: With respect to any Company shares held in the
Custodial Account, the Depositor (or beneficiary, where applicable) may,
upon submission of written instructions in a form acceptable to and
filed with the Custodian, cause shares of any fund to be exchanged for
shares of any other fund of the Company meeting the requirements of this
Agreement, upon the terms and within the limitations imposed by the then
current prospectus of the fund of the Company which are acquired in the
exchange.
<PAGE> 14
By giving such instructions, the Depositor (or beneficiary) will be
deemed to have acknowledged receipt of such prospectus.
11. DESIGNATION OF BENEFICIARY. The Depositor may designate a beneficiary or
change or revoke the designation of a beneficiary, by written notice in
a form acceptable to and filed with the Custodian, prior to the complete
distribution of the balance in the Custodial Account. If the Depositor
has not by the date of his or her death properly designated a
beneficiary in accordance with the preceding sentence, or if no
designated beneficiary survives the Depositor, the Depositor's
beneficiary shall be his or her estate. If a beneficiary dies before
receiving his or her entire interest in the Custodial Account, his or
her remaining interest in the Custodial Account shall be paid to the
beneficiary's estate.
12. RESPONSIBILITY AS TO CONTRIBUTIONS OR DISTRIBUTIONS. The Custodian will
not under any circumstances be responsible for the timing, purpose or
propriety of any contribution or of any distribution made hereunder, nor
shall the Custodian incur any liability or responsibility for any tax
imposed on account of any such contribution or distribution.
13. OTHER LIMITS ON RESPONSIBILITIES OF THE CUSTODIAN. The Custodian shall
not incur any liability or responsibility in taking or omitting to take
any action based on any notice, election, or instruction or any written
instrument believed by the Custodian to be genuine and to have been
properly executed. The Custodian shall be under no duty of inquiry with
respect to any such notice, election, instruction, or written
instrument, but in its discretion may request any tax waivers, proof of
signatures or other evidence which it reasonably deems necessary for its
protection. The Depositor and the successors of the Depositor including
any executor or administrator of the Depositor shall, to the extent
permitted by law, indemnify the Custodian and its successors and assigns
against any and all claims, actions or liabilities of the Custodian to
the Depositor or the successors or beneficiaries of the Depositor
whatsoever (including without limitation all reasonable expenses
incurred in defending against or settlement of such claims, actions or
liabilities) which may arise in connection with this Agreement or the
Custodial Account, except those due to the Custodian's own bad faith,
gross negligence or willful misconduct. The Custodian shall not be under
any duty to take any action not specified in this Agreement, unless the
Depositor shall furnish it with instructions in proper form and such
instructions shall have been specifically agreed to by the Custodian, or
to defend or engage in any suit with respect hereto unless it shall have
first agreed in writing to do so and shall have been fully indemnified
to its satisfaction.
14. NOTICES. All written notices required or permitted to be given by the
Custodian shall be deemed to have been given when sent by mail to the
Depositor at the Depositor's last address of record provided to the
Custodian. All written notices required or permitted to be given to the
Custodian shall be deemed to have been given when received by the
Custodian if mailed to the Custodian at Payden & Rygel Investment Group,
333 So. Grand Ave., Los Angeles, CA 90071 or such other address as the
Custodian shall provide to the Depositor from time to time.
15. TIMING OF CONTRIBUTIONS. A contribution is deemed to have been made on
the last day of the preceding taxable year if the contribution is made
by the deadline for filing the Depositor's income tax return (not
including extensions) and if the Depositor designates the contribution
as a contribution for the preceding taxable year in a manner acceptable
to the Custodian. The Custodian will not be liable or responsible for
any consequences of postal delays or delays resulting from an incomplete
Application or a designation made in an unacceptable form. Applications
received by the Custodian postmarked after the deadline will be treated
as a contribution for the Depositor's current tax year. Improperly
completed applications will be returned to the sender.
16. GOVERNING LAW. This Agreement and the Custodial Account shall be
construed, administered and enforced according to the laws of the State
of Missouri.
17. WHEN EFFECTIVE. This Agreement shall not become effective until
acceptance of the Application by the Custodian at its principal offices,
as evidenced by a written confirmation to the Depositor.
<PAGE> 15
<TABLE>
<S> <C> <C>
PAYDEN & RYGEL INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
=====================================================================================================
ACCOUNT HOLDER INFORMATION Please print clearly.
DR/MR/MRS/MS
- -----------------------------------------------------------------------------------------------------
Name Date
Home Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
( ) ( )
- -----------------------------------------------------------------------------------------------------
Home Phone Business Phone
[ ] Single [ ] Married
- -----------------------------------------------------------------------------------------------------
Date of Birth Social Security Number Marital Status
=====================================================================================================
TYPE OF ACCOUNT (Select appropriate account type)
[ ] Regular IRA [ ] SEP IRA [ ] Spousal IRA (Spouse must complete
separate application)
[ ] Prior Tax Year 19 _______ [ ] Contribution $_______________________________
[ ] Current Tax Year 19 _____ [ ] Contribution $_______________________________
=====================================================================================================
TYPE OF TRANSACTION (Select if applicable)
[ ] Direct Rollover from an Employer's qualified plan or 403(b) plan
[ ] Rollover (indicate source of funds below - select one)
[ ] From an Employer's qualified plan or 403(b) plan
[ ] From a Regular (contributory) IRA or a SEP-IRA
[ ] Direct Transfer of Assets from another IRA $___________________ (A transfer of assets form must
also be completed.)
=====================================================================================================
INVESTMENT INSTRUCTIONS
Under the provisions of my Individual Retirement Account (IRA) Agreement, I have the right to
direct the investments.
I understand, however, that the investment options available to me are limited to those shown below
and are governed by the terms of the current prospectus for the fund. By giving instructions to
invest in a fund, I acknowledge receipt of such prospectus. The minimum initial investment is
$2,000. Please refer to Article VIII Paragraph 10 for investments to which you may exchange the
existing investment. All proceeds from your investment will be reinvested in the same fund.
Please note that Payden & Rygel will pay all administrative fees charged by the custodian.
Telephone Exchange: Payden & Rygel is authorized to accept my telephone instructions for exchanges:
Yes [ ] No [ ]
[ ] Limited Maturity Fund [ ] Total Return Fund [ ] International Bond Fund
$_____________________________ $____________________________ $__________________________
[ ] Short Bond Fund [ ] Growth & Income Fund [ ] Global Balanced Fund
$_____________________________ $____________________________ $__________________________
[ ] U.S. Treasury Fund [ ] Market Return Fund [ ] International Equity Fund
$_____________________________ $____________________________ $__________________________
[ ] Intermediate Bond Fund [ ] Global Short Bond Fund
$_____________________________ $____________________________
[ ] Investment Quality Bond Fund [ ] Global Fixed Income Fund
$_____________________________ $____________________________
Total Amount Enclosed: $____________________________________________
Make check payable to: Payden & Rygel Investment Group
Send to: Payden & Rygel Investment Group, P.O. Box 419318, Kansas City, MO 64141-6318
=====================================================================================================
PAYDEN & RYGEL INVESTMENT GROUP P.O. Box 419318, Kansas City, MO 64141-6318 - 1-800-5PAYDEN
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C>
DESIGNATION OF BENEFICIARY (IES)
I designate the individual(s) named below the Beneficiary(ies) of this IRA. I revoke all prior IRA
Beneficiary designations, if any, made by me for these assets. I understand that I may change or
add Beneficiaries at any time by written notice to the Custodian. If I am not survived by any
Beneficiary, my Beneficiary shall be my estate. (If no percentage is specified, primary
beneficiaries will share the account balance equally.)
PRIMARY
BENEFICIARY DR/MR/MRS/MS
(IES) --------------------------------------------------------------------------------------
Name Social Security Number
--------------------------------------------------------------------------------------
Home Address: Street
--------------------------------------------------------------------------------------
City State ZIP Code
--------------------------------------------------------------------------------------
Date of Birth % of Account
--------------------------------------------------------------------------------------
Relationship
DR/MR/MRS/MS
--------------------------------------------------------------------------------------
Name Social Security Number
--------------------------------------------------------------------------------------
Home Address: Street
--------------------------------------------------------------------------------------
City State ZIP Code
--------------------------------------------------------------------------------------
Date of Birth % of Account
--------------------------------------------------------------------------------------
Relationship
CONTINGENT (A contingent beneficiary will receive account proceeds only if all primary
BENEFICIARY beneficiaries predecease the accountholder)
DR/MR/MRS/MS
--------------------------------------------------------------------------------------
Name Social Security Number
--------------------------------------------------------------------------------------
Home Address: Street
--------------------------------------------------------------------------------------
City State ZIP Code
--------------------------------------------------------------------------------------
Date of Birth % of Account
--------------------------------------------------------------------------------------
Relationship
=====================================================================================================
SPOUSAL CONSENT
This section should be reviewed if the accountholder is married and designates a beneficiary other
than the spouse. It is the accountholder's responsibility to determine if this section applies.
The accountholder may need to consult with legal counsel. Neither the Custodian nor the Sponsor
are liable for any consequences resulting from a failure of the accountholder to provide proper
spousal consent.
I am the spouse of the above-named accountholder. I acknowledge that I have received a full and
reasonable disclosure of my spouse's property and financial obligations. Due to any possible
consequences of giving up my community property interest in this IRA, I have been advised to see a
tax professional or legal advisor. I hereby consent to the beneficiary designation(s) indicated
above. I assume full responsibility for any adverse consequence that may result. No tax or legal
advice was given to me by the Custodian or Sponsor.
- -----------------------------------------------------------------------------------------------------
Signature of Spouse Date
- -----------------------------------------------------------------------------------------------------
Signature of Witness for Spouse Date
=====================================================================================================
IMPORTANT: PLEASE READ BEFORE SIGNING
By signing this Application establishing an IRA, the undersigned: (1) establishes an Individual
Retirement Account pursuant to the Internal Revenue Code of 1986, as amended, and in accordance
with all the terms of the Custodial Agreement on Form 5305A, (2) certifies that all contributions
to the IRA meet the requirements of the Code governing such contributions, (3) appoints Investors
Fiduciary Trust Company, or its successors, as Custodian on the Account, (4) states that he or she
has received, read, accepts and specifically incorporates herein the Custodial Agreement on Form
5305A and IRA Disclosure Statement, (5) agrees to promptly give instructions to the Custodian
necessary to enable the Custodian to carry out its duties under the Custodial Agreement, and (6)
agrees that he or she has received and read the Prospectus for the investment(s) selected and that
this account will be subject to the Custodial Agreement as amended from time to time.
Under penalties of perjury, I certify that the number shown on this form is my correct social
security number, and that I have not been notified by the IRS that I am subject to back-up
withholding.
- -----------------------------------------------------------------------------------------------------
Signature of Depositor Date
INVESTORS FIDUCIARY TRUST COMPANY, Custodian
</TABLE>
<PAGE> 17
PAYDEN & RYGEL IRA TRANSFER AND DIRECT ROLLOVER REQUEST FORM
================================================================================
To transfer assets from an existing IRA or to complete a direct rollover from a
qualified employer plan, 403(b) account or Keogh to a Payden & Rygel Investment
Group IRA, complete this form and attach a copy of a current statement from your
existing IRA or qualified retirement plan. If you are opening a new IRA, also
attach your completed IRA application to this form. Return this form and the
applicable attachments to Payden & Rygel Investment Group, 333 South Grand
Avenue, Los Angeles, CA 90071 (Note: if you will be age 701/2 or older during
the current calendar year, you must take out your minimum required distribution
from your IRA before completing a transfer or direct rollover.)
================================================================================
CUSTODIAN OF EXISTING ACCOUNT
- --------------------------------------------------------------------------------
Today's Date
- --------------------------------------------------------------------------------
DR/MR/MRS/MS
- --------------------------------------------------------------------------------
Custodian Name
- --------------------------------------------------------------------------------
Custodian Address: Street Custodian Telephone Number
- --------------------------------------------------------------------------------
City State ZIP Code
- --------------------------------------------------------------------------------
DR/MR/MRS/MS
Your Name Your Social Security Number
- --------------------------------------------------------------------------------
Your Address: Street
- --------------------------------------------------------------------------------
City State ZIP Code
================================================================================
INSTRUCTIONS TO CUSTODIAN OF EXISTING ACCOUNT
Account Number: _________________________
I have established a Payden & Rygel Investment Group Individual Retirement
Account with Investors Fiduciary Trust Company as Custodian. Please withdraw
assets from my account in your custody in the following manner and send a check
payable to Payden & Rygel at 333 South Grand Avenue, Los Angeles, CA 90071,
with reference to your name:
- -----------------------------------.
TYPE OF ACCOUNT TO BE TRANSFERRED (CHECK ONE)
<TABLE>
<S> <C> <C> <C>
[ ] IRA [ ] SEP/IRA [ ] SPOUSAL IRA [ ] Rollover from qualified employer plan or Keogh
[ ] 403(b) Custodial Account or Annuity [ ] Other (List Type) _________________________________________________
</TABLE>
PORTION OF ACCOUNT TO BE TRANSFERRED (CHECK ONE)
<TABLE>
<S> <C>
[ ] All of the Assets in my account [ ] $___________________ in my account
</TABLE>
IF YOU ARE TRANSFERRING A CERTIFICATE OF DEPOSIT IRA CHOOSE ONE OF THE OPTIONS
BELOW:
<TABLE>
<S> <C>
[ ] Liquidate prior to maturity date. I am aware of and acknowledge the penalty I will incur from an early withdrawal.
[ ] Liquidate at maturity. (Maturity date must be within 60 days. If the maturity date is less than 15
days from the date of this request, you may want to contact your custodian bank to prevent automatic reinvestment of the
account.)
</TABLE>
================================================================================
PAYDEN & RYGEL INVESTMENT GROUP
P.O. Box 419318, Kansas City, MO 64141-6318 o 1-800-5PAYDEN
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===========================================================================================================================
INSTRUCTIONS TO INVESTORS FIDUCIARY TRUST COMPANY
Please invest the assets transferred from my existing account in the following Payden & Rygel fund(s):
ACCOUNT NUMBER
FUND(S) (IF IRA ACCOUNT HAS BEEN ESTABLISHED) AMOUNT OR %
Global Short Bond Fund ________________________________ ________________________________
Global Fixed Income Fund ________________________________ ________________________________
International Bond Fund ________________________________ ________________________________
U.S. Treasury Fund ________________________________ ________________________________
Limited Maturity Fund ________________________________ ________________________________
Short Bond Fund ________________________________ ________________________________
Intermediate Bond Fund ________________________________ ________________________________
Investment Quality Bond Fund ________________________________ ________________________________
Total Return Fund ________________________________ ________________________________
Growth & Income Fund ________________________________ ________________________________
Market Return Fund ________________________________ ________________________________
Global Balanced Fund ________________________________ ________________________________
International Equity Fund ________________________________ ________________________________
===========================================================================================================================
AUTHORIZATIONS
SHAREHOLDER AUTHORIZATION: I hereby authorize Investors Fiduciary Trust Company to deposit the assets received from my
existing IRA, qualified employer plan or Section 403(b) account according to the terms stated in this IRA Transfer
Request Form. I hereby acknowledge that strict requirements must be met to qualify for tax-free rollover or transfer
treatment; I hereby certify that the source of the transfer or rollover contribution qualifies the contribution as such.
- ---------------------------------------------------------------------------------------------------------------------------
Signature Date
SIGNATURE GUARANTEE: Your current trustee or custodian may require your signature to be guaranteed. Contact them for
signature requirements. Signature guarantee must be provided by a bank, member of a national securities exchange,
savings and loan association, credit union, broker or other acceptable financial institution. A notary public cannot
provide a signature guarantee.
Signature Guaranteed: Place Guaranteed Stamp Here
----------------------------------------------------------------------
By: Institution
----------------------------------------------------------------------
By: Authorized Signer's Name & Title
CUSTODIAN AUTHORIZATION: Investors Fiduciary Trust Company hereby accepts its appointment as Custodian of the above IRA
account and upon receipt of assets, will deposit such assets in a Payden & Rygel Investment Group IRA on behalf of the
Depositor authorizing this transfer or direct rollover.
INVESTORS FIDUCIARY TRUST COMPANY
Authorized Signature
</TABLE>
<PAGE> 1
EXHIBIT 14.2
PAYDEN & RYGEL INVESTMENT GROUP
SECTION 403(b)(7) CUSTODIAL ACCOUNT AGREEMENT
ARTICLE I
DEFINITIONS
1.1 Account: The custodial account established and maintained under
this Agreement on behalf of the Employee pursuant to Section 403(b)(7) of the
Code.
1.2 Account Holder: The Employee, or, after the death of the
Employee, the Beneficiary of the Employee, or executor or administrator of the
estate of the Employee entitled to direct investment of assets held in the
Account.
1.3 Agreement: The [Name of Fund] Section 403(b)(7) Custodial
Account Agreement as set forth herein.
1.4 Application: The Application for the [Name of Fund] Section
403(b)(7) Custodial Account executed by the Employee and the Custodian providing
for the establishment of the Account in accordance with the terms and conditions
of this Agreement.
1.5 Beneficiary: The person or persons designated in accordance with
the provisions of Article 5.6 to receive any undistributed amounts credited to
the Account upon the death of the Employee.
1.6 Code: The Internal Revenue Code of 1986, as amended, and
including any regulations or rulings issued thereunder.
1.7 Company: Payden & Rygel Investment Group in which
contributions to the Account shall be invested.
1.8 Custodian: Investors Fiduciary Trust Company or any successor
thereto appointed in accordance with the provisions of Article 8, provided that
such successor is either a bank or another person who satisfies the requirements
of Section 401(f)(2) of the Code.
1.9 Disability: A determination that the Employee is unable to engage
in any substantial gainful activity by reason of a medically determinable
physical or mental impairment which can be expected to result in death or to be
of long-continued and indefinite duration.
1.10 Employee: The individual who has executed the Application and who
is employed by the Employer on a full or part-time basis or who is a former or
retired employee of the Employer.
1.11 Employer: The employer that is:
(a) described in Section 501(c)(3) of the Code
and exempt from tax under Section 501(a) of the Code; or
(b) a State, a political subdivision of a State,
or an agency or instrumentality thereof, but only with
respect to employees who perform or have performed
services for an educational organization described in
Section 170(b)(1)(A)(ii) of the Code;
and, except with respect to an Account to which no contributions other than
rollovers or transfers are made, the Employer that has executed the Application.
1.12 ERISA: The Employee Retirement Income Security Act of 1974, as
amended, including any regulations issued thereunder.
<PAGE> 2
1.13 Financial Hardship: A determination that the Employee has an
immediate and heavy financial need requiring a distribution from the Account.
Any determination of the existence of a qualifying financial hardship on the
part of the Employee and the amount required to be distributed to meet the need
created by the hardship shall be made in accordance with the rules and
regulations under Section 403(b)(7) of the Code.
1.14 Fund(s): One or more of the regulated investment companies
offered by Payden & Rygel Investment Group, a Massachusetts Business Trust, as
available investments under this Agreement.
1.15 Salary Reduction Agreement: The Salary Reduction Agreement
described in Article 3.2.
1.16 Salary Reduction Contribution: The amount contributed by the
Employer to the Account in accordance with a Salary Reduction Agreement.
ARTICLE II
ESTABLISHMENT OF ACCOUNT
2.1 Purpose. This Agreement is intended to provide for the
establishment and administration of an Account to receive contributions by the
Employer on behalf of the Employee in accordance with Section 403(b)(7) of the
Code or to receive rollover contributions or transfers from another 403(b)
annuity contract or custodial account.
2.2 Establishment of Account. The Custodian shall establish and
maintain the Account for the benefit of the Employee according to the terms and
conditions of this Agreement. The name, address and social security number of
the Employee and Beneficiary are set forth on the Application, and it shall be
the obligation of the Account Holder to notify the Custodian of any changes
thereto. The Application and, if applicable, the Salary Reduction Agreement, are
incorporated herein by reference. The Account will become effective upon
acceptance by or on behalf of the Custodian, as evidenced by written
confirmation to the Employee.
ARTICLE III
CONTRIBUTIONS
3.1 Contributions. The Employer shall make Salary Reduction
Contributions to the Account on behalf of the Employee in accordance with the
Salary Reduction Agreement between the Employer and the Employee as described in
Article 3.2, subject to the limitations of Articles 3.4, 3.5, and 3.6.
3.2 Salary Reduction Agreement. The Salary Reduction Agreement shall
be a legally binding agreement between the Employer and the Employee whereby the
Employee irrevocably agrees to take a reduction in salary or to forego an
increase in salary with respect to amounts earned after the agreement's
effective date, and whereby the Employer agrees to contribute the amount of
salary reduced or foregone by the Employee to the Account. The Salary Reduction
Agreement may be terminated at any time by the Employee with respect to amounts
not yet earned by the Employee.
3.3 Limitations in General. The Employee shall compute and determine
the maximum amount that may be contributed on behalf of the Employee in
accordance with the Employee's exclusion allowance, as defined in Section
403(b)(2) of the Code, and in accordance with the applicable limitations under
Section
<PAGE> 3
415(c) of the Code. Neither the Custodian nor the Company shall have any
liability or responsibility with respect to such computations or determinations,
or for any tax imposed on any excess contributions that exceed the limitations
or exclusion allowance.
3.4 Contribution Limitations.
(a) No amount shall be contributed on behalf of
the Employee for any limitation year in excess of the
applicable limitations of Section 415(c) of the Code. In
the absence of a special election by the Employee under
Section 415(c)(4) of the Code, the amount contributed
shall not exceed the lesser of:
(i) $30,000 (or, if greater,
one-fourth the defined benefit plan dollar
limitation in effect under Section 415(b)(1) of the
Code for the limitation year); or
(ii) 25 percent of the Employee's
compensation (within the meaning of Section
415(c)(3) of the Code) for the limitation year.
(b) The term "limitation year" shall mean the
calendar year, unless the Employee elects to change the
limitation year to another twelve-month period by
attaching a statement to his or her federal income tax
return in accordance with the regulations under Section
415 of the Code. If the Employee is in control (within the
meaning of Code Section 414(b) or (c), as modified by Code
Section 415(h)) of the Employer, the limitation year shall
be the same as the limitation year of the Employer under
Section 415 of the Code.
(c) If the Employer or any affiliated employer as
described in Section 415(h) of the Code makes
contributions on behalf of the Employee to any other
custodial account or annuity contract described in Section
403(b) of the Code, then the contributions to such annuity
contract shall be combined with the contributions to the
Account for purposes of the limitations of subsection (a).
If the Employee is covered by a qualified plan sponsored
by an entity controlled by the Employee, then
contributions to such a plan shall also be included for
the purposes of the limitations of subsection (a).
3.5 Exclusion from Gross Income. For federal tax purposes, the
Employee may exclude from gross income for any taxable year the Employer
contributions that are made to the Account to the extent such contributions do
not exceed the Employee's exclusion allowance under Section 403(b)(2) of the
Code for the taxable year.
3.6 Excess Contributions. Any excess contributions (as defined in
Section 4973(c) of the Code) that are made to the Account shall be subject to
the six percent excise tax of Section 4973(a) of the Code. Neither the Custodian
nor the Company shall have any duty or responsibility for determining whether
any contributions to the Account are excludable from the Employee's gross
income, or for assuring that any contributions to the Account do not constitute
excess contributions for purposes of Code Section 4973. The disposition of
excess contributions will be made in accordance with instructions from the
Employer, if the Employee has not separated from service, or otherwise, from the
Employee. The
<PAGE> 4
Employer or Employee providing such instructions is responsible for determining
that they are consistent with applicable law.
3.7 Limitation on Salary Reduction Contributions.
(a) Employer contributions that are made to the
Account pursuant to a Salary Reduction Agreement shall not
exceed the amount of $9,500, or such greater amounts as
may be permitted with respect to the Employee for the
taxable year under Section 402(g)(5) of the Code, reduced
by the aggregate amounts contributed in any calendar year
at the election of the Employee to any qualified cash and
deferred arrangement described in Section 401(k) of the
Code, any simplified employee pension described in Section
408(k)(6) of the Code, and any eligible deferred
compensation plan described in Section 457 of the Code.
(b) Notwithstanding any provision of this Agreement
to the contrary, if the Employee determines that an amount
contributed during a taxable year to the Account exceeds
the limitation set forth in subsection (a), and no later
than March 1 of the following taxable year notifies the
Custodian in writing of the excess amount the Employee has
determined, then the Custodian shall distribute such
excess amount, plus any income or minus any losses
allocable thereto, to the Employee no later than the
following April 15. The Employee shall have the sole
responsibility for timely determining any excess deferrals
to the Account and notifying the Custodian in accordance
with these procedures.
(c) Neither the Custodian nor the Company shall
have any duty or responsibility for determining whether
any contributions to the Account constitute excess
deferrals as described in Section 402(g)(2)(A) of the
Code, or for assuring that any excess deferrals are timely
distributed in accordance with the procedures of Section
402(g)(2)(A) of the Code.
3.8 Rollover Contributions and Transfers.
(a) The Employee shall be permitted to make a
rollover contribution to the Account of an amount received
by the Employee that is attributable to participation in
another annuity contract or custodial account described in
Section 403(b) of the Code, provided such rollover
contribution complies with all requirements of Section
403(b)(8) or Section 408(d)(3)(A)(iii) of the Code,
whichever is applicable.
(b) The Custodian may accept a direct transfer of
assets to the Account on behalf of the Employee from
another annuity contract or custodial account described in
Section 403(b) of the Code to the extent permitted by the
Code and the regulations and rulings thereunder. The
Employee shall not request or initiate a transfer from a
contract or account containing distribution initiate a
transfer from a contract or account containing
distribution restrictions that are more restrictive than
those provided in Article V. The Employee shall not
request or
<PAGE> 5
initiate a transfer from a contract or account covered by
ERISA, unless the transferee Account is part of an
employee benefit plan which provides distribution
restrictions which meet the requirements of Section 205 of
ERISA and the regulations thereunder with respect to any
amount transferred.
(c) Neither the Custodian nor the Company shall
have any duty or responsibility for determining whether
any rollover contribution or transfer of assets by or on
behalf of the Employee pursuant to this Article 3.8 is a
proper rollover contribution or transfer of assets under
the Code, or for the tax treatment to the Employee of any
transfer or rollover.
(d) To the extent permitted under applicable law,
the Account Holder reserves the right to transfer or
rollover any or all of the assets of the Account to such
other form of annuity contract or custodial account
described in Section 403(b) of the Code or to such
Individual Retirement Account (IRA) or other plan
established pursuant to Section 408 of the Code as the
Employee may determine, upon written instructions to the
Custodian, in a form acceptable to the Custodian;
provided, however that the Custodian shall have no
responsibility for the tax treatment to the Account Holder
of any such transfer or rollover.
(e) The Custodian shall not be liable for losses
arising from the acts, omissions, or delays or other
inaction of any party transferring assets to the Account
or receiving assets transferred from the Account pursuant
to this Article.
3.9 Manner of Making Contributions. All contributions to the Account
shall be paid directly to the Custodian. Contributions may be made by check or
bank wire. Contributions shall be preceded or accompanied by written
instructions directing the investment of the amount contributed on behalf of the
Employee in accordance with Article 4.1.
ARTICLE IV
INVESTMENTS
4.1 Investment of Account. All contributions to the Account and all
assets in the Account shall be invested in the Fund(s) in accordance with
instructions given to the Custodian by the Account Holder in a manner acceptable
to the Custodian. By giving such instructions, the Account Holder will be deemed
to have acknowledged receipt of the then current prospectus of any Fund in which
the Account Holder instructs the Custodian to invest such contributions or
assets. If the Custodian receives any contribution to the Account that is not
accompanied by acceptable instructions directing its investment, the Custodian
may hold or return all or a part of the contribution uninvested without
liability for loss of income or appreciation pending receipt of acceptable
instructions.
4.2 Investment Advice. The Account Holder agrees that neither the
Custodian nor the Company undertake to provide any advice with respect to the
investment of the Account, and that the responsibility of the Custodian to
invest in shares of a particular Fund pursuant to the directions of the Account
Holder does not constitute an endorsement by the Custodian of that Fund. Neither
the Custodian
<PAGE> 6
nor the Company shall be liable for any loss that results from the exercise of
control over the Account by the Account Holder.
4.3 Account Earnings. All dividends, capital gains
distributions and other earnings received by the Custodian on any shares held in
the Account shall be automatically reinvested in additional shares.
4.4 Investment Exchanges. The Account Holder may direct the Custodian
to redeem any or all shares of any Fund that are held in the Account and to
reinvest the proceeds in any other Fund available under this Agreement. By
giving such directions, the Account Holder will be deemed to have acknowledged
receipt of the then current prospectus of any Fund in which the Account Holder
instructs the Custodian to reinvest such proceeds. Any such exchange transaction
shall conform with the provisions of the current prospectus for the applicable
Fund.
4.5 Record Ownership; Voting of Shares. All shares of the Company
acquired by the Custodian pursuant to this Agreement shall be registered in the
name of the Custodian or its nominee. The Custodian shall mail or transmit to
the Account Holder's address of record all notices, prospectuses, financial
statements, proxies and proxy soliciting materials relating to the shares held
in the Account. The Custodian shall not vote any such shares except in
accordance with written instructions received from the Account Holder, provided
however, that the Custodian may, in the absence of instructions, vote "present"
for the sole purpose of allowing such shares to be counted for establishment of
a quorum at a shareholder's meeting.
ARTICLE V
DISTRIBUTION OF ASSETS OF ACCOUNT
5.1 Request for Distribution. The Custodian shall distribute the
assets of the Account to the Employee upon receipt by the Custodian of a written
request for distribution submitted by the Employee, in a form acceptable to the
Custodian, subject to the limitations of Article 5.2.
5.2 Limitations on Distributions. Except as may otherwise be provided
in Article 3.6, the assets of the Account shall not be distributed to the
Employee before the Employee attains age 59-1/2 unless the Employee has:
(a) separated from the service of the Employer,
(b) incurred a Disability, or
(c) encountered Financial Hardship.
Any distribution that is made to the Employee for reason of Financial Hardship
shall not exceed the amount of Employer contributions made to the Account
pursuant to a salary reduction agreement with the Employee, excluding earnings
thereon.
5.3 Method of Distribution. Subject to the limitations of this
Article 5, the Employee may elect to have distribution of the assets of the
Account made in one or a combination of the following ways:
(a) lump-sum payment; or
(b) monthly, quarterly or annual installment
payments over a period certain not to exceed the life
expectancy of the Employee or the joint and last
<PAGE> 7
survivor life expectancy of the Employee and his or her
Beneficiary in a manner that satisfies the minimum
distribution requirements of Article 5.4.
If no election of the method of distribution is made by the Employee within 30
days of receipt by the Custodian of the written request for distribution
referred to in Article 5.1, the Custodian shall make such distribution to the
Employee in a lump-sum payment of cash.
5.4 Minimum Distribution Requirements Prior to Death of Employee.
(a) Commencement of Distributions.
Notwithstanding any provision of this Agreement to the
contrary, distribution of the Account shall commence no
later than the "Required Beginning Date". For any Employee
who attained age 70-1/2 prior to January 1, 1988 or after
December 31, 1996, the Required Beginning Date is the
April 1 following the calendar year in which the Employee
attains age 70-1/2 or terminates employment, whichever is
the later. For any employee who attained age 70-1/2 in
1988 and had not retired by January 1, 1989, the Required
Beginning Date is April 1, 1990. For any other Employee
who attained age 70 and 1/2 after December 31, 1987 and
before January 1, 1997, the Required Beginning Date is the
April 1 following the calendar year in which the Employee
attains age 70-1/2 regardless of whether the Employee has
then retired.
(b) Minimum Amounts to be Distributed.
The minimum amount distributed to the Employee for each
taxable year, beginning no later than the Required
Beginning Date under subsection (a) above, must equal or
exceed the minimum distribution required under Sections
401(a)(9) and 403(b)(10) of the Code and must meet the
incidental death benefit requirement of these Sections.
5.5 Distribution Upon Death of Employee. In the event the Employee
dies prior to the complete distribution of the assets of the Account, all assets
remaining in the Account shall be distributed to the Employee's Beneficiary in a
lump-sum payment or in monthly, quarterly or annual installment payments over a
specified period as selected in writing by the Beneficiary in accordance with
the following rules:
(a) Where Distribution Had Already
Commenced. If distribution to the Employee had already
commenced and the Employee died after the Employee's
Required Beginning Date, the assets of the Account shall
be distributed to the Beneficiary at least as rapidly as
under the method of distribution in effect prior to the
Employee's death.
(b) Five-Year Rule. If the Employee
died before the Employee's Required Beginning Date, the
assets of the Account shall be distributed to the
Beneficiary by December 31 of the calendar year which
contains the fifth anniversary of the death of the
Employee.
(c) Exception for Distributions Over
Life Expectancy. Notwithstanding subsection (b) above, the
assets of the Account may be distributed to the
Beneficiary in installment payments over a period certain
not exceeding the
<PAGE> 8
Beneficiary's life expectancy, provided such distribution
commences by December 31 of the calendar year immediately
following the year of the Employee's death or, if the
Beneficiary is the surviving spouse of the Employee, by
December 31 of the later of (1) the calendar year
immediately following the calendar year in which the
Employee died or (2) the calendar year in which the
Employee would have attained age 70-1/2.
Notwithstanding any provision of this Agreement to the contrary, to the extent
permitted under regulation, ruling procedures or notice of the Internal Revenue
Service, the minimum distribution calculated in accordance with Code sections
403(b)(10) and 401(a)(9) may be taken from any 403(b) annuity or account of the
Employee. If the Beneficiary dies while receiving payments from the Account, all
remaining assets in the Account shall be distributed as soon as practicable to
the estate of the Beneficiary.
5.6 Designation of Beneficiary. The Employee may from time to time
designate any person, persons or entity as the Beneficiary who shall receive any
undistributed assets held in the Account at the time of the Employee's death.
Any Beneficiary designation by the Employee shall be made on a form prescribed
by the Custodian, and shall be effective only when filed with the Custodian
during the lifetime of the Employee. If the Employee fails to designate a
Beneficiary in the manner provided above, or if the Beneficiary designated by
the Employee predeceases the Employee, the assets of the Account shall be
distributed upon the death of the Employee in the following order of priority:
first to the employee's surviving spouse, if any, and second, to the estate of
the Employee. Notwithstanding the foregoing, if this Agreement constitutes part
of an "employee benefit plan" under ERISA, then the Beneficiary of a married
Employee must be the spouse of the Employee, unless the spouse of the Employee
consents in writing to designation of a different Beneficiary and such consent
acknowledges the effect of the designation, specifies the nonspouse Beneficiary
designated, and is witnessed by a notary public. Furthermore, such a designation
of a nonspouse Beneficiary may be changed only if the spouse of the Employee
provides a new consent that meets all requirements of the preceding sentence.
5.7 Distributions Pursuant to Qualified Domestic Relations Orders. In
the case of an Account that is part of an "employee pension benefit plan" (as
defined in ERISA), nothing in this Agreement shall prohibit distribution to any
person in accordance with the terms of a "qualified domestic relations order" as
defined in Section 206(d) of ERISA.
5.8 Direct Rollovers. This Article 5.8 applies to distributions made
on or after January 1, 1993. Notwithstanding any provision of this Agreement to
the contrary that would otherwise limit a distributee's election under this
section, a distributee may elect, at the time and in the manner prescribed by
the Custodian and fund transfer agent, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan specified by
the distributee in a direct rollover. For the purpose of this section, the
following definitions apply:
(a) Eligible rollover distribution: An eligible
rollover is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
<PAGE> 9
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required to comply with the minimum
distribution and incidental death benefit requirements of
section 401(a)(9) and 403(b)(10) of the Code; and the
portion of any distribution that is not includible in
gross income. An eligible rollover distribution also does
not include any other amounts that may be excluded under
regulations, procedures, notices, or rulings interpreting
the term eligible rollover distribution under sections
401(a)(31), 402, or 403(b) of the Code.
(b) Eligible retirement plan: An eligible
retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the
Code, or another 403(b) annuity, that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(c) Distributee: A distributee includes an
employee or former employee. In addition, the employee's
or former employee's surviving spouse and the employee's
or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse or
former spouse.
(d) Direct rollover: A direct rollover is a
payment by the plan to the eligible retirement plan
specified by the distributee.
(e) The Custodian and fund transfer agent may
prescribe reasonable procedures for the election of direct
rollovers under this section, including, but not limited
to, requirements that the distributee provide the
Custodian with adequate information, including, but not
limited to: the name of the eligible retirement plan to
which the rollover is to be made; a representation that
the recipient plan is an individual retirement plan or a
403(b) annuity, as appropriate; acknowledgement from the
recipient plan that it will accept the direct rollover;
and any other information necessary to make the direct
rollover.
ARTICLE VI
RESPONSIBILITIES AND DUTIES OF CUSTODIAN
6.1 Asset Retention. The Custodian shall hold all contributions to
the Account which are received by it subject to the terms and conditions of this
Agreement and for the purposes set forth herein. The Custodian shall be
responsible only for such assets as shall actually be received by it.
6.2 Records and Reports. The Custodian shall file such reports with
the Internal Revenue Service as may be required to be filed by the Custodian
(not including such reports as may be required to be filed by the Employer)
under Treasury Regulations. The Custodian, the Employer, Employee and
<PAGE> 10
Beneficiary shall furnish to one another such information relevant to the
Account as may be required in connection with such reports. Unless the Employee
(or Beneficiary, where applicable) sends the Custodian written objection to a
report within 60 days after its receipt, the Employee (or Beneficiary, where
applicable) shall be deemed to have approved such report, and in such case the
Custodian shall be forever released and discharged from all liability and
accountability to anyone with respect to all matters and things included
therein. The Custodian may seek a judicial settlement of its accounts. In any
such proceeding, the only necessary party thereto in addition to the Custodian
shall be the Employee.
6.3 Limitations on Responsibilities and Duties.
(a) The Custodian shall not be responsible in any
way for the collection of contributions provided for under
this Agreement, the selection of the investments for the
Account, the purpose or propriety of any distribution made
pursuant to Article 5 hereof, or any other action taken at
the direction of the Employee (or Beneficiary or Employer,
where applicable). The Custodian shall not be obliged to
take any action whatsoever with respect to the Account
except upon receipt of directions in a form acceptable to
the Custodian from the Employee (or Beneficiary or
Employer, where applicable). The Custodian shall be under
no obligation to determine the accuracy or propriety of
any such directions and shall be fully protected in acting
in accordance therewith.
(b) The Custodian is an agent appointed by the
Company to perform solely the duties assigned to it under
the Agreement, it being acknowledged that certain of such
duties may be performed by the Custodian in any event
pursuant to one or more other contractual arrangements or
relationships. The Custodian shall not be deemed to be a
fiduciary under ERISA in carrying out its duties.
(c) The Employer shall be solely responsible for
assuring compliance at all times with the
nondiscrimination requirements of Code section 403(b)(12)
and the Custodian shall not be responsible in any way for
such compliance.
(d) It is hereby agreed that, subject to the
provisions of applicable law, no person other than the
Account Holder may institute or maintain any action or
proceeding against the Custodian.
6.4 Indemnification of Custodian. The Account Holder and the
successors of the Account Holder, including any executor or administrator of the
Account Holder, shall, to the fullest extent permitted by law, at all times
fully indemnify and save harmless the Custodian, its successors and assigns from
any and all claims, actions, or liabilities arising from investments or
distributions made or actions taken at the direction of the Account Holder, and
from any and all other liability whatsoever (including without limitation all
reasonable expenses incurred in defending against or settlement of such claims,
actions or liabilities) which may arise in connection with this Agreement or the
Account, except liability arising from the gross negligence or willful
misconduct of the Custodian.
6.5 Liability of Custodian. The Custodian's liability under this
Agreement and matters which it contemplates shall be limited to matters arising
from the Custodian's gross negligence or willful
<PAGE> 11
misconduct. The Custodian shall be entitled to rely conclusively upon, and shall
be fully protected in any action or nonaction taken in reliance upon, any
written notices or other communications or instruments believed by the Custodian
to be genuine and to have been properly executed. The Custodian shall not under
any circumstances be responsible for the timing, purpose, or propriety of any
contribution or of any distribution made hereunder, nor shall the Custodian
incur any liability or responsibility for any tax imposed on account of any such
contribution or distribution. The Custodian shall not be obligated or expected
to commence or defend any legal action or proceeding in connection with this
Agreement unless agreed upon by the Custodian and Account Holder, and unless
fully indemnified for so doing to the satisfaction of the Custodian.
ARTICLE VII
FEES AND EXPENSES OF THE CUSTODIAN
7.1 Compensation of Custodian. In consideration for its services
hereunder, the Custodian shall be entitled to receive the applicable fees
specified in the Application. The Custodian may substitute a revised fee
schedule from time to time. The Custodian shall be entitled to such reasonable
additional fees as it may from time to time determine for services required of
it and not clearly identified on the fee schedule. The Custodian's ability to
earn income on amounts held in non-interest bearing accounts has been taken into
consideration in establishing the Custodian's fees. The Custodian shall be
entitled to retain any such income as a part of its agreed compensation
hereunder, and such income shall not be or become a part of the Fund.
7.2 Charges Upon the Account. Any income taxes or other taxes of any
kind whatsoever that may be levied or assessed upon or in respect of the Account
(including any transfer taxes incurred in connection with the investment and
reinvestment of Account assets), expenses, fees and administrative costs
incurred by the Custodian in the performance of its duties (including fees for
legal services rendered to the Custodian), and the Custodian's compensation as
determined under Article 7.1 shall constitute a charge upon the assets of the
Account. At the Custodian's option, such fees, taxes or expenses shall be paid
from the Account or by the Account Holder. The Custodian may redeem fund shares
and use the proceeds of redemption to pay such fees, taxes or expenses.
ARTICLE VIII
RESIGNATION OR REMOVAL OF CUSTODIAN
8.1 Resignation or Removal. The Custodian may resign at any time by
written notice to the Company which shall be effective 60 days after delivery
thereof. The Company shall appoint a successor Custodian who shall accept such
appointment in a writing provided to the Custodian and Account Holder within
such 60-day period. The Custodian may be removed by the Company at any time upon
60 days written notice to the Custodian, provided that the Company designates a
successor Custodian that accepts such appointment by a writing provided to the
Account Holder and the Custodian within such 60-day period. Upon such
resignation or removal, the Custodian shall transfer and deliver all assets of
the Account and all records relative thereto to the successor Custodian
appointed by the Company, provided such successor Custodian has in writing
accepted this Agreement as it is or may be then amended.
<PAGE> 12
Notwithstanding the foregoing, the Custodian is authorized to reserve such sum
of money as it may deem advisable for payment of all of its fees, compensation,
costs and expenses, or for payment of any other liability constituting a charge
on or against the assets of the Account or on or against the Custodian, and
where necessary may liquidate shares in the Account for such payments. Any
balance of such reserve remaining after the payment of all such items shall be
paid over to the successor Custodian.
8.2 Liability for Successor's Acts. Upon its resignation or removal,
the Custodian shall not be liable for the acts or omissions of any successor
Custodian. Upon the transfer of assets of the Account to a successor Custodian,
the resigning or removed Custodian shall be relieved of all further liability
with respect to this Agreement, the Account and the assets thereof.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Amendment of Agreement.
(a) The Account Holder, Employer, and Custodian
hereby delegate to the Company the power to amend this
Agreement, including any retroactive amendment necessary
for the purpose of conforming the Agreement to the
requirements of the Code. The Company shall deliver
written notice of any such amendment to the Account
Holder, Custodian and any Employer who is party to this
Agreement.
(b) No amendment to this Agreement shall cause or
permit:
(i) any part of the assets of the
Account to be used for, or diverted to,
purposes other than for the exclusive benefit
of the Employee or Beneficiary, except with
regard to payment of the expenses of the
Custodian and the Company as authorized by the
provisions of this Agreement and except to the
extent required by law;
(ii) the Employee to be deprived of any
accrued benefits under this Agreement unless such
amendment is required for the purpose of conforming
the Agreement to the requirements of any law,
government regulation or ruling; or
(iii) the imposition of any additional duties
or obligations on the Custodian without its
consent.
9.2 Termination of Agreement. This Agreement shall terminate when all
assets in the Account have been distributed or otherwise transferred out of the
Account. Upon completion of such distribution, the Custodian shall be released
from all further liability with respect to all amounts so paid to the extent
permitted by applicable law.
<PAGE> 13
ARTICLE X
MISCELLANEOUS
10.1 Retirement Plan Provisions Shall Control. In the event
contributions are being made to the Account pursuant to any retirement plan or
program sponsored by the Employer, to the extent any provisions of this
Agreement are inconsistent with such retirement plan or program, the provisions
of the Employer's retirement plan or program shall control, provided:
(a) such provisions are not contrary to the rules
and regulations under Section 403(b)(7) of the Code; and
(b) such provisions do not impose any additional
responsibilities or duties on the Custodian without its
prior consent. The Employer shall be responsible for
delivering the most recent copy of any such retirement
plan or program to the Custodian.
10.2 ERISA Requirements. If this Agreement is determined to constitute
part of an "employee benefit plan" established or maintained by the Employer
subject to Title I of ERISA, then the Employer shall be solely responsible for
assuring such employee benefit plan complies at all times with the requirements
of Title I of ERISA.
10.3 Exclusive Benefit. The assets of the Account shall not be used
for, or diverted to, purposes other than for the exclusive benefit of the
Employee or his or her Beneficiary. The assets of the Account shall not be
subject to the claims of the creditors of the Employer.
10.4 Nonforfeitability and Nontransferability. The interest of the
Employee in the balance of the Account shall at all times be nonforfeitable and
nontransferable. All rights under this Agreement are enforceable solely by the
Employee or his or her Beneficiary, or any duly authorized representative of the
Employee or Beneficiary.
10.5 Nonalienation. The assets of the Account shall not be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, except with regard to payment of expenses of the
Custodian as authorized by the provisions of the Agreement and except to the
extent required by law.
10.6 Notices. Any notice, accounting, or other communication which the
Custodian may give to the Employer or the Account Holder shall be deemed given
when mailed to the Employee at the latest address which has been furnished to
the Custodian. Any notice or other communication which the Employer or Account
Holder may give to the Custodian shall not become effective until actual receipt
of said notice by the Custodian.
10.7 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of Missouri, to the extent not preempted by Federal
law. No provision of this Agreement shall be construed to conflict with any
provision of an Internal Revenue Service regulation, ruling, release, or other
order which affects, or could affect, the terms of this Agreement or its
compliance with the requirements of Section 403(b)(7) of the Code.
<PAGE> 14
<TABLE>
<CAPTION>
APPLICATION FOR PAYDEN & RYGEL INVESTMENT GROUP
SECTION 403(B)(7) CUSTODIAL ACCOUNT
<S> <C> <C>
=====================================================================================================
INSTRUCTIONS:
Please complete Sections 1 through 4 below and send to Payden & Rygel Investment Group, P.O. Box
419318, Kansas City, MO 64141-6318. This application must be signed by the Employee and the
Employer.
- -----------------------------------------------------------------------------------------------------
EMPLOYEE INFORMATION Please print clearly.
- -----------------------------------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------------------------------
Home Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
- -----------------------------------------------------------------------------------------------------
Social Security Number Birth Date
( )
- -----------------------------------------------------------------------------------------------------
Telephone Number
- -----------------------------------------------------------------------------------------------------
Employer's Name
- -----------------------------------------------------------------------------------------------------
Employer's Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
( )
- -----------------------------------------------------------------------------------------------------
Contact Name Telephone Number
- -----------------------------------------------------------------------------------------------------
INVESTMENT AMOUNTS
Please indicate the type(s) of 403(b)(7) contributions that will be made, and the amount of each
type:
[ ] PAYROLL CONTRIBUTIONS (PER PAY PERIOD): Employee Salary Reduction $_______________ or ______________%
IF PLAN ALLOWS EMPLOYER CONTRIBUTIONS: Employer Contribution $________________ or _____________%
[ ] TRANSFER OR DIRECT ROLLOVER FROM AN EXISTING PLAN: If you are completing a transfer or direct
rollover, please complete the Payden & Rygel 403(b)(7) Asset Transfer or Direct Rollover
Authorization Form and forward it with this application.
Amount: $___________________________________________
[ ] All of the assets in my account.
[ ] ROLLOVER CONTRIBUTION:
Amount: $___________________________________________
[ ] All of the assets in my account.
=====================================================================================================
PAYDEN & RYGEL INVESTMENT GROUP P.O. Box 419318, Kansas City, MO 64141-6318 o 1-800-5PAYDEN
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
=====================================================================================================
INVESTMENT OF CONTRIBUTIONS
Please choose at least one Fund for your 403(b)(7) investment. Tell us the percentage of your
contribution you wish credited to each Fund. The minimum initial investment is $2,000. Please refer
to Section 4.4 of the Custodial Account Agreement for information regarding exchange privileges.
All proceeds from your investment will be reinvested in the same fund. Please note that Payden &
Rygel will pay all administrative fees charged by the custodian.
TELEPHONE EXCHANGE:
<S> <C> <C>
[ ] Yes, Payden & Rygel is authorized to accept my telephone instructions for exchanges.
[ ] No, Payden & Rygel is NOT authorized to accept my telephone instructions for exchanges.
[ ] Limited Maturity Fund $_____________ or ________% [ ] Total Return Fund $____________ or ________%
[ ] International Bond Fund $_____________ or ________% [ ] Short Bond Fund $____________ or ________%
[ ] Growth & Income Fund $_____________ or ________% [ ] Global Balanced Fund $____________ or ________%
[ ] U.S. Treasury Fund $_____________ or ________% [ ] Market Return Fund $____________ or ________%
[ ] International Equity Fund $_____________ or ________% [ ] Intermediate $____________ or ________%
Bond Fund
[ ] Global Short Bond Fund $_____________ or ________% [ ] Investment Quality $____________ or ________%
Bond Fund
[ ] Global Fixed Income Fund $_____________ or ________%
=====================================================================================================
</TABLE>
ACCEPTANCE AND CERTIFICATION
(a) EMPLOYEE ACCEPTANCE: I have received, read and hereby agree to the terms and
conditions of the Payden & Rygel Investment Group Section 403(b)(7) Custodial
Account Agreement and the current prospectus, and certify, under penalties of
perjury, that my Social Security number listed on this application is correct. I
recognize that neither Investors Fiduciary Trust Company nor any mutual fund in
which my 403(b)(7) account may be invested is a bank and that mutual fund shares
are not backed or guaranteed by any bank or insured by the FDIC. I understand I
may designate a beneficiary for my plan assets.
- --------------------------------------------------------------------------------
Signature Date
(b) EMPLOYER ACCEPTANCE: The Employer named above has received, read and hereby
agrees to the terms and conditions of the Payden & Rygel Investment Group
403(b)(7) Custodial Account Agreement and the current prospectus, and certifies
that it is an educational institution or tax-exempt organization described in
section 403(b)(1)(A) of the Internal Revenue Code.
- --------------------------------------------------------------------------------
Authorized Signature Title Date Employer TIN
(a) CUSTODIAN ACCEPTANCE: Investors Fiduciary Trust Company hereby accepts its
appointment as Custodian under the Payden & Rygel Investment Group Section
403(b)(7) Custodial Account Agreement for the benefit of the Employee named
above, and hereby agrees to the terms and conditions of such Agreement.
Accepted by: INVESTORS FIDUCIARY TRUST COMPANY
<PAGE> 16
ASSET TRANSFER OR DIRECT ROLLOVER AUTHORIZATION FORM FOR PAYDEN & RYGEL
INVESTMENT GROUP SECTION 403(B)(7) CUSTODIAL ACCOUNT
================================================================================
INSTRUCTIONS:
Please complete and send this form to Payden & Rygel Investment Group, P.O. Box
419318, Kansas City, MO 64141-6318. Upon receipt, Payden & Rygel Investment
Group will arrange for the transfer on your behalf, and the assets will be
invested in your Payden & Rygel Investment Group Section 403(b)(7) Custodial
Account when received by Investors Fiduciary Trust Company. Please note that
your Custodian may require a signature guarantee. Failure to secure proper
signature could delay your transfer or direct rollover. If you are making a
transfer or direct rollover to a new account, please indicate on the
application. Please check with your tax advisor about rules relating to 403(b)
transfers or direct rollovers.
<TABLE>
<S> <C> <C>
=====================================================================================================
EMPLOYEE INFORMATION Please print clearly.
- -----------------------------------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------------------------------
Home Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
- -----------------------------------------------------------------------------------------------------
Social Security Number Birth Date
=====================================================================================================
EXISTING ANNUITY/CUSTODIAL ACCOUNT INFORMATION (Where your account is presently held.)
- -----------------------------------------------------------------------------------------------------
Name of Insurer or Custodian Contract/Account Number
- -----------------------------------------------------------------------------------------------------
Mailing Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
=====================================================================================================
TRANSFER (OR DIRECT ROLLOVER) INSTRUCTIONS
Transfer all or part of my existing account as follows:
[ ] Transfer from a Section 403(b) Annuity Contract or Section 403(b)(7) Custodial Account
[ ] Direct Rollover from a Section 403(b) Annuity Contract or Section 403(b)(7) Custodial Account
[ ] $---------------------
or [ ] the entire balance
=====================================================================================================
INVESTMENT INSTRUCTIONS (to Payden & Rygel Investment Group)
Indicate fund name as well as asset allocation (investment amount or percentage).
[ ] Limited Maturity Fund [ ] Total Return Fund [ ] International Bond Fund
$_________________ or ________% $_________________ or ________% $_________________ or ________%
[ ] Short Bond Fund [ ] Growth & Income Fund [ ] Global Balanced Fund
$_________________ or ________% $_________________ or ________% $_________________ or ________%
[ ] U.S. Treasury Fund [ ] Market Return Fund [ ] International Equity Fund
$_________________ or ________% $_________________ or ________% $_________________ or ________%
[ ] Intermediate Bond Fund [ ] Global Short Bond Fund
$_________________ or ________% $_________________ or ________%
[ ] Investment Quality Bond Fund [ ] Global Fixed Income Fund
$_________________ or ________% $_________________ or ________%
=====================================================================================================
PAYDEN & RYGEL INVESTMENT GROUP P.O. Box 419318, Kansas City, MO 64141-6318 o 1-800-5PAYDEN
</TABLE>
<PAGE> 17
================================================================================
TRANSFER AGREEMENT AND AUTHORIZATION
(a) The above-named individual hereby irrevocably agrees to surrender his or
her entire interest in the Section 403(b) annuity contract or Section
403(b)(7) custodial account identified above to the issuing insurer or
custodian thereof for purposes of having the proceeds received by the
insurer or custodian upon surrender transferred directly to Payden & Rygel
Investment Group for immediate deposit in a Payden & Rygel Investment
Group Section 403(b)(7) Custodial Account established on behalf of the
individual. The above-named individual certifies, under penalties of
perjury, that no amounts transferred are subject to distribution
restriction under the Employee Retirement Income Security Act of 1974, as
amended.(1)
(b) The above-named individual hereby authorizes Payden & Rygel Investment
Group to take whatever action is necessary to effect the transfer
identified in (a) above, and directs Payden & Rygel Investment Group to
deposit the proceeds received in the Payden & Rygel Investment Group
Section 403(b)(7) Custodial Account established on behalf of the
individual.
================================================================================
AUTHORIZATION AND ACCEPTANCE
(a) Individual Acceptance: I hereby agree to the terms and conditions set
forth in this Asset Transfer Authorization, and acknowledge having
established a Payden & Rygel Investment Group 403(b)(7) Custodial Account
through execution of an Application for Payden & Rygel Investment Group
Section 403(b)(7) Custodial Account.
SIGNATURE: DATE:
----------------------------------- ------------------------------
SIGNATURE GUARANTEE: Your current trustee or custodian may require your
signature to be guaranteed. Contact them for signature requirements.
Signature guarantee must be provided by a bank, member of a national
securities exchange, savings and loan association, credit union, broker or
other acceptable financial institution. A notary public cannot provide a
signature guarantee.
SIGNATURE GUARANTEED: PLACE GUARANTEED STAMP HERE
By: _______________________________
INSTITUTION
By: _______________________________
AUTHORIZED SIGNER'S NAME AND TITLE
(b) CUSTODIAN ACCEPTANCE: Investors Fiduciary Trust Company hereby agrees to
accept the transfer described above and upon receipt will deposit the
proceeds in the Payden & Rygel 403(b)(7) Custodial Account established on
behalf of the individual.
ACCEPTED BY: INVESTORS FIDUCIARY TRUST COMPANY
(1) Note that such restrictions will apply if your Employer is not a
governmental unit or church and made contributions, other than voluntary salary
reduction contributions, to your 403(b)(7) annuity contract or 403(b)(7)
custodial account.
<PAGE> 18
SALARY REDUCTION AGREEMENT FOR
PAYDEN & RYGEL INVESTMENT GROUP SECTION 403(B)(7) CUSTODIAL ACCOUNT
================================================================================
INSTRUCTIONS: This form is provided for use only where no similar form is
available from the Employer. Copies of this form should be retained by the
Employee and the Employer.
<TABLE>
<S> <C> <C>
=====================================================================================================
EMPLOYEE INFORMATION Please print clearly.
- -----------------------------------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------------------------------
Home Address: Street
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
- -----------------------------------------------------------------------------------------------------
Social Security Number Birth Date
- -----------------------------------------------------------------------------------------------------
EMPLOYER INFORMATION:
- -----------------------------------------------------------------------------------------------------
Employer's Name
- -----------------------------------------------------------------------------------------------------
Address
- -----------------------------------------------------------------------------------------------------
City State ZIP Code
( )
- -----------------------------------------------------------------------------------------------------
Contact Name Telephone Number
=====================================================================================================
SALARY REDUCTION AGREEMENT:
(i) The Employee identified above hereby irrevocably agrees to reduce his or her compensation from
the Employer by $________________, or by _______%, for each regular period beginning
________________, 19_____, for purposes of having such reduced compensation amounts contributed by
the Employer as salary reduction contributions to the Payden & Rygel Investment Group Section
403(b)(7) Custodial Account established on behalf of the Employee.
(ii) All such salary reduction contributions shall be forwarded by the Employer to: Payden &
Rygel Investment Group, P.O. Box 419318, Kansas City, MO 64141-6318.
(iii) This Salary Reduction Agreement will be effective only with respect to compensation not yet
earned by the Employee, and not with respect to compensation already earned by the Employee, on the
date this Salary Reduction Agreement is signed. This Salary Reduction Agreement is binding and
irrevocable with respect to compensation earned by the Employee while it is in effect. The
Employer or the Employee may terminate this Salary Reduction Agreement at any time with respect to
compensation not yet earned by the Employee at the date of termination, by giving written notice to
the other party. After termination of this Salary Reduction Agreement, the Employee may enter a
new Salary Reduction Agreement with the Employer (with the same or a different salary reduction
amount). The Employee may modify the amount of salary reduction elected in (i) above at any time
by entering into a new Salary Reduction Agreement with Employer specifying the new salary reduction
amount. Notwithstanding the preceding, the Employer may impose reasonable limits on the frequency
with which the Employee may terminate, reinstate, or modify a Salary Reduction Agreement. Any
termination, reinstatement or modification will relate only to compensation not yet earned and not to
compensation already earned, by the Employee as of the effective date of such termination, reinstatement
or modification.
(iv) The Employee shall be solely responsible for determining that any salary reduction
contributions pursuant to this Agreement do not exceed the exclusion allowance limitations of
Section 403(b)(2) of the Internal Revenue Code, the annual additions limitations of Section 415(c)
of the Internal Revenue Code, or the limits on elective deferrals of Section 402(g) of the Internal
Revenue Code.
=====================================================================================================
ACCEPTANCE:
- -----------------------------------------------------------------------------------------------------
Employee Signature Date
- -----------------------------------------------------------------------------------------------------
Employer Authorized Signature Title Date
=====================================================================================================
PAYDEN & RYGEL INVESTMENT GROUP P.O. Box 419318, Kansas City, MO 64141-6318 o 1-800-5PAYDEN
</TABLE>
<PAGE> 19
CUSTODIAL ACCOUNT BENEFICIARY DESIGNATION FORM (OPTIONAL)
===============================================================================
INSTRUCTIONS: You may specify one or more persons to receive any benefits that
may become payable on account of your death. If a primary beneficiary(ies)
survives you, payment will be made to your primary beneficiary(ies); if not,
payment will be made to your surviving secondary beneficiary(ies). If you are
not survived by any primary or secondary beneficiary(ies), payment will be made
to your surviving spouse or, if none, your estate. This form is not valid unless
it is received by Investors Fiduciary Trust Company prior to your death. You may
revoke this form and designate a different beneficiary by completing and filing
another Beneficiary Designation Form.
- --------------------------------------------------------------------------------
PRIMARY BENEFICIARY
I hereby designate as my primary beneficiary the person or persons listed below
who survive me. If more than one person is listed, benefits shall be divided
according to the percentage indicated. If no percentage is indicated, I intend
that all of the persons listed below who survive me shall receive equal
portions.
- --------------------------------------------------------------------------------
NAME Relationship
- --------------------------------------------------------------------------------
Social Security Number Percentage Birth Date
- --------------------------------------------------------------------------------
NAME Relationship
- --------------------------------------------------------------------------------
Social Security Number Percentage Birth Date
- --------------------------------------------------------------------------------
SECONDARY BENEFICIARY(IES)
If no primary beneficiary survives me, I hereby designate as my beneficiary the
person or persons listed below who survive me. If more than one person is
listed, benefits shall be divided according to the percentage indicated. If no
percentage is indicated, I intend that all of the persons listed who survive me
shall receive equal portions.
Secondary Beneficiary(ies) (in the event your Primary Beneficiaries predecease
you)
- --------------------------------------------------------------------------------
NAME Relationship
- --------------------------------------------------------------------------------
Social Security Number Percentage Birth Date
- --------------------------------------------------------------------------------
NAME Relationship
- --------------------------------------------------------------------------------
Social Security Number Percentage Birth Date
- --------------------------------------------------------------------------------
SPOUSAL CONSENT
If your 403(b) plan is subject to ERISA (for example, if your employer is not a
government unit or church and makes contributions) and if you do not specify
your spouse as your sole beneficiary, your spouse must sign the consent portion
of this form, in the presence of a notary or the Plan Administrator. In
addition, this section should be reviewed if either the custodial account or the
residence of the accountholder is located in a community or marital property
state and you are married and you are designating a beneficiary other than your
spouse. It is your responsibility to determine if this section applies. You may
need to consult with legal counsel. Neither the Custodian or the Sponsor will be
liable for any consequences of a failure of the participant to provide proper
spousal consent.
I hereby consent to the designation of the beneficiary or beneficiaries listed
above. I understand that by giving this consent, I am allowing the
beneficiary(ies) listed above to be paid amounts which otherwise would be paid
to me.
- --------------------------------------------------------------------------------
Signed (Participant's Spouse) Date
- --------------------------------------------------------------------------------
Witness Title
- --------------------------------------------------------------------------------
SIGNATURE
- --------------------------------------------------------------------------------
Signed (Participant) Date
================================================================================
PAYDEN & RYGEL INVESTMENT GROUP P.O. Box 419318, Kansas City, MO
64141-6318 o 1-800-5PAYDEN
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LIMITED MATURITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 54,712,960
<INVESTMENTS-AT-VALUE> 54,827,184
<RECEIVABLES> 415,160
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 261,577
<TOTAL-ASSETS> 55,503,911
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,733,104
<TOTAL-LIABILITIES> 4,733,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,706,798
<SHARES-COMMON-STOCK> 5,047,881
<SHARES-COMMON-PRIOR> 1,830,050
<ACCUMULATED-NII-CURRENT> 12,828
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (63,043)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 114,224
<NET-ASSETS> 50,770,807
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,161,797
<OTHER-INCOME> 0
<EXPENSES-NET> 112,350
<NET-INVESTMENT-INCOME> 2,049,447
<REALIZED-GAINS-CURRENT> (60,491)
<APPREC-INCREASE-CURRENT> 53,290
<NET-CHANGE-FROM-OPS> 2,042,246
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,041,488
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,140,482
<NUMBER-OF-SHARES-REDEEMED> 8,124,605
<SHARES-REINVESTED> 201,954
<NET-CHANGE-IN-ASSETS> 32,356,504
<ACCUMULATED-NII-PRIOR> 4,869
<ACCUMULATED-GAINS-PRIOR> (2,552)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 104,879
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 231,462
<AVERAGE-NET-ASSETS> 35,773,056
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.53
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.53
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SHORT BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 96,402,061
<INVESTMENTS-AT-VALUE> 97,021,839
<RECEIVABLES> 7,448,595
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 228,740
<TOTAL-ASSETS> 104,699,174
<PAYABLE-FOR-SECURITIES> 5,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,732,932
<TOTAL-LIABILITIES> 6,732,932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,680,510
<SHARES-COMMON-STOCK> 9,829,447
<SHARES-COMMON-PRIOR> 1,907,327
<ACCUMULATED-NII-CURRENT> 22,497
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (356,543)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 619,778
<NET-ASSETS> 97,966,242
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,271,853
<OTHER-INCOME> 0
<EXPENSES-NET> 214,694
<NET-INVESTMENT-INCOME> 3,057,159
<REALIZED-GAINS-CURRENT> (353,688)
<APPREC-INCREASE-CURRENT> 439,764
<NET-CHANGE-FROM-OPS> 3,143,235
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,039,378
<DISTRIBUTIONS-OF-GAINS> 16,883
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,562,749
<NUMBER-OF-SHARES-REDEEMED> 1,928,264
<SHARES-REINVESTED> 287,635
<NET-CHANGE-IN-ASSETS> 78,809,456
<ACCUMULATED-NII-PRIOR> 4,716
<ACCUMULATED-GAINS-PRIOR> 14,028
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150,282
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 309,514
<AVERAGE-NET-ASSETS> 52,919,578
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.54
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> U.S. TREASURY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 23,571,613
<INVESTMENTS-AT-VALUE> 23,807,464
<RECEIVABLES> 307,280
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 136,689
<TOTAL-ASSETS> 24,251,433
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,137,791
<TOTAL-LIABILITIES> 2,137,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,004,727
<SHARES-COMMON-STOCK> 2,098,931
<SHARES-COMMON-PRIOR> 1,026,380
<ACCUMULATED-NII-CURRENT> 7,296
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (134,232)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 235,851
<NET-ASSETS> 22,113,642
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,072,381
<OTHER-INCOME> 0
<EXPENSES-NET> 79,828
<NET-INVESTMENT-INCOME> 992,553
<REALIZED-GAINS-CURRENT> (130,766)
<APPREC-INCREASE-CURRENT> (94,523)
<NET-CHANGE-FROM-OPS> 767,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 988,707
<DISTRIBUTIONS-OF-GAINS> 37,939
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,071,280
<NUMBER-OF-SHARES-REDEEMED> 1,077,119
<SHARES-REINVESTED> 78,390
<NET-CHANGE-IN-ASSETS> 11,219,374
<ACCUMULATED-NII-PRIOR> 3,450
<ACCUMULATED-GAINS-PRIOR> 34,473
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 49,630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 139,136
<AVERAGE-NET-ASSETS> 17,385,385
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0.03
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 57,174,351
<INVESTMENTS-AT-VALUE> 57,624,705
<RECEIVABLES> 3,195,463
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 188,283
<TOTAL-ASSETS> 61,008,451
<PAYABLE-FOR-SECURITIES> 6,978,762
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,262,960
<TOTAL-LIABILITIES> 8,241,722
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,355,817
<SHARES-COMMON-STOCK> 5,497,972
<SHARES-COMMON-PRIOR> 3,490,147
<ACCUMULATED-NII-CURRENT> 11,959
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (51,401)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 450,354
<NET-ASSETS> 52,766,729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,523,749
<OTHER-INCOME> 0
<EXPENSES-NET> 178,676
<NET-INVESTMENT-INCOME> 2,345,073
<REALIZED-GAINS-CURRENT> (52,914)
<APPREC-INCREASE-CURRENT> (479,438)
<NET-CHANGE-FROM-OPS> 1,812,721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,340,379
<DISTRIBUTIONS-OF-GAINS> 255,413
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,433,330
<NUMBER-OF-SHARES-REDEEMED> 1,592,003
<SHARES-REINVESTED> 166,498
<NET-CHANGE-IN-ASSETS> 18,375,806
<ACCUMULATED-NII-PRIOR> 7,265
<ACCUMULATED-GAINS-PRIOR> 256,926
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 111,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 231,772
<AVERAGE-NET-ASSETS> 39,908,584
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.60
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> INVESTMENT QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 34,399,714
<INVESTMENTS-AT-VALUE> 34,656,903
<RECEIVABLES> 2,859,433
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 318,100
<TOTAL-ASSETS> 37,834,436
<PAYABLE-FOR-SECURITIES> 5,212,599
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,100
<TOTAL-LIABILITIES> 5,530,699
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,248,275
<SHARES-COMMON-STOCK> 3,294,124
<SHARES-COMMON-PRIOR> 2,591,405
<ACCUMULATED-NII-CURRENT> 67,182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (268,909)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 257,189
<NET-ASSETS> 32,303,737
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,904,675
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,904,675
<REALIZED-GAINS-CURRENT> (268,919)
<APPREC-INCREASE-CURRENT> (342,583)
<NET-CHANGE-FROM-OPS> 1,293,173
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,843,583
<DISTRIBUTIONS-OF-GAINS> 13,424
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,556,961
<NUMBER-OF-SHARES-REDEEMED> 2,031,504
<SHARES-REINVESTED> 177,262
<NET-CHANGE-IN-ASSETS> 6,481,826
<ACCUMULATED-NII-PRIOR> 6,090
<ACCUMULATED-GAINS-PRIOR> 13,434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 83,067
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 189,153
<AVERAGE-NET-ASSETS> 29,325,391
<PER-SHARE-NAV-BEGIN> 9.96
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> (0.17)
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.81
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 11,061,641
<INVESTMENTS-AT-VALUE> 11,024,802
<RECEIVABLES> 72,628
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,579
<TOTAL-ASSETS> 11,118,009
<PAYABLE-FOR-SECURITIES> 2,010,708
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,571
<TOTAL-LIABILITIES> 2,036,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,114,470
<SHARES-COMMON-STOCK> 914,620
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11,620
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,580
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (52,940)
<NET-ASSETS> 9,081,730
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 95,896
<OTHER-INCOME> 0
<EXPENSES-NET> 6,632
<NET-INVESTMENT-INCOME> 89,264
<REALIZED-GAINS-CURRENT> 8,580
<APPREC-INCREASE-CURRENT> (52,940)
<NET-CHANGE-FROM-OPS> 44,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 77,644
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 909,184
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 5,437
<NET-CHANGE-IN-ASSETS> 9,081,730
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 24,320
<AVERAGE-NET-ASSETS> 5,285,258
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> (0.10)
<PER-SHARE-DIVIDEND> 0.10
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.93
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SHORT DURATION TAX EXEMPT FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 35,679,436
<INVESTMENTS-AT-VALUE> 35,731,987
<RECEIVABLES> 610,894
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 185,815
<TOTAL-ASSETS> 36,528,696
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 193,067
<TOTAL-LIABILITIES> 193,067
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 36,324,093
<SHARES-COMMON-STOCK> 3,630,620
<SHARES-COMMON-PRIOR> 1,589,820
<ACCUMULATED-NII-CURRENT> 2,225
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (43,240)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 52,551
<NET-ASSETS> 36,335,629
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,188,946
<OTHER-INCOME> 0
<EXPENSES-NET> 125,375
<NET-INVESTMENT-INCOME> 1,063,571
<REALIZED-GAINS-CURRENT> (43,242)
<APPREC-INCREASE-CURRENT> (83,247)
<NET-CHANGE-FROM-OPS> 937,082
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,063,018
<DISTRIBUTIONS-OF-GAINS> 32,675
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,854,221
<NUMBER-OF-SHARES-REDEEMED> 895,849
<SHARES-REINVESTED> 82,428
<NET-CHANGE-IN-ASSETS> 20,317,011
<ACCUMULATED-NII-PRIOR> 1,672
<ACCUMULATED-GAINS-PRIOR> 32,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 89,100
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,445
<AVERAGE-NET-ASSETS> 27,162,977
<PER-SHARE-NAV-BEGIN> 10.08
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.38
<PER-SHARE-DISTRIBUTIONS> 0.01
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 48,482,937
<INVESTMENTS-AT-VALUE> 49,160,419
<RECEIVABLES> 752,013
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 272,619
<TOTAL-ASSETS> 50,185,051
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 322,948
<TOTAL-LIABILITIES> 322,948
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,821,640
<SHARES-COMMON-STOCK> 5,266,366
<SHARES-COMMON-PRIOR> 4,177,567
<ACCUMULATED-NII-CURRENT> 6,235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,474,816)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 509,044
<NET-ASSETS> 49,862,103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,577,975
<OTHER-INCOME> 0
<EXPENSES-NET> 223,981
<NET-INVESTMENT-INCOME> 2,353,994
<REALIZED-GAINS-CURRENT> (167,524)
<APPREC-INCREASE-CURRENT> (707,043)
<NET-CHANGE-FROM-OPS> 1,479,427
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,352,923
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,986,272
<NUMBER-OF-SHARES-REDEEMED> 1,106,131
<SHARES-REINVESTED> 208,658
<NET-CHANGE-IN-ASSETS> 9,810,435
<ACCUMULATED-NII-PRIOR> 5,164
<ACCUMULATED-GAINS-PRIOR> (1,307,292)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 159,206
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 303,446
<AVERAGE-NET-ASSETS> 49,387,068
<PER-SHARE-NAV-BEGIN> 9.59
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> (0.12)
<PER-SHARE-DIVIDEND> 0.45
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.47
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 35,287,256
<INVESTMENTS-AT-VALUE> 36,765,135
<RECEIVABLES> 240,212
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 28,700
<TOTAL-ASSETS> 37,034,047
<PAYABLE-FOR-SECURITIES> 400,015
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,620
<TOTAL-LIABILITIES> 430,635
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,035,872
<SHARES-COMMON-STOCK> 3,238,648
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 92,509
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,848)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,477,879
<NET-ASSETS> 36,603,412
<DIVIDEND-INCOME> 138,313
<INTEREST-INCOME> 20,500
<OTHER-INCOME> 0
<EXPENSES-NET> 30,201
<NET-INVESTMENT-INCOME> 128,612
<REALIZED-GAINS-CURRENT> (2,848)
<APPREC-INCREASE-CURRENT> 1,477,879
<NET-CHANGE-FROM-OPS> 1,603,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,103
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,268,980
<NUMBER-OF-SHARES-REDEEMED> 33,685
<SHARES-REINVESTED> 3,353
<NET-CHANGE-IN-ASSETS> 36,603,412
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,151
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59,236
<AVERAGE-NET-ASSETS> 17,051,576
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MARKET RETURN FUND
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 5,989,224
<INVESTMENTS-AT-VALUE> 6,024,222
<RECEIVABLES> 114,981
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 160,709
<TOTAL-ASSETS> 6,299,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 510,710
<TOTAL-LIABILITIES> 510,710
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,510,368
<SHARES-COMMON-STOCK> 532,943
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 260,773
<NET-ASSETS> 5,789,202
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 171,576
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 171,576
<REALIZED-GAINS-CURRENT> 16,524
<APPREC-INCREASE-CURRENT> 260,773
<NET-CHANGE-FROM-OPS> 448,873
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 170,039
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 528,431
<NUMBER-OF-SHARES-REDEEMED> 9,248
<SHARES-REINVESTED> 13,760
<NET-CHANGE-IN-ASSETS> 5,789,202
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,031
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 119,282
<AVERAGE-NET-ASSETS> 3,318,467
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.86
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.86
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> GLOBAL SHORT BOND FUND
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 105,534,908
<INVESTMENTS-AT-VALUE> 102,833,948
<RECEIVABLES> 1,920,537
<ASSETS-OTHER> 11,670
<OTHER-ITEMS-ASSETS> 1,125,080
<TOTAL-ASSETS> 105,891,247
<PAYABLE-FOR-SECURITIES> 13,418,834
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,430
<TOTAL-LIABILITIES> 13,651,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,136,984
<SHARES-COMMON-STOCK> 9,108,133
<SHARES-COMMON-PRIOR> 2,871,151
<ACCUMULATED-NII-CURRENT> (170,276)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,112,815
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,839,540)
<NET-ASSETS> 92,239,983
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 879,428
<OTHER-INCOME> 0
<EXPENSES-NET> 71,958
<NET-INVESTMENT-INCOME> 807,470
<REALIZED-GAINS-CURRENT> 2,112,815
<APPREC-INCREASE-CURRENT> (1,941,874)
<NET-CHANGE-FROM-OPS> 978,411
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,003,459
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,301,208
<NUMBER-OF-SHARES-REDEEMED> 156,036
<SHARES-REINVESTED> 91,810
<NET-CHANGE-IN-ASSETS> 63,326,568
<ACCUMULATED-NII-PRIOR> 25,713
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,972
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96,363
<AVERAGE-NET-ASSETS> 51,450,510
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> 0.17
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> GLOBAL FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 615,229,208
<INVESTMENTS-AT-VALUE> 633,674,501
<RECEIVABLES> 20,719,527
<ASSETS-OTHER> 201
<OTHER-ITEMS-ASSETS> 3,651,561
<TOTAL-ASSETS> 658,045,790
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,881,212
<TOTAL-LIABILITIES> 6,881,212
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 644,593,521
<SHARES-COMMON-STOCK> 62,918,935
<SHARES-COMMON-PRIOR> 52,327,237
<ACCUMULATED-NII-CURRENT> 2,668,546
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (11,678,058)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,580,569
<NET-ASSETS> 651,164,578
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 39,656,546
<OTHER-INCOME> 0
<EXPENSES-NET> 3,361,378
<NET-INVESTMENT-INCOME> 36,295,168
<REALIZED-GAINS-CURRENT> 476,129
<APPREC-INCREASE-CURRENT> 7,532,019
<NET-CHANGE-FROM-OPS> 44,303,316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44,142,948
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,249,887
<NUMBER-OF-SHARES-REDEEMED> 15,664,194
<SHARES-REINVESTED> 4,006,005
<NET-CHANGE-IN-ASSETS> 111,123,677
<ACCUMULATED-NII-PRIOR> 10,588,183
<ACCUMULATED-GAINS-PRIOR> (12,226,044)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,982,809
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,361,378
<AVERAGE-NET-ASSETS> 635,663,981
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.70
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 17,420,954
<INVESTMENTS-AT-VALUE> 17,956,091
<RECEIVABLES> 500,193
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 213,155
<TOTAL-ASSETS> 18,669,459
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305,055
<TOTAL-LIABILITIES> 305,055
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,027,254
<SHARES-COMMON-STOCK> 1,766,919
<SHARES-COMMON-PRIOR> 1,912,673
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (110,019)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 447,169
<NET-ASSETS> 18,364,404
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,179,617
<OTHER-INCOME> 0
<EXPENSES-NET> 130,858
<NET-INVESTMENT-INCOME> 1,048,759
<REALIZED-GAINS-CURRENT> (956,437)
<APPREC-INCREASE-CURRENT> 614,017
<NET-CHANGE-FROM-OPS> 706,339
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 51,924
<DISTRIBUTIONS-OF-GAINS> 133,846
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 421,938
<NUMBER-OF-SHARES-REDEEMED> 585,399
<SHARES-REINVESTED> 17,707
<NET-CHANGE-IN-ASSETS> (829,883)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (16,571)
<GROSS-ADVISORY-FEES> 65,046
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 182,810
<AVERAGE-NET-ASSETS> 18,718,340
<PER-SHARE-NAV-BEGIN> 10.04
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.42
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> GLOBAL BALANCED FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 8,309,744
<INVESTMENTS-AT-VALUE> 8,317,989
<RECEIVABLES> 67,193
<ASSETS-OTHER> 453
<OTHER-ITEMS-ASSETS> 54,234
<TOTAL-ASSETS> 8,439,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77,764
<TOTAL-LIABILITIES> 77,764
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,346,891
<SHARES-COMMON-STOCK> 834,600
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 38,941
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (44,673)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,946
<NET-ASSETS> 8,362,105
<DIVIDEND-INCOME> 6,682
<INTEREST-INCOME> 50,708
<OTHER-INCOME> 0
<EXPENSES-NET> 10,488
<NET-INVESTMENT-INCOME> 46,902
<REALIZED-GAINS-CURRENT> (44,673)
<APPREC-INCREASE-CURRENT> 20,946
<NET-CHANGE-FROM-OPS> 23,175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,961
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 834,047
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 554
<NET-CHANGE-IN-ASSETS> 8,362,105
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,684
<AVERAGE-NET-ASSETS> 5,170,767
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.02
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 16
<NAME> INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> DEC-09-1996
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 7,424,645
<INVESTMENTS-AT-VALUE> 7,633,129
<RECEIVABLES> 10,088
<ASSETS-OTHER> 208
<OTHER-ITEMS-ASSETS> 25,053
<TOTAL-ASSETS> 7,668,478
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39,008
<TOTAL-LIABILITIES> 39,008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,463,034
<SHARES-COMMON-STOCK> 746,541
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 656
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42,643)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 208,423
<NET-ASSETS> 7,629,470
<DIVIDEND-INCOME> 10,140
<INTEREST-INCOME> 10,050
<OTHER-INCOME> 0
<EXPENSES-NET> 13,954
<NET-INVESTMENT-INCOME> 6,236
<REALIZED-GAINS-CURRENT> (42,643)
<APPREC-INCREASE-CURRENT> 208,423
<NET-CHANGE-FROM-OPS> 172,016
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,580
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 747,617
<NUMBER-OF-SHARES-REDEEMED> 1,469
<SHARES-REINVESTED> 393
<NET-CHANGE-IN-ASSETS> 7,629,470
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,303
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35,590
<AVERAGE-NET-ASSETS> 5,389,688
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> 0.01
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.22
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
