PAYDEN & RYGEL INVESTMENT GROUP, 485APOS, 1999-07-21

PAYDEN & RYGEL INVESTMENT GROUP
485APOS, 1999-07-21

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<PAGE> 1

As filed with the Securities and Exchange Commission on
July 21, 1999

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. 38 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 40 [X]
-----------------------------------
THE PAYDEN & RYGEL INVESTMENT GROUP
(formerly P & R Investment Trust)
(Exact Name of Registrant as Specified in Charter)

333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(Address of Principal Executive Offices)
(213) 625-1900
(Registrant's Telephone Number, Including Area Code)

JOAN A. PAYDEN
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
(213) 625-1900
(Name and Address of Agent for Service)

Copy to: Michael Glazer
Paul, Hastings, Janofsky & Walker LLP
555 S. Flower St., Los Angeles, California 90071

Approximate Date of Proposed Public Offering:
As soon as practicable following effective date.

It is proposed that this filing will become effective:

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on (date) pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[ ] on (date) pursuant to paragraph (a)(1)

[X] 75 days after filing pursuant to paragraph (a)(2)

[ ] on (date) pursuant to paragraph (a)(2), of Rule 485.

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

---------------------
Title of Securities being registered: Shares of Beneficial Interest

<PAGE> 2
PAYDEN & RYGEL INVESTMENT GROUP

U.S. FIXED INCOME AND MONEY MARKET FUND
Low Duration Bond Fund

The Payden & Rygel Investment Group (the "Group") has registered the shares of
the Fund with the U.S. Securities and Exchange Commission ("SEC"). That
registration does not imply that the SEC approves or disapproves the securities
described in this prospectus, or has passed on the adequacy of the prospectus.
Any representation to the contrary is a criminal offense.

PROSPECTUS
September , 1999

<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<S> <C>
U.S. Fixed Income and Money Market Fund........................................................... 4
Low Duration Bond Fund.................................................................. 4

Additional Investment Strategies and Related Risks................................................ 4

Management of the Fund............................................................................ 6

Net Asset Value................................................................................... 6

Dividends Distributions and Taxes................................................................. 7

Shareholder Services.............................................................................. 7

How to Redeem Shares.............................................................................. 9

How to Purchase Shares............................................................................ 9

Appendix A: Description of Ratings............................................................... 11
</TABLE>

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U.S. FIXED INCOME AND MONEY MARKET FUND

LOW DURATION BOND FUND

INVESTMENT OBJECTIVE:

The Fund seeks to realize a high level of total return consistent with
preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES:

- - The Fund primarily invests in a wide variety of debt instruments and
income-producing securities. These include (1) debt obligations issued or
guaranteed by the U.S. Government and foreign governments and their agencies
and instrumentalities, political subdivisions of foreign governments (such as
provinces and municipalities), and supranational organizations (such as the
World Bank); (2) debt securities and commercial paper issued by U.S. and
foreign companies, including commercial paper indexed to specific foreign
currency exchange rates; and (3) U.S. and foreign mortgage-backed and
asset-backed bonds.

- - The Fund generally invests in investment grade debt securities -- those rated
within the four highest grades by rating agencies such as Standard & Poor's
(at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those the
Adviser determines are of comparable quality. But, it may invest up to 25% of
its total assets in bonds rated below investment grade (BB or B by S&P or
Fitch, or Ba or B by Moody's). Further information regarding credit ratings
is in Appendix A.

- - The Fund invests in debt securities payable in U.S. dollars and foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.

- - The Fund invests in debt securities of any maturity, and there is no limit on
the Fund's maximum average portfolio maturity (on a dollar-weighted basis).
The average portfolio duration will normally vary within a 1 to 3 year time
frame.

- - The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar
credit quality and interest rate sensitivity.

PRINCIPAL INVESTMENT RISKS:

- - As with most bond funds, the value of your shares in the Fund will fluctuate
along with interest rates. When interest rates rise, the market prices of the
securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security
owned by the Fund may also fall in response to events affecting the issuer of
the security, such as its ability to continue to make principal and interest
payments, or its credit ratings. By investing in the Fund, therefore, you
could lose money.

- - Below investment grade debt securities (commonly known as "high yield bonds"
or "junk bonds") are speculative and involve a greater risk of default and
price changes due to changes in the issuer's creditworthiness. The market
prices of these debt securities fluctuate more than investment grade debt
securities and may decline significantly in periods of general economic
difficulty.

- - Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments
and other overall economic conditions in countries where the Fund invests. In
addition, fluctuations in foreign currency exchange rates may adversely
affect the value of foreign debt securities in which the Fund has invested.
The Fund may hedge this currency exposure to the U.S.
dollar to mitigate this risk.

- - The Fund is "non-diversified," which means it can invest in fewer securities
than a "diversified" mutual fund. As a result, events that affect a few -- or
even one -- of the Fund's investments may have a greater impact on the value
of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:

The Fund opened on September , 1999.

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FEES AND EXPENSES:

The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund. The Fund does not have any front-end or deferred sales
loads and does not charge you for exchanging shares or reinvesting dividends.

<TABLE>
<S> <C>
SHAREHOLDER FEES (fees paid directly from your investment) 0.00%

ANNUAL FUND OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fee 0.28%
Distribution/Service (12b-1) Fee 0.00%
Other Expenses* 0.32%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES** 0.60%
Fee Waiver or Expense Reimbursement**** 0.10%
NET ANNUAL FUND OPERATING EXPENSES 0.50%
</TABLE>

*Other Expenses are based on estimated amounts for the current fiscal year.
** The Adviser has guaranteed that, for so long as it is the investment adviser
to the Fund, Total Annual Fund Operating Expenses (excluding interest and taxes)
will not exceed 0.60%.
***The Adviser has agreed to reduce its fees or absorb
expenses to limit Net Annual Fund Operating Expenses (excluding interest and
taxes) to 0.50%. This contract has a one-year term, renewable at the end of each
fiscal year.

Example of Fund Expenses: This example will help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. It shows
what you would pay in expenses over time, whether or not you sold your shares at
the end of each period. It assumes (a) a $10,000 initial investment, (b) 5%
total return each year, and (c) no change in (i) Net Annual Fund Operating
Expenses for the 1 year period, or (ii) Total Annual Fund Operating Expenses for
the 3 year period. The example is for comparison only. Your actual expenses and
returns will be different.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C>
$51 $165
</TABLE>

ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS

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

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

BELOW INVESTMENT GRADE DEBT OBLIGATIONS. Investment grade debt securities are
those rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
determined by the Adviser to be of comparable quality. Lower quality debt
securities are more speculative, less liquid and involve a greater risk of
default or price changes due to changes in the issuer's creditworthiness. The
market prices of these securities fluctuate more than those of investment grade
securities and may decline significantly in periods of general economic
difficulty. Further information regarding investment ratings is in Appendix A.

FOREIGN INVESTMENTS. Investing in securities of foreign issuers involves certain
risks and considerations not typically associated with investing in U.S.
securities. These 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,

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auditing and financial reporting standards, practices and requirements. 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, settling
transactions in foreign securities may take longer than domestic securities.
Obtaining and enforcing judgments against foreign entities may be more
difficult.

Changes in foreign exchange rates may adversely affect the value of the Fund's
securities. 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 any net investment income and gains distributed to shareholders.
Some foreign fixed income markets offering attractive returns may be denominated
in currencies which are relatively weak or potentially volatile compared to the
U.S. dollar.

FOREIGN CURRENCY TRANSACTIONS. The Fund 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
Fund will enter into forward currency contracts (contracts to purchase or sell a
specified currency at a specified future date and price). The Fund generally
will not enter into a forward contract with a term of greater than one year.
Although forward contracts are used primarily to protect the Fund from adverse
currency movements, they may also be used to increase exposure to a currency,
and involve the risk that anticipated currency movements will not be accurately
predicted and the Fund's total return will be adversely affected as a result.
Open positions in forward contracts are covered by the segregation with the
Group's Custodian of cash, U.S. Government securities or other debt obligations
and are marked-to-market daily.

OPTIONS AND FUTURES CONTRACTS. The Fund may purchase and sell covered put and
call options ( the right to buy or sell specified instruments at a specified
price on or before a specified date) 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. The Fund may also employ combinations of put and call options,
including without limitation, straddles, spreads, collars, and strangles. The
Fund generally uses these techniques to hedge against changes in interest rates,
foreign currency exchange rates or securities prices in order to establish more
definitively the effective return on securities or currencies held or intended
to be acquired by the 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.
However, the Fund may also enter into options and futures transactions to
enhance potential gain in circumstances where hedging is not involved.

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. Options and futures can be highly volatile and could reduce
the Fund's total return, and the Fund's attempt to use those instruments for
hedging may not succeed. The aggregate market value of the 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.

The following chart summarizes the types of futures and options transactions in
which the Fund may engage:

<TABLE>
<CAPTION>
TYPES OF CONTRACTS
------------------------------
OTHER
INTEREST SECURITY STOCK
RATE INDICES INDEX CURRENCY SECURITIES
-------- -------- ----- -------- ----------
<S> <C> <C> <C> <C>
Yes Yes No Yes Yes
</TABLE>

SWAPS. The Fund may enter into interest rate, index and currency swap
transactions. A swap is a derivative instrument which involves an agreement
between a Fund and another party to exchange payments calculated as if they were
interest on a fictitious ("notional") principal amount (e.g., an exchange of
floating rate payments by one party for fixed rate payments by the other). A cap
or floor is a derivative instrument which entitles the purchaser, in exchange
for a premium, to receive payments of interest on a notional principal amount
from the seller of the cap or floor, to the extent that a specified reference
rate or reference index exceeds or falls below a predetermined level.

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The Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount 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 Group's
Custodian. 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.

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 the Fund will diminish compared with
the performance that could have been achieved if these investment techniques
were not used. Moreover, even if the Adviser's forecasts are correct, the Fund's
swap position may correlate imperfectly with an asset or liability being hedged.
In addition, if the other party to the transaction defaults, the Fund might
incur a loss.

TEMPORARY DEFENSIVE MEASURES. During times when the Adviser believes that a
temporary defensive posture is warranted, the 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. This
may help the Fund minimize or avoid losses during adverse market, economic or
political conditions. However, during such a period, the Fund may not achieve
its investment objective.

PORTFOLIO TURNOVER. The Fund's Adviser will sell a security when appropriate,
regardless of how long the Fund has held that security. Buying and selling
securities generally involves some expense to the Fund, such as broker
commissions and other transaction costs, that adversely affect the Fund's
performance. In addition, selling a security may create a taxable capital gain
that may affect your after-tax return. No Fund can accurately predict its future
annual portfolio turnover rate, which could vary substantially. However, the
Fund expects to have more than 200% annual turnover.

YEAR 2000. The date-related computer issue known as the "Year 2000 problem"
could adversely affect the quality of services the Fund and its shareholders
receive. However, the Fund understands that its key service providers, including
the Adviser and its affiliates, are taking steps to address the issue. In
addition, the Year 2000 problem may adversely affect the issuers in which the
Fund invests. For example, issuers may incur substantial costs to address the
problem. They may also suffer losses caused by corporate and governmental data
processing errors. The Fund and the Adviser will continue to monitor
developments relating to this issue.

MANAGEMENT OF THE FUND

INVESTMENT ADVISER

Payden & Rygel, located at 333 South Grand Avenue, Los Angeles, California
90071, serves as investment adviser to the Fund. The Adviser is an investment
counseling firm founded in 1983, and currently has over $27 billion of assets
under management.

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. The Executive
Committee of the Global Investment Policy Committee, comprised of John Isaacson,
Scott Weiner, Scott King and Christopher Orndorff, supervises these teams.

John Isaacson is a Principal of Payden & Rygel. He joined the Company in 1988
and has 26 years of experience in the investment business. Scott King is a
Principal of Payden & Rygel. He was one of the original members of the Company
when it was founded in 1983 and has over 18 years of investment experience.
Christopher Orndorff is a Principal of Payden & Rygel; he joined the Company in
1990 and has 14 years of experience in the investment business. Mr. Weiner is a
Principal who joined the Company in 1993 and has 13 years of experience in the
investment business. Together, they 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.

NET ASSET VALUE

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The price of the Fund's shares is its net asset value per share. The net asset
value per share of the 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 Fund by the number
of shares outstanding.

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 which may
have a bid-ask spread greater than ten (10) basis points 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 risk
of which is 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

The Fund declares and distributes dividends to shareholders monthly. The Fund
distributes any net realized capital gains from the sale of portfolio securities
at least once yearly. The Fund pays dividend and capital gain distributions in
the form of additional shares of the Fund at the net asset value on the
ex-dividend date, unless you elect to receive them in cash by completing a
request form.

Dividends paid by the Fund, and distributions paid by the Fund from long-term
capital gains, are taxable to you. Any short-term capital gains or taxable
interest income, therefore, will be taxable to you as ordinary income. The Fund
may incur foreign income taxes in connection with some of its foreign
investments, and may credit certain of these taxes to you. Your exchange or sale
of the Fund's shares is a taxable event and may result in a capital gain or
loss.

Before purchasing shares of the Fund, you should carefully consider the impact
of the dividends or capital gains distributions which the Fund expects to
announce, or has announced. If you purchase shares shortly before the record
date for a dividend or distribution, you will receive some portion of your
purchase price back as a taxable dividend or distribution.

Distributions may be subject to additional state and local taxes, depending on
your particular situation. Consult your tax adviser with respect to the tax
consequences to you of an investment in the Fund.

SHAREHOLDER SERVICES

TAX-SHELTERED RETIREMENT PLANS

The Fund accepts purchases of shares by tax-sheltered retirement plans such as
IRAs, rollover IRAs, Keogh or corporate profit sharing plans, Simplified
Employee Pension plans, 403(b) and 401(k) plans. Please call a Fund
Representative to receive a retirement package which includes a special
application for tax-sheltered accounts. The Group does not provide fiduciary
administration or custody for such plans. The Group currently pays the fiduciary
administration fees charged by IFTC associated with such plans.

EXCHANGE PRIVILEGE

Shares of the Fund may be exchanged for any class of shares of any other Fund of
the Group. Please call for a prospectus describing the Group's other Funds. The
minimum amount for any exchange is $1,000. Because an exchange is considered a
redemption and purchase of shares, you may realize a gain or loss for federal
income tax purposes.

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The Fund must receive written exchange instructions signed by all account
owners. If you complete the telephone privilege authorization portion of the
Account Registration Form, you may make exchanges by calling the Distributor at
(213) 625-1900 or (800) 5PAYDEN (800-572-9336). You also may participate in the
Automatic Exchange Program to automatically redeem a fixed amount from one Fund
for investment in another Fund on a regular basis. The Group may modify or
discontinue this exchange privilege at any time on 60 days notice. The Group
also reserves the right to limit the number of exchanges you may make in any
year to avoid excessive Fund expenses.

TELEPHONE PRIVILEGE

You may exchange or redeem shares by telephone if you have elected this option
on your Account Registration Form. If you call before 1:00 p.m. (Pacific Time),
the exchange or redemption will be at the net asset value determined that day;
if you call 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 may be hard to reach the Group by
telephone. If so, you should follow the other exchange and redemption procedures
discussed in this prospectus.

By electing the telephone privilege, you may be giving up some security. The
Group employs procedures designed to provide reasonable assurance that
instructions communicated by telephone, telegraph or wire 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 exchange or redemption request if it believes that the person
making the request is not properly authorized. 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.

CHECKWRITING

Checkwriting is not available for investors in the Fund.

AUTOMATED INVESTMENT PROGRAMS

You may use two programs which permit automated investments in the Funds.

ELECTRONIC INVESTMENT PLAN. You elect to make additional investments in the Fund
using the Automated Clearing House System ("ACH"), which transfers money
directly from your bank account to the Fund for investment. You may not make an
initial investment in the Fund through ACH.

You have two investment options. First, you may elect to make investments on a
set schedule either monthly or quarterly. Under this option, your financial
institution will deduct an amount you authorize, which will normally be credited
to the Fund on the 15th day of the month (or next business day if the 15th is a
holiday or weekend day). Your financial institution will typically debit your
bank account the prior business day. The minimum initial investment, which may
be made by check or wire, is $2,500, with additional investments by ACH of at
least $250.

Under the second option, you may also elect to authorize ACH transfers via
telephone request. Money will be withdrawn from your account only when you
authorize it. Under this option, the minimum initial investment is $5,000, with
additional investments by ACH of at least $1,000. If the Fund receives your
telephone request before 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.

Please note the following guidelines:

- - Your financial institution must be a member of the Automated Clearing House
System.

- - You must complete and return an Automated Investment Program form along with
a voided check or deposit slip at least 15 days before the initial
transaction.

- - You must establish an account with the Group before the Electronic Investment
Plan goes into effect.

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- - The Electronic Investment Plan will automatically terminate if all your
shares are redeemed, or if your financial institution rejects the transfer
for any reason, e.g., insufficient funds.

- - You can terminate your participation only in writing, and it will become
effective the month following receipt.

AUTOMATIC EXCHANGE PLAN. You may participate in the Automatic Exchange Plan to
automatically redeem a fixed amount from one Fund of the Group for investment in
another Fund of the Group on a regular basis. You can elect 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 Funds. Please call for a prospectus describing the Group's
other Funds. The automatic transfer is effected on the 15th day of the month (or
the next business day if the 15th is a holiday or on a weekend).

SHAREHOLDER INQUIRIES

For information, call the Group at (213) 625-1900 or (800) 5PAYDEN, visit our
Web site at www.payden.com, or write to Payden & Rygel Investment Group, 333
South Grand Avenue, Los Angeles, CA 90071.

HOW TO REDEEM SHARES

The Fund will redeem your shares at the net asset value next determined
following receipt of your request in proper form. You can redeem shares by
contacting the Distributor in writing, by telephone at (800) 5PAYDEN, by
telegraph or by other wire communication. The Fund does not charge for
redemptions. The shares you redeem may be worth more or less than your purchase
price, depending on the market value of the investment securities held by the
Fund at the time of redemption.

Send your redemption requests in writing, via the internet to www.payden.com
(user registration required), or by telegraph or other wire communications to
the Group at 333 South Grand Avenue, Attn.: Fund Distributor, Los Angeles,
California 90071. The Fund will delay payment for redemption of recently
purchased shares until the purchase check has been honored, which may take up to
15 days after receipt of the check. If you want the Fund to pay the proceeds of
a written request to a person other than the record owner of the shares, or to
send the proceeds to an address other than the address of record, your signature
on the request must be guaranteed by a commercial bank, a trust company or
another eligible guarantor institution. The Group may reject a signature
guarantee if it believes it is not genuine or if it believes the transaction is
improper. The redemption price will ordinarily be wired to your bank or mailed
to your address of record one business day after we receive the request. The
Group may charge a $10.00 fee for any wire transfer, and payment by mail may
take up to seven days. During periods of drastic economic or market changes, it
may be hard to reach the Group by telephone. If so, you should follow the other
exchange and redemption procedures discussed in this prospectus.

The Fund may suspend the right of redemption or postpone the payment date at
times when the New York Stock Exchange is closed or during certain other periods
as permitted under the federal securities laws.

HOW TO PURCHASE SHARES

You may purchase shares of the Fund at net asset value without a sales charge.
You may open an account by completing an application and mailing it to the
appropriate address below under "Initial Investment." You cannot purchase shares
until the Group has received a properly completed application. To open a
tax-sheltered retirement plan (such as an IRA), you must complete special
application forms. Please be sure to ask for an IRA information kit. Your broker
may charge transaction fees for the purchase and/or sale of shares.

INITIAL INVESTMENT

BY CHECK
- - Complete Application
- - Make check payable to the Fund and mail with application to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318

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BY FEDERAL FUNDS WIRE
- Complete application and mail to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318

- - Wire Funds as follows when application has been processed:
The Boston Safe Deposit and Trust Company
ABA 011001234
A/C #115762 Mutual Funds #6630
Credit to (name of Payden & Rygel Fund here)
For Account of (insert your account name here)

Please call the Group, at (213) 625-1900 or (800) 5PAYDEN, to advise of any
purchases by wire.

Your purchase will be at the net asset value per share next determined after the
Distributor receives your order in proper form. It will accept purchase orders
only on days on which the Fund and the Custodian are open for business.

The Fund and the Custodian are "open for business" on each day the New York
Stock Exchange is open for trading. The New York Stock Exchange is closed on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.

MINIMUM INVESTMENTS

The minimum initial and additional investments for the Fund for each type of
account are as follows:

<TABLE>
<CAPTION>
INITIAL ADDITIONAL
ACCOUNT TYPE INVESTMENT INVESTMENT
------------ ---------- ----------
<S> <C> <C>
Regular $5,000 $1,000
Tax-Sheltered $2,000 $1,000
Electronic
Investment Plan:
Set schedule $2,500 $ 250
No set schedule $5,000 $1,000
</TABLE>

ADDITIONAL INVESTMENTS

You may make additional investments 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

The Fund issues full and fractional shares, but does not issue certificates. The
Group reserves the right, in its sole discretion, to suspend the offering of
shares of the 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.

10
<PAGE> 12
APPENDIX A

DESCRIPTION OF RATINGS

The following summarizes the descriptions for some of the general ratings
referred to in the Prospectus and Statement of Additional Information. Ratings
represent only the opinions of the rating organizations about the safety of
principal and interest payments, not market value. The rating of an issuer is
heavily weighted by past developments and does not necessarily reflect probable
future conditions. A lag frequently occurs between the time a rating is assigned
and the time it is updated. Ratings are therefore general and are not absolute
standards of quality.

CREDIT RATINGS - GENERAL SECURITIES

The following summarizes the descriptions for some of the general ratings
referred to in the Prospectus and Statement of Additional Information. The
descriptions for the ratings for municipal securities and commercial paper
follow this section. Ratings represent only the opinions of these rating
organizations about the quality of the securities which they rate.
They are general and are not absolute standards of quality.

MOODY'S INVESTORS SERVICE, INC.

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

BONDS

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

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

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

Baa: Bonds which are rated Baa are considered as medium grade obligations.
They are neither highly protected nor poorly secured. Interest payments and
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often, the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this asset class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

11
<PAGE> 13
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
short-comings.

C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

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

STANDARD & POOR'S CORPORATION

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

BONDS

AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal) is extremely strong.

AA: Bonds rated AA differ from the highest-rated obligations only in a small
degree. The obligor's capacity to meet its financial commitment on the
obligation (i.e., pay interest and repay principal) is very strong.

A: Bonds rated A are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation (i.e., pay interest and repay principal) is still
strong.

BBB: Bonds rated BBB exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation (i.e., pay interest and repay principal).

BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal).

B: Bonds rated B are more vulnerable to nonpayment than obligations rated BB,
but the obligor currently has the capacity to meet its financial commitment on
the obligation (i.e., pay interest and repay principal). Adverse business,
financial, or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.

CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated CC is currently highly vulnerable to nonpayment.

C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.

12
<PAGE> 14
D: An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.

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

r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

FITCH RATINGS

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

BONDS

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

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

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

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

BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist in the obligor satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

13
<PAGE> 15
DDD, DD, and D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D"
categories.

THOMPSON BANK WATCH

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

ISSUER RATINGS

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

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

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

RATING DEFINITIONS

A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.

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

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

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

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

14
<PAGE> 16
INVESTMENT ADVISER

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

ADMINISTRATOR

Treasury Plus, Inc.
333 South Grand Avenue
Los Angeles, California 90071

DISTRIBUTOR

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

CUSTODIAN

The Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02109

TRANSFER AGENT

Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105

AUDITORS

Deloitte & Touche LLP
1700 Courthouse Plaza Northeast
Dayton, Ohio 45402

COUNSEL

Paul, Hastings, Janofsky and Walker LLP
555 South Flower Street
Los Angeles, California 90071

<PAGE> 17
FOR MORE INFORMATION ABOUT THE PAYDEN & RYGEL LOW DURATION BOND FUND AND THE
OTHER PAYDEN & RYGEL MUTUAL FUNDS, THE FOLLOWING DOCUMENTS ARE AVAILABLE FREE
UPON REQUEST:

ANNUAL/SEMI-ANNUAL REPORTS:

The Funds' annual and semi-annual reports to shareholders contain detailed
information on each Fund's investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
the Funds' performance during their last fiscal year.

STATEMENT OF ADDITIONAL INFORMATION (SAI):

The SAI provides more detailed information about the Low Duration Bond Fund,
including operations and investment policies. It is incorporated by reference in
this prospectus and is legally considered a part of the prospectus.

You can get free copies of the Annual and Semi-Annual Reports and the SAI, or
request other information and discuss your questions about the Low Duration Bond
Fund or any other Payden & Rygel Fund, by calling us at 1-800-5PAYDEN, or by
writing to us at:

PAYDEN & RYGEL INVESTMENT GROUP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071

You can review the Funds' Annual and Semi-Annual Reports and the SAI for the Low
Duration Bond Fund at the Public Reference Room of the Securities and Exchange
Commission (SEC). You may also get copies:

- - For a fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009, or calling 1-800-SEC-0330.

- - Free from the SEC's Web site at http://www.sec.gov.

Payden & Rygel Investment Group: Investment Company Act File No. 811-6625

16
<PAGE> 18
THE PAYDEN & RYGEL INVESTMENT GROUP

PAYDEN & RYGEL LOW DURATION BOND FUND

333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
1-800-5PAYDEN (572-9336)

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER , 1999

The Payden & Rygel Investment Group (the "Group") is a professionally managed,
open-end management investment company with multiple funds (each a "Fund" and
collectively the "Funds"), including the Fund listed above, available for
investment. This Statement of Additional Information ("SAI") contains
information about one of the Group's Funds. This SAI contains information in
addition to that set forth in the prospectus for the Fund dated September ,
1999. The SAI is not a prospectus and should be read in conjunction with the
Prospectus. You may order copies of the Prospectus and the Group's 1998 Annual
Report without charge at the address or telephone number listed above.

<PAGE> 19
TABLE OF CONTENTS

<TABLE>
<S> <C>
THE GROUP......................................................................................... 3

FUNDAMENTAL AND OPERATING POLICIES................................................................ 3

INVESTMENT STRATEGIES/TECHNIQUES AND RELATED RISKS................................................ 4

MANAGEMENT OF THE GROUP........................................................................... 20

PORTFOLIO TRANSACTIONS............................................................................ 23

PURCHASES AND REDEMPTIONS......................................................................... 23

VALUATION OF PORTFOLIO SECURITIES................................................................. 24

TAXATION.......................................................................................... 24

DISTRIBUTION AGREEMENTS........................................................................... 28

FUND PERFORMANCE.................................................................................. 28

OTHER INFORMATION................................................................................. 30
</TABLE>

2
<PAGE> 20
THE GROUP

The Group was organized as a Massachusetts business trust on January 22, 1992
under the name "P&R Investment Trust." On December 13, 1993, it changed its name
to "The Payden & Rygel Investment Group." The Group is a professionally managed,
open-end management investment company which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Group currently offers
Class R Shares of each of its Funds, including the Fund listed on the cover page
of this SAI.

FUNDAMENTAL AND OPERATING POLICIES

The Fund's investment objective is fundamental and may not be changed without
shareholder approval, as described below under "General Information Voting." Any
policy that is not specified in the Prospectus or in the SAI as being
fundamental is a non-fundamental, or operating, policy. If the Group's Board of
Trustees determines, that the Fund's investment objective may best be achieved
by changing a non-fundamental policy, the Group's Board may make such change
without shareholder approval. Any investment restriction which involves a
maximum percentage of securities or assets will not be violated unless an excess
occurs immediately after, and is caused by, an acquisition of securities or
other assets of, or borrowings by, the Fund.

FUNDAMENTAL POLICIES

As a matter of fundamental policy, the Fund may not:

(1) BORROWING. Borrow money, except as a temporary measure for extraordinary or
emergency purposes or for the clearance of transactions, and then only in
amounts not exceeding 30% of its total assets valued at market (for this
purpose, reverse repurchase agreements and delayed delivery transactions covered
by segregated accounts are not considered to be borrowings).

(2) COMMODITIES. Purchase or sell commodities or commodity contracts, except
that (i) the Fund may enter into financial and currency futures contracts and
options on such futures contracts, (ii) the Fund may enter into forward foreign
currency exchange contracts (the Fund does not consider such contracts to be
commodities), and (iii) the Fund may invest in instruments which have the
characteristics of both futures contracts and securities.

(3) LOANS. Make loans, except that (i) the Fund may purchase money market
securities and enter into repurchase agreements, (ii) the Fund may acquire
bonds, debentures, notes and other debt securities, and (iii) the 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) the Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) the 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 the 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 Fund's total assets, more than 5% of the 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 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.

3
<PAGE> 21
(9) SHORT SALES. Effect short sales of securities.

(10) UNDERWRITING. Underwrite securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment program.

OPERATING POLICIES

As a matter of operating policy, the Fund may not:

(1) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the purpose of
exercising management or control.

(2) ILLIQUID SECURITIES. Purchase a security if, as a result of such purchase,
more than 15% of the Fund's net assets would be invested in illiquid securities
or other securities that are not readily marketable, including repurchase
agreements which do not provide for payment within seven days. For this purpose,
restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 may be determined to be liquid.

(3) INVESTMENT COMPANIES. Purchase securities of open-end or closed-end
investment companies except in compliance with the 1940 Act.

(4) OIL AND GAS PROGRAMS. Purchase participations or other direct interests in
oil, gas, or other mineral exploration or development programs or leases.

(5) OPTIONS. Invest in puts, calls, or any combination thereof, except that the
Fund may invest in or commit its assets to purchasing and selling call and put
options to the extent permitted by the Prospectus and this SAI.

INVESTMENT STRATEGIES/TECHNIQUES AND RELATED RISKS

The investment objectives and general investment policies of the Fund is
described in the Prospectus. Additional information concerning investment
strategies/techniques and the characteristics of certain of the Fund's
investments, as well as related risks, is set forth below.

FUND DIVERSIFICATION

The Fund is classified as a "non-diversified" fund. As provided in the 1940 Act,
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. As
the Adviser may from time to time invest a large percentage of the Fund's assets
in securities of a limited number of issuers, the Fund may be more susceptible
to risks associated with a single economic, political or regulatory occurrence
than a diversified investment company. However, the Fund intends to qualify as a
"regulated investment company" under the Internal Revenue Code, and therefore is
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.

FIXED INCOME SECURITIES

Fixed income securities in which the Fund may invest include, but are not
limited to, those described below.

U.S. TREASURY OBLIGATIONS

U.S. Treasury obligations are debt securities issued by the U.S. Treasury. They
are direct obligations of the U.S. Government and differ mainly in the lengths
of their maturities (e.g., Treasury bills mature in one year or less, and
Treasury notes and bonds mature in two to thirty years).

4
<PAGE> 22
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. These securities
may have maturities from one day to 40 years, are generally not callable and
normally have interest rates that are fixed for the life of the security.

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 Fund will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, the bank is a member of the Federal
Deposit Insurance Corporation, and (iii) in the case of foreign banks, the
security is, in the opinion of Payden & Rygel, of an investment quality
comparable with other debt securities which may be purchased by the Fund. These
limitations do not prohibit investments in securities issued by foreign branches
of U.S. banks, provided such U.S. banks meet the foregoing requirements.

CORPORATE DEBT SECURITIES

Investments in U.S. dollar denominated securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the minimum rating criteria
set forth in the Prospectus. The 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. Except as otherwise
indicated in the Prospectus, the debt securities in which the Fund invests will
be considered "investment grade," which means they are rated within the four
highest grades by rating agencies such as Standard & Poor's (at least BBB),
Moody's (at least Baa) or Fitch (at least BBB), or if not rated, are determined
by the Adviser to be of comparable quality. 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.

The Adviser may use interest rate and bond index futures and options on futures
contracts, options on securities, and interest rate swaps to effect a change in
the Fund's exposure to interest rate changes.

HIGH YIELD BONDS

Below investment grade debt securities, commonly referred to as "high yield
bonds" or "junk bonds" are considered to be speculative and involve a greater
risk of default or price changes due to changes in the issuer's creditworthiness
than higher rated securities. High yield securities are generally subject to
greater credit risk than higher-rated securities because the issuers are more
vulnerable to economic downturns, higher interest rates or adverse
issuer-specific developments. In addition, the prices of high yield securities
are generally subject to greater market risk and therefore react more sharply to
changes in interest rates. Their value and liquidity may also be diminished by
adverse publicity and investor perceptions. Also, legislative proposals limiting
the tax benefits to the issuers or holders of taxable high yield securities or
requiring federally insured savings and loan institutions to reduce their
holdings of taxable high yield securities have had and may continue to have an
adverse effect on the market value of these securities.

5
<PAGE> 23
Because high yield securities are frequently traded only in markets where the
number of potential purchasers and sellers, if any, is limited, the ability of
the Fund to sell these securities at their fair value either to meet redemption
requests or to respond to changes in the financial markets may be limited. In
such an event, such securities could be regarded as illiquid for the purposes of
the limitation on the purchase of illiquid securities. Thinly traded high yield
securities may be more difficult to value accurately for the purpose of
determining the Fund's net asset value. Also, because the market for certain
high yield securities is relatively new, that market may be particularly
sensitive to an economic downturn or a general increase in interest rates.

MORTGAGE-RELATED SECURITIES

Mortgage-related securities are interests in pools of mortgage loans made to
U.S. residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. The Fund may also invest in debt
securities which are secured with collateral consisting of U.S. mortgage-related
securities, and in other types of U.S. mortgage-related securities.

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

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

Government-related guarantors include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders and
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional residential mortgages not insured or guaranteed by
any government agency from a list of approved seller/services which include
state and federally chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions and mortgage bankers. FHLMC is a
government-sponsored corporation created to increase availability of mortgage
credit for residential housing and owned entirely by private stockholders. FHLMC
issues participation certificates which represent interests in conventional
mortgages from FHLMC's national portfolio. Pass-through securities issued by
FNMA and participation certificates issued by FHLMC are guaranteed as to timely
payment of principal and interest by FNMA and FHLMC, respectively, but are not
backed by the full faith and credit of the U.S.
Government.

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

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<PAGE> 24
experience and practices of the originator/services and poolers the Adviser
determines that the securities meet the Fund's quality standards.

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. 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.

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). 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 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

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 Fund 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 Fund's quality
standards.

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<PAGE> 25
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities include
securities of U.S. or foreign issuers that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real
property. These other mortgage-related securities may be equity or debt
securities issued by governmental agencies or instrumentalities or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities.

ASSET BACKED RECEIVABLES

Asset-backed securities include, but are 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.

FLOATING RATE AND VARIABLE RATE DEMAND NOTES

Floating rate and variable rate demand notes and bonds 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.

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

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

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

MONEY MARKET FUNDS

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<PAGE> 26
To maintain liquidity, the Fund may invest in unaffiliated money market funds.
No money market fund investment by the Fund will be in excess of 3% of the total
assets of the money market fund. The Fund does not anticipate investing more
than 15% of its net assets in money market funds. An investment in a money
market mutual fund by the Fund will involve payment by the Fund of its pro rata
share of advisory and administrative fees charged by such money market fund.

MONEY MARKET OBLIGATIONS

Money market obligations include U.S. dollar denominated bank certificates of
deposit, bankers acceptances, commercial paper and other short-term debt
obligations of U.S. and foreign issuers, including U.S. Government and agency
obligations. All money market obligations are considered high quality, meaning
that the security is rated in one of the two highest categories for short-term
securities by at least two nationally recognized rating services (or by one if
only one rating service has rated the security) or, if unrated, is determined by
the Adviser to be of comparable quality.

REPURCHASE AGREEMENTS

To maintain liquidity, the Fund may enter into repurchase agreements (agreements
to purchase U.S. Treasury notes and bills, subject to the seller's agreement to
repurchase them at a specified time and price) with well-established registered
securities dealers or banks.

Repurchase agreements are the economic equivalent of loans by the Fund. In the
event of a bankruptcy or default of any registered dealer or bank, the Fund
could experience costs and delays in liquidating the underlying securities which
are held as collateral, and the Fund might incur a loss if the value of the
collateral declines during this period.

DELAYED DELIVERY TRANSACTIONS

These transactions involve a commitment by the Fund to purchase or sell
securities for a predetermined price or yield, with payment and delivery taking
place more than seven days in the future, or after a period longer than the
customary settlement period for that type of security. When delayed delivery
purchases are outstanding, the Fund will set aside and maintain until the
settlement date in a segregated account cash, U.S. Government securities or high
grade debt obligations in an amount sufficient to meet the purchase price. When
purchasing a security on a delayed delivery basis, the Fund assumes the rights
and risks of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value, but does not accrue income on the security until delivery. When the
Fund sells a security on a delayed delivery basis, it does not participate in
future gains or losses with respect to the security. If the other party to a
delayed delivery transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity or could suffer a loss.
The Fund will not invest more than 35% of its total assets in when-issued and
delayed delivery transactions.

REVERSE REPURCHASE AGREEMENTS

The Fund may enter into reverse repurchase agreements (agreements to sell
portfolio securities, subject to the Fund's agreement to repurchase them at a
specified time and price) with well-established registered dealers and banks.
The 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 the Fund, and are entered into by the Fund to enable it to avoid
selling securities to meet redemption requests during market conditions deemed
unfavorable by the Adviser.

ILLIQUID SECURITIES

The Fund may not invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual restrictions
on resale or are otherwise illiquid. The Adviser will monitor the amount of
illiquid securities in the Fund's portfolio, to ensure compliance with the
Fund's investment restrictions.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the

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<PAGE> 27
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. In accordance with guidelines established by the Board, the Adviser
will determine the liquidity of each investment using various factors such as
(1) the frequency of trades and quotations, (2) the number of dealers and
prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the likelihood of continued marketability and credit quality of the
issuer.

FOREIGN INVESTMENTS

The Prospectus describes the extent to which the Fund may invest in securities
of issuers organized or headquartered in foreign countries. Generally, such
investments are likely to be made in the Pacific Basin (Australia, New Zealand
or Japan), Canada, and the developed countries of Europe (Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom). The Fund
may elect not to invest in all such countries, and it may also invest in other
countries when such investments are consistent with the Fund's investment
objective and policies.

RISKS OF FOREIGN INVESTING

There are special risks in investing in any foreign securities in addition to
those relating to investments in U.S. securities.

POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States.

Governments in certain foreign countries continue to participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.

EMERGING MARKETS INVESTMENTS. Investments by the Fund in securities issued by
the governments of emerging or developing countries, and of companies within
those countries, involve greater risks than other foreign investments.
Investments in emerging or developing markets involve exposure to economic and
legal structures that are generally less diverse and mature (and in some cases
the absence of developed legal structures governing private and foreign
investments and private property), and to political systems which can be
expected to have less stability, than those of more developed countries. The
risks of investment in such countries may include matters such as relatively
unstable governments, higher degrees of government involvement in the economy,
the absence until recently of capital market structures or market-oriented
economies, economies based on only a few industries, securities markets which
trade only a small number of securities, restrictions on foreign investment in
stocks, and significant foreign currency devaluations and fluctuations.

CURRENCY FLUCTUATIONS. To the extent that the 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

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<PAGE> 28
denominated in that currency. Such changes will also affect the Fund's income.
The value of the 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 Fund invests 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 Fund's portfolio securities may be less liquid and more
volatile than U.S. Government securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.

Transactions in options on securities, futures contracts and futures options may
not be regulated as effectively on foreign exchanges as similar transactions in
the United States, and may not involve clearing mechanisms and related
guarantees. The value of such positions also could be adversely affected by the
imposition of different exercise terms and procedures and margin requirements
than in the United States. Foreign security trading practices, including those
involving securities settlement where Fund assets may be released prior to
payment, may expose the Fund to increased risk in the event of a failed trade or
the insolvency of a foreign broker-dealer.

The value of the Fund's portfolio positions may also be adversely impacted by
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States.

LEGAL AND REGULATORY MATTERS. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.

TAXES. The interest payable on certain of the Fund's foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Fund's shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction for U.S.
federal income tax purposes for his proportionate share of such foreign taxes
paid by the Fund. The Fund intends to sell such bonds prior to the interest
payment date in order to avoid withholding.

COSTS. The expense ratio of a Fund investing in foreign securities (before
reimbursement by the Adviser pursuant to the expense limitation described in the
Prospectus) 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.

OPTIONS AND FUTURES CONTRACTS

As described in the Prospectus, the Fund may trade in futures and put and call
options. If other types of options, futures contracts, or futures options are
traded in the future, the Fund may also use those instruments, provided the
Board of Trustees determines that their use is consistent with the Fund's
investment objectives, and their use is consistent with restrictions applicable
to options and futures contracts currently eligible for use by the Fund.

OPTIONS ON SECURITIES OR INDICES

The Fund may purchase and write options on securities and indices. An index is a
statistical measure designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators such as the 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.

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<PAGE> 29
The Fund will write call options and put options only if they are "covered." In
the case of a call option on a security, the option is covered if the Fund owns
the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such amount are
placed in a segregated account with the Group's Custodian) upon conversion or
exchange of other securities held by the Fund. A call option on an index is
covered if the Fund maintains with its Custodian cash or cash equivalents equal
to the contract value. A call option is also covered if the Fund holds a call on
the same security or index as the call written, and the exercise price of the
call held is (i) equal to or less than the exercise price of the call written,
or (ii) greater than the exercise price of the call written, provided the
difference is maintained by the Fund in cash or cash equivalents in a segregated
account with its Custodian. A put option on a security or an index is covered if
the Fund maintains cash or cash equivalents equal to the exercise price in a
segregated account with its Custodian. A put option is also covered if the Fund
holds a put on the same security or index as the put written, and the exercise
price of the put held is (i) equal to or greater than the exercise price of the
put written, or (ii) less than the exercise price of the put written, provided
the difference is maintained by the Fund in cash or cash equivalents in a
segregated account with its Custodian.

If an option written by the Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by the Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid.

Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (i.e., of the
type, traded on the same exchange, with respect to the same underlying security
or index, and with the same exercise price and expiration date). The Fund will
realize a capital gain from a closing purchase transaction if the cost of the
closing option is less than the premium received from writing the option; if it
is more, the Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase the option,
the Fund will realize a capital gain; if it is less, the Fund will realize a
capital loss. The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price
of the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.

The premium paid for a put or call option purchased by the Fund is an asset of
the Fund. The premium received for an option written by the Fund is recorded as
a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.

FOREIGN CURRENCY OPTIONS

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. The 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 the Fund to
reduce foreign currency risk using such options.

COMBINATIONS OF OPTIONS

There are also certain combinations of put and call options. A "straddle"
involves the purchase of a put and call option on the same security with the
same exercise prices and expiration dates. A "strangle" involves the purchase of
a put option and a call option on the same security with the same expiration
dates but different exercise prices. A "collar" involves the purchase of a put
option and the sale of a call option on the same security with the same
expiration dates but different exercise prices. A "spread" involves the sale of
a put option and the purchase of a call option on the same security with the
same or different expiration dates and different exercise prices.

RISKS ASSOCIATED WITH OPTIONS

Several risks are associated with transactions in options on securities, indices
and currencies. For example, significant differences between the securities and
options markets could result in an imperfect correlation between those markets,
causing a given transaction

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<PAGE> 30
not to achieve its objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.

There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the Options Clearing Corporation to handle current
trading volume; or (vi) a decision by an exchange to discontinue the trading of
options or a particular class or series of options (in which event the secondary
market on that exchange or in that class or series of options could cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms). If the
Fund were unable to close out an option that it had purchased on a security, it
would have to exercise the option in order to realize any profit. If the Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security unless the option
expired without exercise. As the writer of a covered call option, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call.

If trading were suspended in an option purchased by the Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on a security, currency or index written by the 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 Fund may use interest rate, foreign currency or index futures contracts, as
specified in the Prospectus. An interest rate or foreign currency contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or foreign currency at a specified
price and time. A futures contract on an index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.

A public market exists in futures contracts covering several indices as well as
a number of financial instruments and foreign currencies, including U.S.
Treasury bonds, U.S. Treasury notes, GNMA Certificates, three-month U.S.
Treasury bills, 90-day commercial paper, bank certificates of deposit,
Eurodollar certificates of deposit, the Australian dollar, the Canadian dollar,
the British pound, the German mark, the Japanese yen, the Swiss franc and
certain multi-national currencies such as the European Currency Unit ("ECU").
Other futures contracts are likely to be developed and traded in the future. The
Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.

The Fund may also purchase and write call and put options on futures contracts.
Futures options possess many of the same characteristics as options on
securities and indices. A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short position (put)
in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.

As long as required by regulatory authorities the Fund 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, the 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. The Fund's hedging activities may include
sales of futures contracts as an offset against the effect of expected increases
in interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce the Fund's exposure to interest rate fluctuations, the Fund
may be able to hedge its exposure more effectively and at a lower cost by using
futures contracts and futures options.

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<PAGE> 31
When a purchase or sale of a futures contract is made by the Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expect to earn interest income on their initial margin
deposits. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the futures commission merchant of the amount
one would owe the other if the futures contract expired. In computing daily net
asset value, the Fund will mark to market its open futures positions.

The Fund is also required to deposit and maintain margin with respect to put and
call options on futures contracts written by it. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.

Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts
(contracts traded on the same exchange, on the same underlying security or
index, and with the same delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital gain; if it is
more, the Fund realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund realizes a capital gains; if
it is less, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.

LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS

The Fund will not enter into a futures contract or futures option contract if,
immediately thereafter, the aggregate initial margin deposits relating to such
positions plus premiums paid by it for open futures option positions, less the
amount by which any such options are "in-the-money," would exceed 5% of the
Fund's total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.

When purchasing a futures contract, the Fund will maintain with its Custodian
(and mark to market on a daily basis) cash, U.S. Government securities, or other
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, the Fund may "cover" its position by purchasing a put
option on the same futures contract with a strike price as high or higher than
the price of the contract held by the Fund.

When selling a futures contract, the Fund will maintain with its Custodian (and
mark to market on a daily basis) liquid assets that, when added to the amount
deposited with a futures commission merchant as margin, are equal to the market
value of the instruments underlying the contract. Alternatively, the Fund may
"cover" its position by owning the instruments underlying the contract (or, in
the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Fund's Custodian).

When selling a call option on a futures contract, the Fund will maintain with
its custodian (and mark to market on a daily basis) cash, U.S. Government
securities, or other 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, the Fund may
cover its position by entering into a long position in the same futures contract
at a price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Fund to purchase the same futures contract at a price not
higher than the strike price of the call option sold by the Fund.

When selling a put option on a futures contract, the Fund will maintain with its
custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, or other liquid securities that equal the purchase price of the
futures contract, less any margin on deposit. Alternatively, the Fund may cover
the position either by entering into a short position in the same futures
contract, or by owning a

14
<PAGE> 32
separate put option permitting it to sell the same futures contract so long as
the strike price of the purchased put option is the same or higher than the
strike price of the put option sold by the Fund.

In order to comply with applicable regulations of the Commodity Futures Trading
Commission ("CFTC") for exemption from the definition of a "commodity pool," the
Fund is limited in its futures trading activities to: (1) positions which
constitute "bona fide hedging" positions within the meaning and intent of
applicable CFTC rules, and (2) other positions for the establishment of which
the aggregate initial margin and premiums (less the amount by which such options
are "in-the-money") do not exceed 5% of the Fund's net assets (after taking into
account unrealized gains and unrealized losses on any contracts it has entered
into).

The requirements for qualification as a regulated investment company also may
limit the extent to which the Fund 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 the
Fund seeks to close out a futures contract or a futures option position, in
which event the Fund would remain obligated to meet margin requirements until
the position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.

In the event of the bankruptcy of a broker through which the Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.

DEALER OPTIONS

The Fund 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 the Fund would look to a clearing corporation
to exercise exchange-traded options, if the Fund were to purchase a dealer
option it would rely on the dealer from whom it purchased the option to perform
if the option were exercised. Failure by the dealer to do so would result in the
loss of the premium paid by the Fund as well as loss of the expected benefit of
the transaction.

Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, the Fund may generally be able to realize the
value of a dealer option it has purchased only by exercising or reselling the
option to the dealer who issued it. Similarly, when the Fund writes a dealer
option, the Fund may generally be able to close out the option prior to its
expiration

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<PAGE> 33
only by entering into a closing purchase transaction with the dealer to whom the
Fund originally wrote the option. While the Fund will seek to enter into dealer
options only with dealers 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 the Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the other party, the Fund may be
unable to liquidate a dealer option. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, since the Fund must maintain a secured position
with respect to any call option on security it writes, the Fund may not sell the
assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.

The Staff of the SEC has taken the position that many purchased dealer options
and the assets used to secure written dealer options are illiquid securities.
The Fund may treat the cover used for these written dealer options as liquid if
the dealer agrees that the Fund may repurchase the dealer option it has written
for a maximum price to be calculated by a predetermined formula. In such cases,
the dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat certain dealer options as subject to the Fund's
limitation on illiquid securities. If the SEC changes its position on the
liquidity of dealer options on securities, currencies or indices, the Fund will
change their treatment of such instruments accordingly.

SWAPS

The Fund does not enter 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 the 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. The 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 the Fund may not exceed
5% of its total assets at the time of purchase, and they are considered by the
Fund to be illiquid assets; it may sell caps and floors without limitation other
than the segregated account requirement described above.

The use of swaps, caps and floors is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the Adviser's forecast of market
values, interest rates, currency rates of exchange and other applicable factors
is incorrect, the investment performance of the Fund will diminish compared with
the performance that could have been achieved if these investment techniques
were not used. Moreover, even if the Adviser's forecasts are correct, the Fund's
swap position may correlate imperfectly with an asset or liability being hedged.
In addition, in the event of a default by the other party to the transaction,
the Fund might incur a loss.

INTEREST RATE AND INDEX SWAPS

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. 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.

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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

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

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 swaps, caps and floors are similar to those described
above with respect to dealer options. In connection with such transactions, the
Fund relies on the other party to the transaction to perform its obligations
pursuant to the underlying agreement. If there were a default by the other party
to the transaction, the Fund would have contractual remedies pursuant to the
agreement, but could incur delays in obtaining the expected benefit of the
transaction or loss of such benefit. In the event of insolvency of the other
party, the Fund might be unable to obtain its expected benefit. In addition,
while the 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 the 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 the
Fund's ability to enter into other transactions at a time when doing so might be
advantageous.

FOREIGN CURRENCY TRANSACTIONS

The Fund 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 Fund
will enter into forward currency contracts (contracts to purchase or sell a
specified currency at a specified future date and price). The Fund will
generally not enter into a forward contract with a term of greater than one
year. Although forward contracts are used primarily to protect the Fund from
adverse currency movements, they may also be used to increase exposure to a
currency, and involve the risk that anticipated currency movements will not be
accurately predicted and the Fund's total return will be adversely affected as a
result. Open positions in forward contracts are covered by the segregation with
the Group's Custodian of cash, U.S. Government securities or other debt
obligations and are marked-to-market daily.

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<PAGE> 35
Precise matching of the amount of forward currency contracts and the value of
securities denominated in such currencies of the Fund 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, the Fund may commit a substantial portion of its
assets to the consummation of these contracts. The Fund will not 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 the Fund will be served by doing so.

At the maturity of a forward contract, the 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 the 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 the 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.

The Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the 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 the 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 the 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

To realize additional income, the 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.
The 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.

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<PAGE> 36
RESERVES

The Fund may establish and maintain reserves when the Adviser determines that
such reserves would be desirable for temporary defensive purposes (for example,
during periods of substantial volatility in interest rates) or to enable it to
take advantage of buying opportunities. The Fund's reserves may be invested in
domestic and foreign money market instruments, including government obligations,

BORROWING

The Fund may borrow for temporary, extraordinary or emergency purposes, or for
the clearance of transactions. The Investment Company Act of 1940 (the "1940
Act") requires the Fund to maintain continuous asset coverage (that is, total
assets including borrowings, less liabilities exclusive of borrowings) of 300%
of the amount borrowed. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, the Fund may be required to sell some of
its portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. To avoid the potential leveraging
effects of Fund's borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Fund also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a commitment
or other fee to maintain a line of credit, either of which would increase the
cost of borrowing over the stated interest rate.

AVERAGE MATURITY AND DURATION CALCULATIONS

AVERAGE MATURITY

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

DURATION

One common measure of the price volatility of a fixed income security is
duration, a weighted average term-to-maturity of the present value of a
security's cash flows. As it is a weighted term-to-maturity, duration is
generally measured in years and can vary from zero to the time-to-maturity of
the security. Duration is a complex formula that utilizes each cash flow and the
market yield of the security. Bonds of the same maturity can have different
durations if they have different coupon rates or yields.

For securities which pay periodic coupons and have a relatively short maturity,
duration tends to approximate the time to maturity. As the maturity of the bond
extends, the duration also extends but at a slower rate. For example, the
duration of a 2-year security can be about 1.8 years; the duration of a 30-year
bond will be roughly 10 to 11 years. However, the duration of any security that
pays interest only at maturity is the time to maturity. Thus a 30-year zero
coupon bond has a duration of 30 years.

If the duration of the security is divided by the sum of one plus its yield, the
resultant number is called the modified duration of the security. Modified
duration is important to portfolio managers as it is used to determine the
sensitivity of the security to changes in interest rates. For small changes in
yield, the price of a security, as a percentage of its initial price, will move
inversely to the yield change by an amount equal to the modified duration times
the yield change. The market price of a security with a modified duration of ten
years will change twice as much as a security with a with a five year duration.

Modified duration is a much better indicator of price volatility than time to
maturity. For example, the times to maturity for a 30 year bond and a 30 year
zero coupon security are both 30 years. A portfolio manager using average
maturity to judge price volatility would expect to see no difference in
portfolio impact from these two securities (given equal yield). However, the
zero coupon bond will experience a percentage price change roughly three times
greater than the 30 year bond.

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MANAGEMENT OF THE GROUP

TRUSTEES AND OFFICERS

The Trustees are responsible for the overall management of the Fund, including
establishing the Fund's policies, general supervision and review of their
investment activities. The officers, who administer the Fund's daily operations,
are appointed by the Board of Trustees. The current Trustees and officers of the
Group who perform a policy-making function and their affiliations and principal
occupations for the past five years are as set forth below. Unless otherwise
indicated, the address of each of the persons listed 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
and Chief Executive
Officer, Trustee

* John Paul Isaacson Trustee Managing Principal, Payden & Rygel

* Christopher N. Orndorff Trustee Managing Principal, Payden & Rygel

J. Clayburn La Force P.O. Box 1009 Trustee Dean Emeritus, The John E. Anderson
Pauma Valley, CA 92061 Graduate School of Management at
University of California, Los
Angeles; Director, The Timken Company
(since February, 1994); Trustee for
PIC Institutional Growth Portfolio,
PIC Institutional Balanced Portfolio
and PIC Small Capital Portfolio

Thomas V. McKernan, Jr.(1) Trustee President and Chief Executive
3333 Fairview Road Officer, Automobile Club of
Costa Mesa, CA 92626 Southern California

Dennis C. Poulsen Trustee Chairman of Board (since 1997);
3900 South Workman Mill Road previously, President and Chief
Whittier, CA 90601 Executive Officer, Rose Hills
Company

Stender E. Sweeney Trustee Private Investor

W.D. Hilton, Jr. Trustee Managing Trustee, NGC Settlement
2608 Eastland Avenue, Suite 202 Trust; previously, Chief Financial
Greenville, TX 75402 Officer, Texas Association of
School Boards and Board Member,
First Greenville National Bank
</TABLE>

* An "interested person" of the Group, as defined in the 1940 Act.

(1) Ms. Payden is a Director of the Automobile Club of Southern California, of
which Mr. McKernan is President and Chief Executive Officer.

Trustees other than those affiliated with the Adviser currently receive an
annual retainer of $20,000, plus $1,500 for each Board of Trustees meeting
and/or audit committee meeting attended and reimbursement of related expenses.
The following table sets forth the aggregate compensation paid by the Group for
the fiscal year ended October 31, 1998, 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; the Group does not maintain a

<PAGE> 38
retirement plan for its Trustees. 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 TOTAL
BENEFITS ESTIMATED COMPENSATION
ACCRUED AS ANNUAL FROM GROUP
AGGREGATE PART OF BENEFITS AND GROUP
COMPENSATION GROUP UPON COMPLEX PAID
NAME FROM GROUP EXPENSES RETIREMENT TO TRUSTEE
---- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Dennis Poulsen $ 26,000 None N/A $ 26,000
James Clayburn La Force $ 27,500 None N/A $ 27,500
Stender Sweeney $ 29,000 None N/A $ 29,000
W.D. Hilton $ 29,000 None N/A $ 29,000
Thomas V. McKernan, Jr. $ 29,000 None N/A $ 29,000
Lynda L. Faber $ 29,000 None N/A $ 29,000
</TABLE>

OFFICERS:

<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME THE GROUP DURING PAST FIVE YEARS
- ---- ------------- ----------------------
<S> <C> <C>
John C. Siciliano President, Chief Operating Officer Managing Director, Payden & Rygel (since
1998); previously, Senior Vice President,
Dresdner Kleinwort Benson North America;
Executive Vice President and Chief Financial
Officer, Technicolor, Inc.

Bradley F. Hersh Vice President, Treasurer Controller, Payden & Rygel (since 1998);
previously, Assistant Controller, Sierra
Capital Management

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, Wells Fargo Bank

Yot Chattrabhuti Vice President Manager - Mutual Fund Operations, Payden &
Rygel (since 1997); previously, Bank of
America: Vice President and Manager,
Securities Processing, Assistant Vice
President and Manager of various finance
related functions, and Senior Trust Officer,
Employee Benefit Trust Accounts

Edward S. Garlock Secretary General Counsel, Payden & Rygel (since 1997);
previously, Senior Vice President and Group
General Counsel, First Interstate Bancorp
</TABLE>

ADVISER

Payden & Rygel was founded in 1983 as an independent investment counseling
organization specializing in the management of short term fixed income
securities. The firm is owned by Joan Payden and several other employees. As of
October 31, 1998, its staff consisted of 90 employees, 43 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 $26 billion, with about $6 billion invested globally.

The Adviser's focus is the management of fixed income securities in both the
domestic and global markets. These include securities that have absolute or
average maturities out to five years with a bias toward very high quality and
liquidity. Portfolios are actively managed according to client approved
guidelines and benchmarks. Payden & Rygel also utilizes futures and options
strategies, primarily as defensive measures to control interest rate and
currency volatility.

21
<PAGE> 39
The Adviser provides investment management services to the Fund pursuant to an
Investment Management Agreement with the Group dated as of June 24, 1992. The
Agreement provides that the Adviser will pay all expenses incurred in connection
with managing the ordinary course of the Fund's business, except the following
expenses, which are paid by each Fund: (i) the fees and expenses incurred by the
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 the Fund in
connection with its securities and futures transactions; (vi) all taxes and
corporate fees payable by the 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 the Fund and of its shares with the SEC, registering
the Group as a broker or dealer and qualifying the shares of the Fund under
state securities laws, including the preparation and printing of the Trust's
registration statements, prospectuses and statements of additional information
for filing under federal and state securities laws for such purposes; (x)
communications expenses with respect to investor services and all expenses of
shareholders' and trustees' meetings and of preparing, printing and mailing
reports to shareholders in the amount necessary for distribution to the
shareholders; (xi) litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business, and (xii) any expenses assumed by the Group pursuant to a plan of
distribution adopted in conformity with Rule 12b-1 under the 1940 Act.

The Investment Advisory Agreement provides that the Adviser receives a monthly
fee from the Fund at the following annual rate: 0.28% of the first $1 billion of
average daily net assets, and 0.25% of the Fund's average daily net assets above
$1 billion.

The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to each Fund for two
years after the Fund's inclusion in its Master Trust Agreement (on or around its
commencement of operations) and then continue for each Fund for periods not
exceeding one year so long as such continuation is approved annually 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 the Fund without penalty on 60 days' written
notice at the option of either party thereto or by the vote of the shareholders
of the Fund.

ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT

Treasury Plus, Incorporated, located at 333 South Grand Avenue, Los Angeles,
California 90071, is a wholly owned subsidiary of the Adviser which 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.

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.

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.

Investors Fiduciary Trust Company ("IFTC"), located at 801 Pennsylvania, Kansas
City, Missouri 64105, provides fund accounting and transfer agency services to
the Group. IFTC calculates daily expense accruals and net asset value per share
of the Fund, issues and redeems Fund shares, maintains shareholder accounts and
prepares annual investor tax statements. IFTC receives fees for fund

22
<PAGE> 40
accounting services and dividend disbursing and transfer agency services.
Certain out-of-pocket expenses are also reimbursed at actual cost.

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.

PORTFOLIO TRANSACTIONS

The Fund pays commissions to brokers in connection with the purchase and sale of
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 the Fund usually includes an undisclosed dealer
commission or mark-up. In underwritten offerings, the price paid by the Fund
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer. Agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different brokers. Also, a
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. Transactions in foreign securities
involve commissions which are generally higher than those in the United States.

The Adviser places all orders for the purchase and sale of portfolio securities,
options and futures contracts for the Fund and buys and sells such securities,
options and futures for the Fund through a substantial number of brokers and
dealers. In so doing, the Adviser seeks the best execution available. In seeking
the most favorable execution, the Adviser considers all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker-dealer involved and
the quality of service rendered by the broker-dealer in other transactions.

Some securities considered for investment by the Fund's portfolio may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of the Fund is considered at
or about the same time as a similar transaction for one or more other clients
served by the Adviser, transactions in such securities will be allocated among
the Fund and other clients in a manner deemed fair and reasonable by the
Adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Adviser, and the
results of such allocations, are subject to periodic review by the Board of
Trustees.

The Adviser manages the Fund without regard generally to restrictions on
portfolio turnover, except those imposed on its ability to engage in short-term
trading by provisions of the federal tax laws (see "Taxation"). Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The higher the rate of
portfolio turnover, the higher these transaction costs borne by the Fund
generally will be. The turnover rate of the Fund is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for a particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the fiscal year. In calculating the rate of portfolio
turnover, all securities, including options, whose maturities or expiration
dates at the time of acquisition were one year or less, are excluded. Interest
rate and currency swap, cap and floor transactions do not affect the calculation
of portfolio turnover.

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 Fund.

PURCHASES AND REDEMPTIONS

Certain managed account clients of the Adviser may purchase shares of the Fund.
To avoid the imposition of duplicative fees, the Adviser may be required to make
adjustments in the management fees charged separately by the Adviser to these
clients to offset the generally higher level of management fees and expenses
resulting from a client's investment in the Fund.

The Fund reserves the right to suspend or postpone redemptions during any period
when: (a) trading on the New York Stock Exchange is restricted, as determined by
the Securities and Exchange Commission, or that Exchange is closed for other
than customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets of the Fund not reasonably
practicable.

23
<PAGE> 41
The 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. The 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, the Fund
reserves the right to redeem shares in any account for their then-current value
(which will be promptly be paid to the investor) if at any time, due to
shareholder redemption, the shares in the Fund account do not have a value of at
least $5,000. An investor will be notified that the value of his account is less
than the minimum and allowed at least 30 days to bring the value of the account
up to at least $5,000 before the redemption is processed. The Declaration of
Trust also authorizes the Fund to redeem shares under certain other
circumstances as may be specified by the Board of Trustees

VALUATION OF PORTFOLIO SECURITIES

Fixed income securities are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques. Such techniques take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities.

Foreign securities are valued at the closing bid price in the principal market
where they are traded, or, if closing prices are unavailable, at the last traded
bid price available prior to the time the 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 the 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.

The amortized cost method involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund would receive if it sold the instrument.
During these periods, the yield to an existing shareholder may differ somewhat
from that which could be obtained from a similar fund which marks its portfolio
securities to market each day.

TAXATION

The Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); (b) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the 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 the 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

24
<PAGE> 42
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment companies)
(the "Diversification Test"); and (c) distribute to its shareholders at least
90% of its investment company taxable income (which includes dividends, interest
and net short-term capital gains in excess of any net long-term capital losses)
and 90% of its net exempt interest income each taxable year. The Treasury
Department is authorized to promulgate regulations under which gains from
foreign currencies (and options, futures, and forward contracts on foreign
currency) would constitute qualifying income for purposes of the Qualifying
Income Test only if such gains are directly relating to investing in stocks or
securities. To date, such regulations have not been issued.

In addition, no definitive guidance currently exists with respect to the
classification of interest rate swaps and cross-currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, the 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, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (any
net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from the prior eight years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders. The
Fund intends to distribute to its shareholders substantially all of its
investment company taxable income monthly and any net capital gains annually.
Investment company taxable income or net capital gains not distributed by the
Fund on a timely basis in accordance with a calendar year distribution
requirement are subject to a nondeductible 4% excise tax. To avoid the tax, the
Fund must distribute during each calendar year an amount at least equal to the
sum of (1) 98% of its ordinary income (with adjustments) for the calendar year
and foreign currency gains or losses for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by the Fund in
October, November, or December of that year to shareholders of record on a date
in such a month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders (other than those not subject to
federal income tax) in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To avoid application of the excise tax, the Fund intends to make its
distributions in accordance with the distribution requirements.

DISTRIBUTIONS

Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions received by
tax-exempt shareholders will not be subject to federal income tax to the extent
permitted under the applicable tax exemption.

Dividends paid by the Fund generally are not expected to qualify for the
deduction for dividends received by corporations. Distributions of net capital
gains, if any, are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares and are not eligible for the
dividends received deduction. The tax treatment of dividends and distributions
will be the same whether a shareholder reinvests them in additional shares or
elects to receive them in cash.

HEDGING TRANSACTIONS

Many of the options, futures contracts and forward contracts used by the Fund
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by the Fund at the end of each
taxable year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss, depending
on the circumstances.

Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by the Fund, may result in "straddles"
for U.S. federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the investment company taxable income or net capital gain for the taxable year
in which such losses are realized. Because limited regulations implementing the
straddle rules have been promulgated, the tax

25
<PAGE> 43
consequences of transactions in options, futures and forward contracts to the
Fund are not entirely clear. The transactions may increase the amount of
short-term capital gain realized by the Fund which is taxed as ordinary income
when distributed to shareholders.

The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.

The qualifying income and diversification requirements applicable to the Fund's
assets may limit the extent to which the Fund will be able to engage in
transactions in options, futures contracts or forward contracts.

SALES OF SHARES

Upon disposition of shares of the Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term, mid-term or short-term generally depending upon
the shareholder's holding period for the shares. Any loss realized on a
disposition will be disallowed by "wash sale" rules to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before and
ending 30 days after the disposition. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on a disposition of shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.

BACKUP WITHHOLDING

The Fund may be required to withhold for U.S. federal income taxes 31% of all
taxable distributions payable to shareholders who fail to provide the Fund with
their correct taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal tax liability.

FOREIGN INVESTMENTS

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time the 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 the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. In
addition, the Adviser intends to manage the Fund with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to elect to "pass-through" to the Fund's shareholders the amount of
foreign income and similar taxes paid by the Fund. If this election is made, a
shareholder generally subject to tax will be required to include in gross income
(in addition to taxable dividends actually received) his pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct (as
an itemized deduction) his or her pro rata share of foreign taxes in computing
his taxable income or to use such amount (subject to

26
<PAGE> 44
limitations) as a foreign tax credit against his or her U.S. federal income tax
liability. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Each shareholder will be notified in writing within
60 days after the close of the 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 Fund will operate so as to qualify for such
reduced tax rates or tax exemptions whenever practicable. The Fund 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 Fund
to foreign countries (which taxes relate primarily to investment income). The
shareholders of the Fund may claim a credit by reason of the Fund's 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 Fund. Although the
Fund intend to meet the requirements of the Code to "pass through" such taxes,
there can be no assurance that the Fund 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 the Fund's income will flow through to shareholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income, and to certain other types
of income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit is modified for purposes of the Federal alternative minimum tax and can
be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible in
computing alternative minimum taxable income.

CERTAIN DEBT SECURITIES

Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by the Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.

Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by the Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount 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. The Fund may make one or more of the elections
applicable to debt securities having market discount, which could affect the
character and timing of recognition of income.

Some of the debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
an acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income 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.

The Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.

OTHER TAXES

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<PAGE> 45
Distributions also may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Under the laws of various
states, distributions of investment company taxable income generally are taxable
to shareholders even though all or a substantial portion of such distributions
may be derived from interest on certain Federal obligations which, if the
interest were received directly by a resident of such state, would be exempt
from such state's income tax ("qualifying Federal obligations"). However, some
states may exempt all or a portion of such distributions from income tax to the
extent the shareholder is able to establish that the distribution is derived
from qualifying Federal obligations. Moreover, for state income tax purposes,
interest on some Federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on Federal National
Mortgage Association Certificates and Government National Mortgage Association
Certificates). The Fund will provide information annually to shareholders
indicating the amount and percentage of the Fund's dividend distribution which
is attributable to interest on Federal obligations, and will indicate to the
extent possible from what types of Federal obligations such dividends are
derived. Shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Fund.

DISTRIBUTION ARRANGEMENTS

DISTRIBUTOR

Payden & Rygel Distributors, 333 South Grand Avenue, Los Angeles, California
90071, acts as Distributor to the Group pursuant to a Distribution Agreement
with the Group dated as of June 24, 1992, as amended. The Distributor has agreed
to use its best efforts to effect sales of shares of the Fund, but is not
obligated to sell any specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Investment Management Agreement described above. Pursuant to the Agreement,
the 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 Fund to the Distributor for its distribution
services, except pursuant to the Distribution Plan described below. The
Distributor pays for the personnel involved in accepting orders for purchase and
redemption of Fund shares, expenses incurred in connection with the printing of
Prospectuses and Statements of Additional Information (other than those sent to
existing shareholders), sales literature, advertising and other communications
used in the public offering of shares of the Fund, and other expenses associated
with performing services as distributor of the Fund's shares. The Fund pays the
expenses of issuance, registration and transfer of its shares, including filing
fees and legal fees.

FUND PERFORMANCE

The Fund may quote its performance in various ways. All performance information
supplied by the Fund in advertising is historical and is not intended to
indicate future returns. The Fund's share price, yield and total returns
fluctuate in response to market conditions and other factors, and the value of
Fund shares when redeemed may be more or less than their original cost.

Performance information for the Fund may be compared to various unmanaged
indices (such as the 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, the 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 the
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 Fund, and
on the comparative performance or standing of Payden & Rygel in relation to
other money managers. Such comparative information may be compiled or provided
by independent rating services or other organizations.

Information regarding the 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

28
<PAGE> 46
or market trends; historical studies of gold, other commodities, equities, fixed
income securities and statistical market indices; new investment theories or
techniques; economic and/or political trends in foreign countries and their
impact on the United States; municipal bond market fundamentals and trends;
corporate financing trends and other factors that may impact corporate debt; and
housing trends and other economic factors that may impact mortgage rates and
lending activity. In addition, Payden & Rygel may quote financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques. Materials may also include discussions
regarding Payden & Rygel's asset allocation services and other Payden & Rygel
funds, products and services.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills and the U.S. rate
of inflation (based on the Consumer Price Index) and a combination of various
capital markets. The Group may use the long-term performance of these capital
markets in order to demonstrate general long-term risk-versus-reward investment
scenarios or the value of a hypothetical investment in any of these capital
markets. The performance of these capital markets is based on the returns of
several different indices. Ibbotson calculates total returns in the same method
as the Group. Performance comparisons could also include the value of a
hypothetical investment in any of the capital markets.

If appropriate, the Group may compare the performance of the Fund or the
performance of securities in which the 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 the Fund used in advertising are computed by dividing the interest
income of the Fund for a given 30-day or one month period, net of expenses, by
the average number of shares of the Fund entitled to receive dividends during
the period, dividing this figure by the Fund's' 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 the 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.

The Fund may, from time to time, include the current yield or effective yield in
advertisements or reports to shareholders or prospective investors. These
performance figures are based on historical results calculated under uniform SEC
formulas and are not intended to indicate future performance.

Yield refers to the income generated by an investment in the Fund over a
seven-day period, expressed as an annual percentage rate. Effective yields are
calculated similarly, but assume that the income earned from the Fund is
reinvested in the Fund. Because of the effects of compounding, effective yields
are slightly higher than yields.

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. Yields and other performance
information maybe quoted numerically, or in a table, graph or similar
illustration.

TOTAL RETURN CALCULATIONS

Total returns quoted in advertising with respect to the Fund reflect all aspects
of the Fund's return, including the effect of reinvesting dividends and capital
gain distributions, and any change in the Fund's net asset value per share over
the period. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in the Fund
over a stated period, and then calculating the annually compounded percentage
rate that would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative return of
100% over ten years would result from an

29
<PAGE> 47
average annual total return of 7.18%, which is the steady annual total return
that would equal 100% growth on a compounded basis in ten years. While average
annual total returns are a convenient means of comparing investment
alternatives, investors should realize that the Fund's performance is not
constant over time, but changes from year to year, and that average annual total
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund. In addition to average annual total returns, the Fund
may quote unaveraged or cumulative total returns 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.

OTHER INFORMATION

CAPITALIZATION

The Fund is a series of The Payden & Rygel Investment Group, an open-end
management investment company organized as a Massachusetts business trust in
January 1992 (initially called P&R Investment Trust). The capitalization of the
Fund consists solely of an unlimited number of shares of beneficial interest.
The Board of Trustees has currently authorized twenty-three series of shares:
Limited Maturity Fund, Short Bond Fund, U.S. Government Fund, Investment Quality
Bond Fund, Total Return Fund, Low Duration Bond Fund, High Income Fund, Bunker
Hill Money Market Fund, Short Duration Tax Exempt Fund, Tax Exempt Bond Fund,
California Municipal Income Fund, Growth & Income Fund, Market Return Fund,
Small Cap Value Stock Fund, Small Cap Growth Stock Fund, U.S. Growth Leaders
Fund, Global Short Bond Fund, Global Fixed Income Fund, Emerging Markets Bond
Fund, Global Balanced Fund, European Growth & Income Fund, EuroDirect Fund and
European Aggressive Growth Fund.

The Board of Trustees has established Class R Shares of all Funds, and Class D
Shares of the Bunker Hill Money Market Fund. Advisory and administrative fees
will generally 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.

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. All shares, when issued, will be fully paid and
non-assessable by the Group. In liquidation of a Fund, each shareholder is
entitled to receive his 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, 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.

DECLARATION OF TRUST

Under Massachusetts law, shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
of Trust disclaims liability of the shareholders of the Fund for acts or
obligations of the Group, which are binding only on the assets and property of
the Fund, and requires that notice of the disclaimer be given in each contract
or obligation entered into or executed by the Fund or the Trustees. The
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder held personally liable for the obligations
of the Fund. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the 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

30
<PAGE> 48
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.

VOTING

Shareholders of the Fund and any other series of the Group will vote in the
aggregate and not by series or class except as otherwise required by law or when
the Board of Trustees determines that the matter to be voted upon affects only
the interests of the shareholders of a particular series or class of shares.
Pursuant to Rule 18f-2 under the 1940 Act, the approval of an investment
advisory agreement or any change in a fundamental policy would be acted upon
separately by the series affected. Matters such as ratification of the
independent public accountants and election of Trustees are not subject to
separate voting requirements and may be acted upon by shareholders of the Group
voting without regard to series or class.

CUSTODIAN

The Boston Safe Deposit and Trust Company serves as Custodian for the assets of
the Fund. 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 the Fund; hold
and disburse portfolio securities and other assets on behalf of the Fund;
collect and make disbursements of money on behalf of the Fund; and receive all
income and other payments and distributions on account of the Fund's portfolio
securities.

Pursuant to rules adopted under the 1940 Act, the Fund 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 Fund; 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 Fund. 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 Group's Funds.
Deloitte & Touche provides audit and tax return preparation services to the
Group. The independent auditors' address is 1700 Courthouse Plaza Northeast,
Dayton, Ohio 45402-1788.

COUNSEL

Paul, Hastings, Janofsky & Walker LLP pass upon certain legal matters in
connection with the shares offered by the Group, and also act as Counsel to the
Group. Counsel's address is 555 South Flower Street, Los Angeles, California
90071. Paul, Hastings, Janofsky & Walker LLP also acts as counsel to the Adviser
and the Distributor.

LICENSE AGREEMENT

The Adviser has entered into a non-exclusive License Agreement with the Group
which permits the Group to use the name "Payden & Rygel". The Adviser has the
right to require the Group to cease using the name at such time as the Adviser
is no longer employed as investment manager to the Group.

FINANCIAL STATEMENTS

Copies of the Group's' 1998 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

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<PAGE> 49
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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<PAGE> 50
THE PAYDEN & RYGEL INVESTMENT GROUP

F O R M N-1A

PART C: OTHER INFORMATION

Item 23. Exhibits.

(a.1) Master Trust Agreement of Registrant (a).

(a.2) Certificate of Amendment of Master Trust Agreement (b).

(a.3) Amendment No. 2 to the Master Trust Agreement dated
September 16, 1993 (c).

(a.4) Amendment No. 3 to the Master Trust Agreement dated December
13, 1993 (d).

(a.5) Amendment No. 4 to the Master Trust Agreement dated March
17, 1994 (e).

(a.6) Amendment No. 5 to the Master Trust Agreement dated as of
August 31, 1994 (f).

(a.7) Amendment No. 6 to the Master Trust Agreement (g).

(a.8) Amendment No. 7 to the Master Trust Agreement (h).

(a.9) Amendment No. 8 to the Master Trust Agreement (i).

(a.10) Amendment No. 9 to the Master Trust Agreement (j).

(a.11) Amendment No. 10 to the Master Trust Agreement (k).

(a.12) Form of Amendment No. 11 to the Master Trust Agreement (k).

(a.13) Form of Amendment No. 12 to the Master Trust Agreement (l).

(a.14) Form of Amendment No. 13 to the Master Trust Agreement (m).

(a.15) Form of Amendment No. 14 to the Master Trust

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Agreement (u).

(a.16) Form of Amendment No. 15 to the Master Trust Agreement (u).

(a.17) Amendment No. 16 to the Master Trust Agreement (v).

(a.18) Form of Amendment No. 17 to the Master Trust Agreement (v).

(a.19) Amendment No. 18 to the Master Trust Agreement (y).

(a.20) Amendment No. 19 to the Master Trust Agreement (y).

(a.21) Amendment No. 20 to the Master Trust Agreement.

(a.22) Form of Amendment No. 21 to the Master Trust Agreement.

(b) By-laws of Registrant (a).

(d.1) Investment Management Agreement between Registrant and
Payden & Rygel (n).

(d.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).

(d.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).

(d.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).

(d.5) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated as of June 14, 1994 with
respect to Class B shares (e).

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(d.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).

(d.7) Agreement between Registrant and Payden & Rygel dated June
14, 1994 with respect to voluntary expense limitations (g).

(d.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).

(d.9) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding Market Return Fund to
the Agreement (o).

(d.10) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding Growth & Income Fund to
the Agreement (k).

(d.11) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding Global Short Bond Fund
to the Agreement (l).

(d.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).

(d.13) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding European Growth &
Income Fund to the Agreement (v).

(d.14) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the PRAAM Money Market
Fund (now the Bunker Hill Money Market Fund) to the
Agreement (u).

(d.15) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the High Income Fund to
the Agreement (v).

(d.16) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding

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the Value Stock Fund and Growth Stock Fund to the Agreement
(v).

(d.17) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the Emerging Markets
Bond Fund, EuroDirect Fund and California Municipal Income
Fund to the Agreement (w).

(d.18) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the U.S. Growth Leaders
Fund and the European Aggressive Growth Fund.

(d.19) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the Low Duration Bond
Fund to the Agreement.

(d.20) Form of Subadvisory Agreement between Payden & Rygel and
Metzler-Payden, LLC with respect to the EuroDirect Fund (w).

(d.21) Sub-Advisory Agreement between Payden & Rygel and
Metzler-Payden, LLC with respect to the International Equity
Fund, Global Balanced Fund and European Growth & Equity Fund
(x).

(d.22) Sub-Advisory Agreement between Payden & Rygel and
Metzler-Payden, LLC with respect to the European Aggressive
Growth Fund.

(e.1) Distribution Agreement between Registrant and Payden & Rygel
Distributors, Inc. (n).

(e.2) Amendment to Distribution Agreement between Registrant and
Payden & Rygel Distributors dated August 31, 1992 (p).

(f) None.

(g) Form of Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company (q).

(h.1) Management and Administration Agreement between Registrant
and Treasury Plus, Incorporated dated as of January 1, 1996
(o).

(h.2) Form of Investment Accounting Agreement between Registrant
and Investors Fiduciary Trust Company (o).

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(h.3) Form of Transfer Agency and Service Agreement between
Registrant and Investors Fiduciary Trust Company (o).

(h.4) License Agreement between Registrant and Payden & Rygel (n).

(i.1) Opinion of Counsel (b).

(i.2) Opinion of Counsel, dated December 23, 1997 (v).

(i.3) Opinion of Counsel, dated December 30, 1998 (x).

(i.4) Form of Opinion of Counsel, dated April 15, 1999 (y).

(i.5) Form of Opinion of Counsel, dated July 19, 1999.

(j) Not applicable.

(k) Not applicable.

(l) Investment letter of Payden & Rygel (b).

(m) The Payden & Rygel Investment Group Distribution Plan,
adopted September 9, 1997 (u).

(n) Not Applicable.

(o) The Payden & Rygel Investment Group Multiple Class Plan,
dated December 16, 1997 (v).

(p.1) Powers of Attorney of Dennis Poulsen and J. Clayburn La
Force (r).

(p.2) Power of Attorney of Stender E. Sweeney (r).

(p.3) Power of Attorney of Thomas McKernan, Jr. (s).

(p.4) Power of Attorney of W.D. Hilton, Jr. (f).

------------

(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.

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<PAGE> 55
(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.

(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.

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<PAGE> 56
(p) Filed as an exhibit to Post-Effective Amendment No. 1 to the
Registration Statement on February 17, 1993 and incorporated herein by
reference.

(q) Filed as an exhibit to Post-Effective Amendment No. 27 to the
Registration Statement on December 20, 1996 and incorporated herein by
reference.

(r) Filed as an exhibit to Pre-Effective Amendment No. 1 to the
Registration Statement on June 19, 1992 and incorporated herein by
reference.

(s) Filed as an exhibit to Post-Effective Amendment No. 5 to the
Registration Statement on March 1, 1994 and incorporated herein by
reference.

(t) Filed as an exhibit to Post-Effective Amendment No. 29 to the
Registration Statement on April 17, 1997 and incorporated herein by
reference.

(u) Filed as an exhibit to Post-Effective Amendment No. 31 to the
Registration Statement on September 24, 1997 and incorporated herein
by reference.

(v) Filed as an exhibit to Post-Effective Amendment No. 34 to the
Registration Statement on December 29, 1997 and incorporated herein by
reference.

(w) Filed as an exhibit to Post-Effective Amendment No. 35 to the
Registration Statement on October 19, 1998 and incorporated herein by
reference.

(x) Filed as an exhibit to Post-Effective Amendment No. 36 to the
Registration Statement on December 31, 1998 and incorporated herein by
reference.

(y) Filed as an exhibit to Post-Effective Amendment No. 37 to the
Registration Statement on April 15, 1999 and incorporated herein by
reference.

Item 24. Persons Controlled by or Under Common Control with Registrant.

As of June 30, 1999, the following persons held of record
more than 25% of the outstanding shares of the following classes of shares of
Registrant: Bunker Hill Money Market Fund, Class R - Fuller-Austin Asbestos
Trust (51.5%); Payden & Rygel U.S. Government Fund, Class R - Valley Medical
Center (78.2%); Payden & Rygel Global Balanced Fund, Class R - Lon V. Smith
Foundation (44.1%); Payden & Rygel Short Bond Fund, Class R - Jicarilla Apache
Tribe (48.1%); Payden & Rygel U.S. Growth

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Leaders Fund, Class R - Beverly Haas IRA (29.5%) and CMA Management (38.1%);
Payden & Rygel EuroDirect Fund, Class R - Sheinberg Family Trust (60.1%); Payden
& Rygel Emerging Markets Bond Fund, Class R - Dan Murphy Foundation (26.3%);
Payden & Rygel Small Cap Growth Stock Fund, Class R - Carol Leif Trusts (29.2%);
Payden & Rygel High Income Fund, Class R - Jicarilla Apache Tribe (28.5%); and
Payden & Rygel Total Return Fund, Class R - Jicarilla Apache Tribe (35.3%).

Item 25. Indemnification.

Section 6.4 of Article VI of Registrant's Master Trust Agreement,
filed herewith as Exhibit a.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 d.1, 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 e.1, provides for the indemnification of Registrant's Distributor
against all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct.

Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by

C-8
<PAGE> 58

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 26. Business and Other Connections of Investment Adviser.

During the two fiscal years ended December 31, 1998, Payden & Rygel
has engaged principally in the business of providing investment services to
institutional clients. During such period, the other substantial businesses,
professions, vocations or employments of the directors and officers of Payden &
Rygel have been as set forth below. The principal business address of such
persons is 333 South Grand Avenue, Los Angeles, California 90071, except as
otherwise indicated below.

<TABLE>
<CAPTION>
Name and Principal
Business Address Office Other Employment
- ------------------ ------ ----------------
<S> <C> <C>

Joan A. Payden President and
Director

John P. Isaacson Managing Principal
and Director

Scott A. King Managing Principal,
Treasurer and
Director

Brian W. Matthews Managing Principal

Christopher N. Orndorff Managing Principal

James P. Sarni Managing Principal

Scott J. Weiner Managing Principal
</TABLE>

Item 27. 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
<S> <C> <C>
</TABLE>

C-9
<PAGE> 59
<TABLE>
Business Address Underwriter Registrant
- ------------------ ------------- -------------
<S> <C> <C>

Joan A. Payden Chairman and Trustee, Chairman
Chief Executive Officer of the Board and
and Director Chief Executive Officer

Gregory P. Brown President and Chief Vice President
Operating Officer and
Director

Christopher N. Orndorff Chief Financial Officer Trustee
</TABLE>

Item 28. 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 29. Management Services.

Not Applicable.

Item 30. Undertakings.

Registrant hereby undertakes that if it is requested by the holders of
at least 10% of its outstanding shares to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee, it will do so and
will assist in communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.

C-10
<PAGE> 60
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 (the "1933
Act") and the Investment Company Act of 1940, the Registrant has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 19th day of July, 1999.

THE PAYDEN & RYGEL INVESTMENT GROUP

By s/ Joan A. Payden
----------------------------------------
Joan A. Payden
Chairman

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.

s/Joan A. Payden Trustee and July 19, 1999
- ------------------------------- Principal
Joan A. Payden Executive Officer

J. Clayburn La Force* Trustee July 19, 1999
- -------------------------------
J. Clayburn La Force

Dennis C. Poulsen* Trustee July 19, 1999
- -------------------------------
Dennis C. Poulsen

Thomas McKernan, Jr.* Trustee July 19, 1999
- -------------------------------
Thomas McKernan, Jr.

Stender E. Sweeney* Trustee July 19, 1999
- -------------------------------
Stender E. Sweeney

W.D. Hilton, Jr.* Trustee July 19, 1999
- -------------------------------
W.D. Hilton, Jr.

s/John Paul Isaacson Trustee July 19, 1999
- -------------------------------
John Paul Isaacson

s/Christopher N. Orndorff Trustee July 19, 1999
- -------------------------------
Christopher N. Orndorff

s/Bradley F. Hersh Principal Financial July 19, 1999
- ------------------------------- and Accounting
Bradley F. Hersh Officer

*s/Joan A. Payden
- -------------------------------
By: Joan A. Payden
Attorney-In-Fact
</TABLE>

C-11
<PAGE> 61

EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 38

Exhibit No. Title of Exhibit

(a.21) Amendment No. 20 to the Master Trust Agreement

(a.22) Form of Amendment No. 21 to the Master Trust Agreement.

(d.18) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the U.S. Growth Leaders
Fund and the European Aggressive Growth Fund to the
Agreement.

(d.19) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding the Low Duration Bond
Fund to the Agreement.

(d.22) Sub-Advisory Agreement between Payden & Rygel and
Metzler-Payden, LLC with respect to the European Aggressive
Growth Fund.

(i.5) Form of Opinion of Counsel, dated July 19, 1999.

<PAGE> 1
EXHIBIT 99(a.21)

THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 20 TO
MASTER TRUST AGREEMENT

This Amendment No. 20 to the Master Trust Agreement of The Payden &
Rygel Investment Group, dated January 22, 1992, as amended (the "Agreement"), is
made as of June 17, 1999.

WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated twenty-one sub-trusts known as the Payden & Rygel
Limited Maturity Fund, Payden & Rygel Short Bond Fund, Payden & Rygel U.S.
Government Fund, Payden & Rygel Investment Quality Bond Fund, Payden & Rygel
Total Return Fund, Payden & Rygel High Income Fund, Bunker Hill Money Market
Fund, Payden & Rygel Short Duration Tax Exempt Fund, Payden & Rygel Tax Exempt
Bond Fund, Payden & Rygel California Municipal Income Fund, Payden & Rygel
Growth & Income Fund, Payden & Rygel Market Return Fund, Payden & Rygel Small
Cap Value Stock Fund, Payden & Rygel Small Cap Growth Stock Fund, Payden & Rygel
Global Short Bond Fund, Payden & Rygel Global Fixed Income Fund, Payden & Rygel
Emerging Markets Bond Fund, Payden & Rygel Global Balanced Fund, Payden & Rygel
European Growth & Income Fund, Payden & Rygel International Equity Fund and
Payden & Rygel EuroDirect Fund; and

WHEREAS, the Trustees have the authority, without shareholder
approval, under Section 7.3 of the Agreement, to amend the Agreement in any
manner, so long as such amendment does not adversely affect the rights of any
shareholder and is not in contravention of applicable law; and

WHEREAS, the Trustees hereby desire to establish and designate two
additional sub-trusts, to be known as the Payden & Rygel U.S. Growth Leaders
Fund and the Payden & Rygel European Aggressive Growth Fund, and to fix the
rights and preferences of the shares of each such additional sub-trust,
effective June 17, 1999; and

WHEREAS, the Trustees hereby desire to liquidate, and have authorized
the liquidation of, the Payden & Rygel International Equity Fund, effective June
30, 1999;

<PAGE> 2
NOW THEREFORE:

Amendment Effective June 17, 1999:

The first paragraph of Section 4.2 of the Agreement is hereby amended
to read in pertinent part as follow:

"Section 4.2 Establishment and Designation of Sub-Trusts.
Without limiting the authority of the Trustee set forth in Section 4.1
to establish and designate any further Sub-Trusts, the Trustees hereby
establish and designate twenty-three Sub-trusts and classes thereof:
Payden & Rygel Limited Maturity Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; Payden
& Rygel Short Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel U.S.
Government Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel
Investment Quality Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; Payden & Rygel
Total Return Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel High
Income Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Bunker Hill Money Market Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class D" shares; Payden & Rygel Short Duration Tax Exempt Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares; Payden & Rygel Tax Exempt Bond Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel California Municipal Income Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Growth & Income Fund, which shall consist of
two classes of shares designated as "Class R" and "Class S" shares;
Payden & Rygel Market Return Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; Payden & Rygel
Small Cap Value Stock Fund, which shall consist of two classes

<PAGE> 3
of shares designated as "Class R" and "Class S" shares; Payden & Rygel
Small Cap Growth Stock Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; Payden & Rygel
U.S. Growth Leaders Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Global
Short Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Global
Fixed Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Emerging
Markets Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Global
Balanced Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Payden & Rygel European Growth &
Income Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Payden & Rygel International Equity
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel EuroDirect Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; and Payden & Rygel European Aggressive Growth Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares. The shares of each Sub-Trust and classes thereof
and any shares of any further Sub-Trusts and classes thereof that may
from time to time be established and designated by the Trustees shall
(unless the Trustees otherwise determine with respect to some further
Sub-Trust or class a the time of establishing and designating the
same) have the following relative rights and preferences:".

Amendment Effective June 30, 1999:

The first paragraph of Section 4.2 of the Agreement is hereby amended
to read in pertinent part as follow:

<PAGE> 4
designate twenty-two Sub-trusts and classes thereof: Payden & Rygel
Limited Maturity Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Short
Bond Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel U.S. Government Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares; Payden & Rygel Investment Quality Bond Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares; Payden & Rygel Total Return Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel High Income Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; Bunker
Hill Money Market Fund, which shall consist of two classes of shares
designated as "Class R" and "Class D" shares; Payden & Rygel Short
Duration Tax Exempt Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Tax
Exempt Bond Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel
California Municipal Income Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; Payden & Rygel
Growth & Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel Market
Return Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Payden & Rygel Small Cap Value
Stock Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel Small Cap Growth Stock
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel U.S. Growth Leaders
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel Global Short Bond Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares; Payden & Rygel Global Fixed Income Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; Payden & Rygel Emerging Markets Bond Fund, which
shall

<PAGE> 5
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Global Balanced Fund, which shall consist of
two classes of shares designated as "Class R" and "Class S" shares;
Payden & Rygel European Growth & Income Fund, which shall consist of
two classes of shares designated as "Class R" and "Class S" shares;
Payden & Rygel EuroDirect Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; and Payden &
Rygel European Aggressive Growth Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares. The
shares of each Sub-Trust and classes thereof and any shares of any
further Sub-Trusts and classes thereof that may from time to time be
established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Sub-Trust or class a
the time of establishing and designating the same) have the following
relative rights and preferences:".

The undersigned hereby certify that the Amendment set forth above has
been duly adopted in accordance with the provisions of the Master Trust
Agreement.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands for
themselves and their assigns, as of the day and year first above written. This
instrument may be executed in one or more counterparts, all of which shall
together constitute a single instrument.

- ------------------------ ------------------------
Joan A. Payden W.D. Hilton, Jr.

- ------------------------ ------------------------
John Paul Isaacson Christopher N. Orndorff

<PAGE> 6
- ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen

- ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.

<PAGE> 1
EXHIBIT 99(a.22)

THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 21 TO
MASTER TRUST AGREEMENT

This Amendment No. 21 to the Master Trust Agreement of The Payden &
Rygel Investment Group, dated January 22, 1992, as amended (the "Agreement"), is
made as of September __, 1999.

WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated twenty-two sub-trusts known as the Payden & Rygel
Limited Maturity Fund, Payden & Rygel Short Bond Fund, Payden & Rygel U.S.
Government Fund, Payden & Rygel Investment Quality Bond Fund, Payden & Rygel
Total Return Fund, Payden & Rygel High Income Fund, Bunker Hill Money Market
Fund, Payden & Rygel Short Duration Tax Exempt Fund, Payden & Rygel Tax Exempt
Bond Fund, Payden & Rygel California Municipal Income Fund, Payden & Rygel
Growth & Income Fund, Payden & Rygel Market Return Fund, Payden & Rygel Small
Cap Value Stock Fund, Payden & Rygel Small Cap Growth Stock Fund, Payden & Rygel
U.S. Growth Leaders Fund, Payden & Rygel Global Short Bond Fund, Payden & Rygel
Global Fixed Income Fund, Payden & Rygel Emerging Markets Bond Fund, Payden &
Rygel Global Balanced Fund, Payden & Rygel European Growth & Income Fund, Payden
& Rygel EuroDirect Fund and Payden & Rygel European Aggressive Growth Fund; and

WHEREAS, the Trustees hereby desire to establish and designate an
additional sub-trust, to be known as the Payden & Rygel Low Duration Bond Fund,
and to fix the rights and preferences of the shares of such additional
sub-trust;

NOW THEREFORE:

The first paragraph of Section 4.2 of the Agreement is hereby amended
to read in pertinent part as follow:

<PAGE> 2
"Class R" and "Class S" shares; Payden & Rygel Short Bond Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; Payden & Rygel U.S. Government Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Investment Quality Bond Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Total Return Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; Payden
& Rygel Low Duration Bond Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; Payden & Rygel
High Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Bunker Hill Money Market
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class D" shares; Payden & Rygel Short Duration Tax
Exempt Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Payden & Rygel Tax Exempt Bond
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel California Municipal
Income Fund, which shall consist of two classes of shares designated
as "Class R" and "Class S" shares; Payden & Rygel Growth & Income
Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel Market Return Fund,
which shall consist of two classes of shares designated as "Class R"
and "Class S" shares; Payden & Rygel Small Cap Value Stock Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; Payden & Rygel Small Cap Growth Stock Fund, which
shall consist of two classes of shares designated as "Class R" and
"Class S" shares; Payden & Rygel U.S. Growth Leaders Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Global Short Bond Fund, which shall consist of
two classes of shares designated as "Class R" and "Class S" shares;
Payden & Rygel Global Fixed Income Fund, which shall consist of two
classes of shares designated as "Class R" and "Class S" shares; Payden
& Rygel Emerging Markets Bond Fund, which shall consist of two classes
of shares designated as "Class R" and "Class S" shares; Payden & Rygel
Global Balanced Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel European
Growth & Income Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; Payden & Rygel
EuroDirect Fund, which shall consist of two classes of shares
designated as "Class R" and "Class S" shares; and Payden & Rygel
European Aggressive Growth Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares. The shares of
each Sub-Trust and classes thereof and any shares of any further
Sub-Trusts and

<PAGE> 3
classes thereof that may from time to time be established and
designated by the Trustees shall (unless the Trustees otherwise
determine with respect to some further Sub-Trust or class a the time
of establishing and designating the same) have the following relative
rights and preferences:".

The undersigned hereby certify that the Amendment set forth above has
been duly adopted in accordance with the provisions of the Master Trust
Agreement.

- ------------------------ ------------------------
Joan A. Payden W.D. Hilton, Jr.

- ------------------------ ------------------------
John Paul Isaacson Christopher N. Orndorff

- ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen

- ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.

<PAGE> 1
EXHIBIT 99(d.18)

THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
June 16, 1999

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

Ladies and Gentlemen:

As you know, we wish to retain Payden & Rygel to act as investment
adviser to our newly created Growth Leaders Fund and European Emerging Growth
Fund series. Accordingly, this will confirm our agreement to amend Exhibit A to
the Investment Management Agreement between us dated as of June 24, 1992, as
heretofore amended, by adding the following paragraphs:

U.S. Growth Leaders Fund Series

Annual Advisory Fees (as a percentage of average daily net assets) -
0.60% on the first $1 billion, and 0.50% in excess thereof.

Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 1.00%; Class S shares, 1.25%.

European Aggressive Growth Fund Series

Annual Advisory Fees (as a percentage of average daily net assets) -
0.80% on the first $1 billion, and 0.60% in excess thereof.

Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 1.05%; Class S shares, 1.30%.

In all other respects, the Investment Management Agreement between us,
as heretofore amended, will remain unchanged. Please sign this letter below to
confirm your agreement to this amendment.

Very truly yours,

Joan A. Payden
President

AGREED:

PAYDEN & RYGEL

BY:__________________________________
John P. Isaacson
Managing Principal

<PAGE> 1
EXHIBIT 99(d.19)

THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
September , 1999

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

Ladies and Gentlemen:

Low Duration Bond Fund Series

Annual Advisory Fees (as a percentage of average daily net assets) -
0.28% on the first $1 billion, and 0.25% in excess thereof.

Operating Expense Limitation (as a percentage of average daily net
assets) - Class R shares, 0.60%; Class S shares, 0.85%.

In all other respects, the Investment Management Agreement between us,
as heretofore amended, will remain unchanged. Please sign this letter below to
confirm your agreement to this amendment.

Very truly yours,

Joan A. Payden
President

AGREED:

PAYDEN & RYGEL

BY:_________________________________
Christopher N. Orndorff
Managing Principal

<PAGE> 1
EXHIBIT 99(d.22)

THE PAYDEN & RYGEL INVESTMENT GROUP

SUB-ADVISORY AGREEMENT BY AND BETWEEN
PAYDEN & RYGEL AND METZLER-PAYDEN, LLC

This Sub-advisory Agreement is made as of June 16, 1999, by and
between Payden & Rygel, a California corporation (the "Adviser"), and
Metzler-Payden, LLC, a limited liability company organized under the laws of
Delaware (the "Sub-adviser").

WHEREAS, the Adviser has by separate contract agreed to serve as the
investment adviser to the Payden & Rygel European Aggressive Growth Fund (the
"Fund"), an investment portfolio of The Payden & Rygel Investment Group (the
"Trust"), which is 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 Adviser's contract with the Trust allows it to delegate
certain investment advisory services for the Trust with respect to each of the
Funds to other parties; and

WHEREAS, the Adviser desires to retain the Sub-adviser to perform
certain investment advisory services for the Trust with respect to the Fund, and
the Sub-adviser 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 SUB-ADVISER TO THE TRUST.

(a) Investment Program. Subject to the control and
supervision of the Board of Trustees of the Trust (the "Board") and
the Adviser, the Sub-adviser 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 Adviser from time to time.
With respect to such assets, the Sub-adviser will make investment
decisions and will place all orders for the purchase and sale of
portfolio securities. In the performance of its duties, the
Sub-adviser 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 Adviser may establish. The Adviser
shall be responsible for providing the Sub-adviser 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 Adviser, the Sub-adviser 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 Sub-adviser.

(b) Availability of Personnel. The Sub-adviser, at its
expense, will make available to the Trustees and the Adviser 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 Adviser regarding the investment
affairs of the Fund, including economic, statistical, and investment
matters relevant to the Sub-adviser's duties hereunder, and will
provide periodic reports to the Trustees and the Adviser relating to
the portfolio strategies it employs.

<PAGE> 2
(c) Salaries and Facilities. The Sub-adviser, 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 Sub-adviser, at its
expense, will provide the Adviser 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 Sub-adviser, 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 Sub-adviser
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 Sub-adviser 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 Sub-adviser, 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 Sub-adviser or any affiliated person of the Sub-adviser.
The Trust agrees that any entity or person associated with the Adviser
or the Sub-adviser 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 Sub-adviser shall not be obligated
to pay any expenses of or for the Trust or for the Fund not expressly
assumed by the Sub-adviser pursuant to this Agreement.

2. BOOKS AND RECORDS. Pursuant to Rule 31a-3 under the 1940
Act, the Sub-adviser 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
Adviser any such records upon the Trust's or Adviser'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 Sub-adviser and persons controlled by
or under common control with the Sub-adviser 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.

4. COMPENSATION. The Fund pays to the Adviser a monthly fee
(the "Advisory Fee") at the annual rate of 0.80% of the first $1 billion of
average daily net assets of the portfolio, and 0.60% thereafter. The Adviser
will pay to the Sub-adviser as compensation for the Sub-adviser's services
rendered pursuant to this Agreement a sub-advisory fee for the Fund equal to
100% of the Advisory Fee earned and received by the Adviser for the Fund. Such
fees shall be paid by the Adviser (and not by the

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Trust) and shall be correspondingly reduced on a pro rata basis by any reduction
in the fees paid to the Adviser as a result of any voluntary, statutory or
regulatory limitation on investment company expenses. Such fees shall be paid
within 15 business days of the end of each month. If the Sub-adviser 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 Adviser and Sub-adviser mutually agree to such
amendment, and 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 who are not interested
persons of the Trust, the Adviser or the Sub-adviser (the "Independent
Trustees"). The Sub-adviser agrees to notify the Adviser of any anticipated
change in control of the Sub-adviser within a reasonable time prior to such
change.

6. DURATION AND TERMINATION OF THE AGREEMENT. This Agreement
shall become effective with respect to the Fund upon its execution; provided,
however, that this Agreement shall not become effective unless it first has been
approved by a vote of the Independent Trustees, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement shall remain
in full force and effect with respect to the Fund 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 with respect to the Fund without
the payment of penalty, by providing not more than 60 days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Adviser and the Sub-adviser.

(b) This Agreement will terminate automatically with
respect to the Fund 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 Sub-adviser may continue to
serve hereunder in a manner consistent with the 1940 Act and the rules
and regulations thereunder.

(c) The Adviser may at any time terminate this
Agreement with respect to the Fund without the payment of any penalty
by not less than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Sub-adviser and the Trust,
and the Sub-adviser may at any time without the payment of any
penalty, terminate this Agreement with respect to the Fund by not less
than 90 days' written notice delivered or mailed by registered mail,
postage prepaid, to the Adviser and the Trust.

(d) This Agreement shall terminate automatically and
immediately with respect to the Fund without the payment of any
penalty, in the event of its assignment or if the Investment
Management Agreement between the Adviser and the Trust with respect to
the Fund shall terminate for any reason.

(e) This Agreement shall terminate automatically and
immediately with respect to the Fund unless approved by an affirmative
vote of a majority of the outstanding Shares of the Fund within 120
days after the date first set forth above.

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Upon termination of this Agreement, the duties of the Adviser delegated to the
Sub-adviser under this Agreement automatically shall revert to the Adviser.

7. NOTIFICATION OF THE ADVISER. The Sub-adviser promptly shall
notify the Adviser in writing of the occurrence of any of the following events:

(a) the Sub-adviser 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
Sub-adviser is required to be registered as an investment adviser in
order to perform its obligations under this Agreement.

(b) the Sub-adviser 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 the Fund; or

(c) any other occurrence that might affect the ability
of the Sub-adviser 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 SUB-ADVISER. In the absence of its willful
misfeasance, bad faith, negligence, or disregard of its obligations and duties
hereunder, the Sub-adviser shall not be subject to any liability to the Adviser,
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 Sub-adviser 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 Sub-adviser'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.

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

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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 Metzler-Payden, LLC 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:________________________
Secretary Chairman

Attest: METZLER-PAYDEN, LLC

By:______________________ By:________________________
Secretary President

<PAGE> 1
EXHIBIT(i.5)

PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California

July 19, 1999

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

Ladies and Gentlemen:

We have acted as counsel to The Payden & Rygel Investment Group, a Massachusetts
business trust (the "Company"), in connection with the issuance of an indefinite
number of units of beneficial interest ("Shares") of the Payden & Rygel Low
Duration Bond Fund series of Shares of the Company (the "Fund") in a public
offering pursuant to a Registration Statement on Form N-1A (Registration No
33-46973), as amended, filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Registration Statement").

In our capacity as counsel for the Company, we have examined the Master Trust
Agreement of the Company dated January 22, 1992, as amended, the bylaws of the
Company, and originals or copies of actions of the Board of Trustees of the
Company, as furnished to us by the Company, certificates of public officials,
statutes and such other documents, records and certificates as we have deemed
necessary for the purposes of this opinion.

Based upon our examination as aforesaid, we are of the opinion that the Shares
of each Fund are duly authorized and, when purchased and paid for as described
in the Registration Statement, will be validly issued, fully paid and
nonassessable.

We hereby consent to the filing of this opinion of counsel as an exhibit to the
Registration Statement.

Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP