<PAGE> 1
As filed with the Securities and Exchange Commission on
February 15, 2000
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. 41 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 43 [X]
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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
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Approximate Date of Proposed Public Offering:
As soon as practicable following effective date.
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It is proposed that this filing will become effective:
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (b)
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[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On (date) pursuant to paragraph (a)(1)
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[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.
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Title of Securities being registered: Shares of Beneficial Interest
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PAYDEN & RYGEL INVESTMENT GROUP
GLOBAL EQUITY FUND
World Target Twenty 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
March , 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOBAL EQUITY FUND.................................... 3
World Target Twenty Fund 3
Additional Investment Strategies and Related Risks.... 4
Management of the Fund................................ 6
Net Asset Value....................................... 7
Dividends Distributions and Taxes..................... 7
Shareholder Services.................................. 7
How to Redeem Shares.................................. 9
How to Purchase Shares................................ 10
</TABLE>
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GLOBAL EQUITY FUND
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WORLD TARGET TWENTY FUND
INVESTMENT OBJECTIVE:
The Fund seeks long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
[ ] The Fund invests primarily in common stocks selected for their growth
potential. The Fund normally concentrates its investments in the common
stocks of a core group of 20-40 companies that are organized or
headquartered in countries around the world.
[ ] The Sub-adviser selects securities based on the following process.
- - The Sub-adviser generally takes a "bottom up" approach to selecting
companies. In other words, the Sub-adviser seeks to identify individual
companies with earnings growth potential that may not be recognized by the
market at large. The Sub-adviser makes this assessment by looking at
companies one at a time, regardless of size, country of organization, place
of principal business activity, or other similar selection criteria.
Realization of income is not a significant consideration when choosing
investments for the Fund. Income realized on the Fund's investments will be
incidental to its objective.
- - Foreign securities are generally selected on a stock-by-stock basis without
regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions
or geographic areas may warrant greater consideration in selecting foreign
securities. There are no limitations on the countries in which the Fund may
invest.
PRINCIPAL INVESTMENT RISKS:
[ ] By investing in stocks, the Fund may expose you to certain risks, including
a sudden decline in a holding's share price or an overall decline in the
stock market. As with any stock fund, the value of your investment will
fluctuate on a day-to-day basis with movements in the stock market, as well
as in response to the activities of the individual companies whose stock
the Fund owns. By investing in the Fund, therefore, you could lose money.
[ ] 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, emerging markets tend to be more volatile than the U.S. market
or developed foreign markets. Finally, fluctuations in foreign currency
exchange rates may adversely affect the value of foreign securities in
which the Fund has invested.
[ ] Smaller companies typically have more limited product lines, markets and
financial resources than larger companies, and their securities may trade
less frequently and in more limited volume than those of larger, more
mature companies. As a result, the Fund's price may fluctuate more than the
price of a mutual fund that invests primarily in larger-cap companies.
[ ] Although the Fund's return will vary with changes in the stock markets, the
Fund is not an index fund, and changes in the Fund's net asset value per
share will not precisely track changes in the markets.
[ ] 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. Since
the Fund normally concentrates in a core portfolio of 20-40 common stocks,
this risk may be increased.
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PAST FUND PERFORMANCE:
The Fund began operation on March __, 2000.
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>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
(fees paid directly from your investment) 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses that from Fund assets)
Management Fee 1.40%
Distribution/Service (12b-1) Fee 0.00%
Other Expenses* 0.30%
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TOTAL ANNUAL FUND OPERATING EXPENSES** 1.70%
Fee Waiver or Expense Reimbursement*** 0.50%
NET ANNUAL FUND OPERATING EXPENSES 1.20%
</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 1.70%.
*** The Adviser has agreed to reduce its fees or absorb
expenses to limit Net Annual Fund Operating Expenses (excluding interest and
taxes) to 1.20%. 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 Net Annual Fund Operating Expenses
for the 1 year period, or 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>
$ 123 $491
</TABLE>
ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS
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FOREIGN INVESTMENTS. The Fund invests in securities of issuers organized or
headquartered in countries around the world. 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, 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 (contracts to purchase or sell a
specified currency at a specified future date and price). The Fund will not
generally enter into a forward contract with a term of greater than one year.
Although forward contracts are used primarily to protect the Fund from adverse
currency movements, they may also be used to increase exposure to a currency,
and involve the risk that anticipated currency movements will not be accurately
predicted and the
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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.
EMERGING MARKETS. The Fund may invest in securities of issuers organized or
headquartered in emerging market countries. Foreign investment risks are
generally greater for securities of companies organized or headquartered in
emerging market countries. These countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities, making trades difficult. Brokerage
commissions, custodial services and other similar investment costs are generally
more expensive than in the United States. In addition, securities of issuers
located in these countries tend to have volatile prices and may offer
significant potential for loss as well as gain.
OTHER SECURITIES. While the Fund invests primarily in common stocks, it may also
invest in preferred stocks, warrants and securities convertible into common or
preferred stocks, and to a lesser degree other types of securities, including
indexed or structured securities, investment grade debt securities (those rated
within the four highest grades by ratings agencies such as Standard & Poor's (at
least BBB), Moody's (at least Baa) or Fitch (at least BBB)), and up to __% in
securities rated below investment grade (BB or B by S&P or Fitch, or Ba or B by
Moody's). Below investment grade bonds (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.
OPTIONS AND FUTURES CONTRACTS. The Fund may trade in futures and put and call
options. 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, stock 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.
SWAPS. The Fund may enter into index and currency swap transactions and purchase
and sell caps and floors. A swap is a derivative instrument which involves an
agreement between the Fund and another party to exchange payments calculated as
if they were interest on a fictitious ("notional") principal amount (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.
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 the 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 Sub-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
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performance that could have been achieved if these investment techniques were
not used. Moreover, even if the Sub-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.
CASH POSITION/TEMPORARY DEFENSIVE MEASURES. The Fund invests substantially all
of its assets in common stocks if the Sub-adviser believes that common stocks
will appreciate in value. However, if the Sub-adviser is unable to find
investments with earnings growth potential, a significant portion of the Fund's
assets may be in cash or similar investments. Alternatively, the Sub-adviser may
increase the Fund's cash position to protect the Fund's assets during adverse
market, economic or political conditions or to maintain liquidity. When the
Fund's investments in cash or similar investments increase, the Fund may not
participate in market advances or declines to the same extent that it would if
it remained fully invested in stocks.
PORTFOLIO TURNOVER. The Fund's Sub-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 affects a Fund's
performance. No Fund can accurately predict its future annual portfolio turnover
rate. It could vary substantially, particularly with a new Fund. However, over
time the turnover rate generally should not exceed 100% for the Fund.
To the extent that short-term trading results in the realization of short-term
capital gains, you will be taxed on such gains at ordinary income tax rates.
MANAGEMENT OF THE FUND
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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 $28 billion of assets
under management.
Several teams, each responsible for a group of Funds, are responsible for the
day-to-day management of the Fund 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,
Brian Matthews, Christopher Orndorff, Jim Sarni and Scott Weiner supervises
these teams.
John Isaacson is a Principal of Payden & Rygel. He joined the Company in 1988
and has 28 years of experience in the investment business. Brian Matthews is a
Principal of Payden & Rygel; he joined the Company in 1986 and has 16 years of
experience in the investment business. Christopher Orndorff is a Principal of
Payden & Rygel; he joined the Company in 1990 and has 14 years of experience in
the investment business. Jim Sarni is a Principal of Payden & Rygel; he joined
the Company in 1990 and has 15 years of experience in the investment business.
Scott Weiner is a Principal who joined the Company in 1993 and has 15 years of
experience in the investment business. Together, they are responsible for
defining the broad investment parameters of the Fund, including the types of
strategies to be employed and the range of securities acceptable for investment.
THE SUB-ADVISER
Metzler/Payden, LLC ("Metzler/Payden") serves as sub-investment manager for the
Fund. The Adviser has delegated to Metzler/Payden the day-to-day investment
management responsibilities for the Fund.
Metzler/Payden, located at 333 South Grand Avenue, Los Angeles, California
90071, is a joint venture between the Adviser and MP&R Ventures, Inc., an
affiliate of B. Metzler seel. Sohn & Co. Holding AG ("Metzler") of Frankfurt,
Germany, a major German financial institution. Metzler, through its various
subsidiaries, is one of the leading investment managers in Germany, managing
assets totaling approximately 7 billion Euro for institutional clients and
mutual funds, including European and international equity and balanced funds.
Employees of the Adviser and of one or more Metzler subsidiaries serve in equal
numbers on Metzler/Payden's Investment Policy Committee. The Investment Policy
Committee is comprised of Messrs. Bernhard Ebert, Rainer Matthes, Klaus Hagedorn
and Nader
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Purschaker from Metzler, and Messrs. Isaacson, Matthews, Orndorff and Weiner
from the Adviser. Mr. Ebert, with 16 years of investment experience, is Head of
Equities at Metzler, where he has worked since 1999. Prior to that, he worked at
JP Morgan Investment Management. Mr. Matthes joined Metzler in 1993, is head of
Conceptual Portfolio Management and has 7 years of investment experience. Mr.
Hagedorn, with 29 years of investment experience, has been at Metzler since 1988
and is Head of Investment Strategy. Mr. Purschaker has 6 years of investment
experience. He is Fixed Income Product Manager at Metzler, which he joined in
1997. Prior to that he worked at Bil Asset Management.
The Investment Policy Committee is responsible for setting the broad investment
parameters or policies applicable to each of the firm's clients. A team of
Metzler/Payden personnel is responsible for the day-to-day management of the
Fund within the broad investment parameters established by the Sub-adviser's
Investment Policy Committee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
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
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The Fund declares and distributes dividends to shareholders semiannually. The
Fund distribute 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 their foreign
investments, and may credit certain of these taxes to you. Your exchange or sale
of any Fund's shares is a taxable event and may result in a capital gain or
loss.
Before purchasing shares of a 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.
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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 a Fund.
SHAREHOLDER SERVICES
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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. At the present time, each Fund of the Group offers one class of
shares, the Class R Shares. 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.
In general, 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 may also make exchanges
via the internet to www.payden.com using the Account Access function under
Mutual Funds (user registration required). Finally, you 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 this Fund.
AUTOMATED INVESTMENT PROGRAMS
You may use two programs which permit automated investments in the Fund.
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ELECTRONIC INVESTMENT PLAN. You elect to make additional investments in any 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 any 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, or via the internet to www.payden.com using the Account
Access function under Mutual Funds (user registration required) . 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 or internet 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 or internet
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.
[ ] 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 for investment in another Fund
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. 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 (a) in writing or by telegraph or other wire
communications to the Group at 333 South Grand Avenue, Attn.: Fund Distributor,
Los Angeles, California 90071, or (b) via the internet to www.payden.com using
the Account Access function under Mutual Funds (user registration required), or
(c) by telephone at (213) 625-1900 or (800) 5PAYDEN, if you
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have selected this option on your Account Registration Form. Redemption requests
for fiduciary accounts (e.g., IRAs) must be in writing only. 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.
A Fund may suspend the right of redemption or postpone the payment date at times
when the New York Stock Exchange is closed or during certain other periods as
permitted under the federal securities laws.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
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
BY FEDERAL FUNDS WIRE
[ ] Complete application and mail to:
Payden & Rygel Investment Group
P.O. Box 419318
Kansas City, MO 64141-6318
[ ] Wire Funds as follows when application has been processed:
The Boston Safe Deposit and Trust Company
ABA 011001234
A/C #115762 Mutual Funds #6630
Credit to (name of Payden & Rygel Fund here)
For Account of (insert your account name here)
Please call the Group, at (213) 625-1900 or (800) 5PAYDEN, to advise of any
purchases by wire.
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<PAGE> 12
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 Funds and the Custodian are open for business.
All Funds 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 (by telephone or via the internet to www.payden.com using the Account Access
function under Mutual Funds (user registration required)), 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 do not issue certificates. The
Group reserves the right, in its sole discretion, to suspend the offering of
shares of any Fund or to reject purchase orders when, in the judgment of its
management, such suspension or rejection is in the best interest of the Funds;
and to redeem shares if information provided in the client application proves to
be incorrect in any material manner.
11
<PAGE> 13
INVESTMENT ADVISER
Payden & Rygel
333 South Grand Avenue
Los Angeles, California 90071
SUB-ADVISER
Metzler/Payden, LLC
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
12
<PAGE> 14
THE PAYDEN & RYGEL INVESTMENT GROUP
PAYDEN & RYGEL WORLD TARGET TWENTY FUND
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
1-800-5PAYDEN (572-9336)
STATEMENT OF ADDITIONAL INFORMATION
March __, 2000
The Payden & Rygel Investment Group (the "Group") is a professionally managed,
open-end management investment company with multiple funds, including the Payden
& Rygel World Target Twenty Fund listed above, available for investment. This
Statement of Additional Information ("SAI") contains information about one of
the Group's twenty-two funds (the "Fund"). This SAI contains information in
addition to that set forth in the prospectus for the Fund dated March __, 2000.
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 1999 Annual
Report to Shareholders without charge at the address or telephone number listed
above.
<PAGE> 15
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..................................................... 17
PORTFOLIO TRANSACTIONS...................................................... 20
PURCHASES AND REDEMPTIONS................................................... 21
VALUATION OF PORTFOLIO SECURITIES........................................... 21
TAXATION.................................................................... 22
DISTRIBUTION ARRANGEMENTS................................................... 25
FUND PERFORMANCE............................................................ 25
OTHER INFORMATION........................................................... 26
</TABLE>
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<PAGE> 16
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 World Target Twenty 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 in 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, and may enter into forward foreign currency
exchange contracts (the Fund does not consider such contracts to be
commodities), and (ii) the Fund may invest in instruments which have the
characteristics of both futures contracts and securities.
(3) LOANS. Make loans, except that the Fund (i) may purchase money market
securities and enter into repurchase agreements, (ii) may acquire bonds,
debentures, notes and other debt securities, and (iii) 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 the Fund (i) may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) 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.
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<PAGE> 17
(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 are
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 Sub-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.
EQUITY AND EQUITY-BASED SECURITIES
COMMON STOCKS
Common stocks, the most familiar type of equity securities, represent an equity
(ownership) interest in a corporation. Although common stocks have a history of
long-term growth in value, their prices fluctuate based on changes in the
issuer's financial condition and prospects and on overall market and economic
conditions. In addition, small companies and new companies often have limited
product lines, markets or financial resources, and may be dependent upon one
person, or a few key persons, for management. The securities of such companies
may be subject to more volatile market movements than securities of larger, more
established
4
<PAGE> 18
companies, both because the securities typically are traded in lower volume and
because the issuers typically are more subject to changes in earnings and
prospects.
PREFERRED STOCKS
Preferred stock, unlike common stock, offers a stated dividend rate payable from
a corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Dividends on some preferred stock may be
"cumulative," requiring all or a portion of prior unpaid dividends to be paid.
Preferred stock also generally has a preference over common stock on the
distribution of a corporation's assets in the event of liquidation of the
corporation, and may be "participating," which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases. The rights of
preferred stocks on the distribution of a corporation's assets in the event of a
liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
DEPOSITORY RECEIPTS
American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and
Global Depository Receipts ("GDRs") are used to invest in foreign issuers.
Generally, an ADR is a dollar-denominated security issued by a U.S. bank or
trust company which represents, and may be converted into, the underlying
security that is issued by a foreign company. Generally, an EDR represents a
similar securities arrangement but is issued by a European bank, while GDRs are
issued by a depository. ADRs, EDRs and GDRs may be denominated in a currency
different from the underlying securities into which they may be converted.
Typically, ADRs, in registered form, are designed for issuance in U.S.
securities markets and EDRs, in bearer form, are designed for issuance in
European securities markets. ADRs may be sponsored by the foreign issuer or may
be unsponsored. Unsponsored ADRs are organized independently and without the
cooperation of the foreign issuer of the underlying securities. As a result,
available information regarding the issuer may not be as current as for
sponsored ADRs, and the prices of unsponsored ADRs may be more volatile than if
they were sponsored by the issuers of the underlying securities.
CONVERTIBLE SECURITIES AND WARRANTS
A convertible security is a fixed income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in an issuer's capital
structure, but are usually subordinated to similar non-convertible securities.
While providing a fixed income stream (generally higher in yield than the income
derivable from common stock but lower than that afforded by a similar
non-convertible security), a convertible security also affords an investor the
opportunity, through its conversion feature, to participate in the capital
appreciation attendant upon a market price advance in the convertible security's
underlying common stock.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security is increasingly influenced by its conversion table.
Like other debt securities, the market value of convertible debt securities
tends to vary inversely with the level of interest rates. The value of the
security declines as interest rates increase and increases as interest rates
decline. Although under normal market conditions longer term securities have
greater yields than do shorter term securities of similar quality, they are
subject to greater price fluctuations. Fluctuations in the value of the Fund's
investments will be reflected in its net asset value per share. A convertible
security may be subject to redemption at the option of the issuer at a price
established in the instrument governing the convertible security. If a
convertible security held by the Fund is called for redemption, the Fund will be
required to permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party.
5
<PAGE> 19
Warrants give the holder the right to purchase a specified number of shares of
the underlying stock at any time at a fixed price, but do not pay a fixed
dividend. An investment in warrants involves certain risks, including the
possible lack of a liquid market for resale, the potential price fluctuations as
a result of speculation or other factors, and the failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment in the warrant). As a matter of operating policy, no Fund will invest
more than 5% of its total assets in warrants.
STANDARD & POOR'S DEPOSITARY RECEIPTS
SPDR shares trade on the American Stock Exchange at approximately one-tenth the
value of the S&P 500 Index. SPDRs are relatively liquid with an average daily
volume during August 1999 of 6.5 million shares per day. Because SPDRs exactly
replicate the S&P 500 Index, any price movement away from the value of the
underlying stocks is generally quickly eliminated by professional traders. Thus,
the Adviser believes that the movement of SPDR share prices should closely track
the movement of the S&P 500 Index.
The administrator of the SPDR program, the American Stock Exchange, receives a
fee to cover its costs of about 0.18% per year. This fee is deducted from the
dividends paid to SPDR investors. Investors in Growth & Income Fund shares will
incur not only the operational costs of the Fund, but will also incur the
expenses deducted by the administrator of the SPDR program.
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).
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.
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.
FLOATING RATE AND VARIABLE RATE DEMAND NOTES
6
<PAGE> 20
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 holder of the obligation 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 holder of the obligation pay a tender fee
or other fee for the features provided. In addition, the holder of the
obligation 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 holder's option a specific
security at a specific price on a specific date. The holder 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
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
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<PAGE> 21
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 Sub-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 Sub-adviser will monitor the amount of
illiquid securities in the Fund's portfolio, to ensure compliance with the
Fund's investment restrictions.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and the Fund might
be unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemption
requests within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. In accordance with guidelines established by the Board, the
Sub-adviser will determine the liquidity of each investment using various
factors such as (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer undertakings
to make a market, (4) the nature of the security (including any demand or tender
features) and (5) the likelihood of continued marketability and credit quality
of the issuer.
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 developed countries. In addition, the Fund
may make foreign investments in issuers organized or headquartered in emerging
market countries. The Fund may elect not to invest in all such
8
<PAGE> 22
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.
Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in the Fund being forced to purchase securities at a
substantially higher priced than the current market, or to sell securities at
much lower prices than the current market.
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 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 equity markets, 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 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.
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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 the Fund as it invests in foreign securities (before
reimbursement by the Adviser pursuant to the expense limitation described in the
Prospectus under "Management of the Funds -- Expense Guarantee") are likely to
be higher than those of investment companies investing in domestic securities,
since the cost of maintaining the custody of foreign securities is higher.
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 that 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.
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.
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.
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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 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
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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.
When a purchase or sale of a futures contract is made by the Fund, the Fund is
required to deposit with its Custodian (or futures commission merchant, if
legally permitted) a specified amount of cash or U.S. Government securities
("initial margin"). The margin required for a futures contract is set by the
exchange on which the contract is traded and may be modified during the term of
the contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on 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 their open futures positions.
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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 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."
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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 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.
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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 may 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 Sub-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 Sub-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.
EQUITY SWAPS
An equity swap is a derivative instrument which involves an agreement between
the Fund and another party to exchange payments calculated as if they were
interest on a fictitious ("notional") principal amount. The Fund will typically
pay a floating rate of interest, such as the three-month London Interbank
Offered Rate, and receive the total return, i.e., price change plus dividends,
of a specified equity index, such as the S&P 500 Index. If the total return on
the equity index is negative for the contract period, the Fund will pay its
counterparty the amount of the loss in the value of the notional amount plus
interest at the floating rate. From time to time, the Fund may wish to cancel an
equity swap contract in order to reduce its equity exposure. Although the swap
contract may be sold back to the Fund's counterparty, it may be more
advantageous to enter into a swap contract in which the Fund would reduce its
equity exposure by agreeing to receive a floating rate of interest and pay the
change in the index. This is sometimes called a "reverse equity swap contract"
and would only be entered into to reduce equity exposure. The Fund will not use
reverse swap contracts to short the equity market.
The Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amounts of the two payment
streams. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Fund's
Custodian. If the Fund enters into a swap on other than a net basis, the Fund
maintains a segregated account in the full amount accrued on a daily basis of
the Fund's obligations with respect to the transaction. Such segregated accounts
are maintained in accordance with applicable regulations of the Securities and
Exchange Commission.
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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.
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 Sub-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 not
generally enter into a forward contract with a term of greater than one year.
Although forward contracts are used primarily to protect the Fund from adverse
currency movements, they may also be used to increase exposure to a currency,
and involve the risk that anticipated currency movements will not be accurately
predicted and 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.
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 Sub-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.
16
<PAGE> 30
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 Sub-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 Sub-adviser, the consideration
to be earned from such loans would justify the risk.
RESERVES
The Fund may establish and maintain reserves when the Sub-adviser determines
that such reserves would be desirable for temporary defensive purposes (for
example, during periods of substantial volatility in interest rates) or to
enable it to take advantage of buying opportunities. 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 the Fund's borrowings, additional investments will not be made while
borrowings are in excess of 5% of the Fund's total assets. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. The Fund also may be required to maintain minimum
average balances in connection with any such borrowings or to pay a commitment
or other fee to maintain a line of credit, either of which would increase the
cost of borrowing over the stated interest rate.
17
<PAGE> 31
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 Principal, Payden & Rygel
*Christopher N. Orndorff Trustee Principal, Payden & Rygel
J. Clayburn La Force Trustee Dean Emeritus, The John E. Anderson
P.O. Box 1009 Graduate School of Management at
Pauma Valley, CA 92061 University of California, Los
Angeles; Director, The Timken Company
(since February, 1994); Trustee for
PIC Institutional Growth Portfolio,
PIC Institutional Balanced Portfolio
and PIC Small Capital Portfolio
Thomas V. McKernan, Jr.(1) Trustee President and Chief Executive
3333 Fairview Road Officer, Automobile Club of Southern
Costa Mesa, CA 92626 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.
18
<PAGE> 32
Trustees other than those affiliated with the Adviser or Sub-adviser currently
receive an annual retainer of $25,000, plus $2,500 for each regular Board of
Trustees meeting or committee meeting attended, $2,000 for each special Board of
Trustees meeting or committee meeting and reimbursement of related expenses. If
there is more than one Board or committee meeting on the same day, only one
meeting fee is paid. Committee Chairs receive an annual retainer of $2,000. The
following table sets forth the aggregate compensation paid by the Group for the
fiscal year ended October 31, 1999, to the Trustees who are not affiliated with
the Adviser or Sub-adviser and the aggregate compensation paid to such Trustees
for services on the Trust's Board; the Group does not maintain a 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
</TABLE>
OFFICERS:
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATIONS
NAME THE GROUP DURING PAST FIVE YEARS
- ---- ------------- ----------------------
<S> <C> <C> <C>
John C. Siciliano President, Chief Operating Managing Director, Payden & Rygel (since 1998);
Officer 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
19
<PAGE> 33
managed according to client approved guidelines and benchmarks. Payden & Rygel
also utilizes futures and options strategies, primarily as defensive measures to
control interest rate and currency volatility.
The Adviser provides investment management services to the Fund pursuant to an
Investment Management Agreement with the 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 the 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 annual rate of 1.40% of the Fund's average daily net
assets.
The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to the Fund for two
years after the Fund's inclusion in its Master Trust Agreement (on or around its
commencement of operations) and then continue for the 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 the Fund
as defined in the 1940 Act) and by a majority of the Trustees who are not
interested persons of any party to the Agreement by vote cast in person at a
meeting called for such purpose. The Agreement terminates upon assignment and
may be terminated with respect to the Fund without penalty on 60 days' written
notice at the option of either party thereto or by the vote of the shareholders
of the Fund.
SUB-ADVISER
The Sub-adviser provides investment management services to the Fund pursuant to
a Sub-Advisory Agreement with the Adviser dated as of March , 2000. The
Agreement provides that the Sub-adviser will pay all expenses of its personnel
and facilities required to carry out its duties. Fees payable to the Sub-adviser
for its services are the obligation of the Adviser, and not the Group.
The Sub-Advisory Agreement contains provisions regarding liability of the
Sub-adviser similar to those of the Investment Management Agreement between the
Group and the Adviser described above. Unless earlier terminated as described
below, the Sub-Advisory Agreement will continue in effect for an initial period
of two years with respect to the Fund, and thereafter for successive annual
periods, subject to annual approval by the Board of Trustees in the same manner
as the Investment Management Agreement. The Sub-Advisory Agreement terminates
upon assignment or upon termination of the Investment Management Agreement with
respect to the Fund, and may be terminated with respect to the Fund without
penalty on 60 days' written notice by the Adviser or the Board of Trustees or
shareholders of the Fund, or upon 90 days' written notice by the Sub-adviser.
ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Treasury Plus, Incorporated, 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
20
<PAGE> 34
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
the Fund's 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 0.08% 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 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
equity securities, options and futures contracts. There is generally no stated
commission in the case of fixed-income securities, which are traded in the
over-the-counter markets, but the price paid by 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 Sub-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 Sub-adviser seek the best execution
available. In seeking the most favorable execution, the Sub-adviser consider all
factors it deems relevant, including, by way of illustration, price, the size of
the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
Some securities considered for investment by the Fund's portfolio may also be
appropriate for other clients served by the Sub-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 Sub-adviser, transactions in such securities will be allocated
among the Fund and other clients in a manner deemed fair and reasonable by the
Sub-adviser. Although there is no specified formula for allocating such
transactions, the various allocation methods used by the Sub-adviser, and the
results of such allocations, are subject to periodic review by the Board of
Trustees.
The Sub-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.
21
<PAGE> 35
The Board of Trustees will periodically review the 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 or Sub-adviser may purchase
shares of the Fund. To avoid the imposition of duplicative fees, the Adviser or
Sub-adviser may be required to make adjustments in the management fees charged
separately by the Adviser or Sub-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.
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
Equity securities for which the primary market is the U.S. are valued at last
sale price or, if no sale has occurred, at the closing bid price. Equity
securities for which the primary market is outside the U.S. are valued using the
official closing price or the last sale price in the principal market where they
are traded. If the last sale price on the local exchange is unavailable, the
last evaluated quote or last bid price is normally used.
Fixed income securities are valued on the basis of valuations furnished by a
pricing service which utilizes both dealer-supplied valuations and electronic
data processing techniques. Such techniques take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities.
Foreign securities are valued at the closing bid price in the principal market
where they are traded, or, if closing prices are unavailable, at the last traded
bid price available prior to the time 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
22
<PAGE> 36
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.
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 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
23
<PAGE> 37
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 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
24
<PAGE> 38
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 Sub-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 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 intends 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.
OTHER TAXES
Distributions also may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Under the laws of various
states, distributions of investment company taxable income generally are taxable
to shareholders even though all or a substantial portion of such distributions
may be derived from interest on certain Federal obligations which, if the
interest were received directly by a resident of such state, would be exempt
from such state's income tax ("qualifying Federal obligations"). However, some
states may exempt all or a portion of such distributions from income tax to the
extent the shareholder is able to establish that the distribution is derived
from qualifying Federal obligations. Moreover, for state income tax purposes,
interest on some Federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through
25
<PAGE> 39
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. 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. The Adviser or
Sub-adviser may also report to shareholders or to the public in advertisements
concerning the performance of Adviser or Sub-adviser as adviser to clients other
than the Fund, and on the comparative performance or standing of Adviser or
Sub-adviser 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 the Adviser or Sub-adviser to advisory clients and
potential clients. These publications principally contain information regarding
market and economic trends and other general matters of interest to investors,
such as: principles of investing which, among other things includes asset
allocation, model portfolios, diversification, risk tolerance and goal setting,
saving for college or other goals or charitable giving; long-term economic or
market trends; historical studies of gold, other commodities, equities, fixed
income securities and statistical market indices; new investment theories or
techniques; economic and/or political trends in foreign countries and their
impact on the United States; municipal bond market fundamentals and trends;
corporate financing trends and other factors that may impact corporate debt; and
housing trends and other economic factors that may impact mortgage rates and
lending activity. In addition, Payden & Rygel may quote financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques. Materials may also include discussions
regarding the Adviser's asset allocation services and other Adviser or
Sub-adviser funds, products and services.
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<PAGE> 40
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 Adviser's or
Sub-adviser's market strategy group.
TOTAL RETURN CALCULATIONS
Total returns quoted in advertising with respect to a class of shares of 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
class' net asset value per share over the period. Average annual total returns
for each class are calculated by determining the growth or decline in value of a
hypothetical historical investment in that class of shares of the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100% over
ten years would result from an average annual total return of 7.18%, which is
the steady annual total return that would equal 100% growth on a compounded
basis in ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that the Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns for each class of shares reflecting the simple change
in value of an investment over a stated period of time. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken down
into their components of income, 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-two series of shares:
Global Fixed Income Fund, Global Short Bond Fund, Short Duration Tax Exempt
Fund, Tax Exempt Bond Fund, Limited Maturity Fund, Short Bond Fund, Investment
Quality Bond Fund, U.S. Government Fund, Growth & Income Fund, Market Return
Fund, Total Return Fund, Global Balanced Fund, European Growth & Income Fund,
High Income Fund, GNMA Fund, Small Cap Leaders Fund, Bunker Hill Money Market
Fund, California Municipal Income Fund, Emerging Markets Bond Fund, , U.S.
Growth Leaders Fund, World Target Twenty Fund and European Aggressive Growth
Fund.
The Board of Trustees has established Class R Shares of all Funds.
The Board of Trustees may establish additional funds (with different investment
objectives and fundamental policies) and additional classes of shares at any
time in the future. Establishment and offering of additional portfolios will not
alter the rights of the Fund's shareholders. Shares do not have preemptive
rights or subscription rights. All shares, when issued, will be fully paid and
non-
27
<PAGE> 41
assessable by the Group. In liquidation of the 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 under "Management of the Funds --
Expense Guarantee", and amortized on a straight line basis over a period of five
years. Expenses incurred in the organization of subsequently offered series of
the Group will be charged to those series and will be amortized on a straight
line basis over a period of not less than five years.
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 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
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Deloitte & Touche LLP serves as the independent auditors for the Fund. Deloitte
& Touche provides audit and tax return preparation services to the Group. The
independent auditors' address is 1700 Courthouse Plaza Northeast, Dayton, Ohio
45402-1788.
COUNSEL
Paul, Hastings, Janofsky & Walker 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 1999 Annual Report to Shareholders may be obtained at no
charge by writing or telephoning the Group at the address or number on the front
page of this Statement of Additional Information.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not contain all
the information included in the Group's registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to the securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The registration statement, including the exhibits filed therewith, may be
examined at the offices of the Securities and Exchange Commission in Washington,
D.C.
Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other documents
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference.
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<PAGE> 43
THE PAYDEN & RYGEL INVESTMENT GROUP
F O R M N-1A
PART C: OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
--------
<S> <C>
(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
</TABLE>
C-1
<PAGE> 44
<TABLE>
<S> <C>
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 (z).
(a.22) Form of Amendment No. 21 to the Master Trust Agreement (aa).
(a.23) Form of Amendment No. 22 to the Master Trust Agreement.
(a.24) Form of Amendment No. 23 to the Master Trust Agreement.
(a.25) Form of Amendment No. 24 to the Master Trust Agreement.
(b) By-laws of Registrant (a).
(c) None.
(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).
</TABLE>
C-2
<PAGE> 45
<TABLE>
<S> <C>
(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).
(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
</TABLE>
C-3
<PAGE> 46
<TABLE>
<S> <C>
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
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 (z).
(d.19) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the Low
Duration Bond Fund to the Agreement (aa).
(d.20) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the GNMA
Fund to the Agreement (aa).
(d.21) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the Small
Cap Leaders Fund (bb).
(d.22) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the World
Target Twenty Fund.
(d.23) Form of Subadvisory Agreement between Payden & Rygel
and Metzler-Payden, LLC with respect to the EuroDirect
Fund (w).
(d.24) 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.25) Sub-Advisory Agreement between Payden & Rygel
</TABLE>
C-4
<PAGE> 47
<TABLE>
<S> <C>
and Metzler-Payden, LLC with respect to the European
Aggressive Growth Fund (z).
(d.26) Form of Sub-Advisory Agreement between Payden &
Rygel and Metzler-Payden, LLC with respect to
the World Target Twenty 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) Amendment to Management and Administration Agreement
between Registrant and Treasury Plus, Incorporated
dated as of August 26, 1999 (bb).
(h.3) Form of Investment Accounting Agreement between Registrant
and Investors Fiduciary Trust Company (o).
(h.4) Form of Transfer Agency and Service Agreement between
Registrant and Investors Fiduciary Trust Company (o).
(h.5) 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 (z).
</TABLE>
C-5
<PAGE> 48
<TABLE>
<S> <C>
(i.6) Form of Opinion of Counsel, dated July 28, 1999 (aa).
(i.7) Form of Opinion of Counsel, dated November 18, 1999.
(i.8) Form of Opinion of Counsel, dated February 14, 2000.
(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).
</TABLE>
- ----------
(a) Filed as an exhibit to the Registration Statement on April 2, 1992 and
incorporated herein by reference.
(b) Filed as an exhibit to the Pre-Effective Amendment No. 2 to the
Registration Statement on July 28, 1992 and incorporated herein by
reference.
(c) Filed as an exhibit to Post-Effective Amendment No. 2 to the Registration
Statement and incorporated herein by reference.
(d) Filed as an exhibit to Post-Effective Amendment No. 4 to the Registration
Statement on January 24, 1994 and incorporated herein by reference.
C-6
<PAGE> 49
(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.
(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.
C-7
<PAGE> 50
(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.
(z) Filed as an exhibit to Post-Effective Amendment No. 38 to the Registration
Statement on July 21, 1999 and incorporated herein by reference.
(aa) Filed as an exhibit to Post-Effective Amendment No. 39 to the Registration
Statement on July 29, 1999 and incorporated herein by reference.
(bb) Filed as an exhibit to Post-Effective Amendment No. 40 to the Registration
Statement on November 19, 1999.
Item 24. Persons Controlled by or Under Common Control with Registrant.
As of February 11, 2000, the following persons held of record more than
25% of the outstanding shares of the following classes of shares of Registrant:
Payden & Rygel GNMA Fund, Class R - Weingart Foundation (48.7%); Payden &
Rygel U.S. Government Fund, Class R - Valley Medical Center (59.0%); Payden &
Rygel Global Balanced Fund, Class R - Lon V. Smith
C-8
<PAGE> 51
Foundation (46.5%); Payden & Rygel Market Return Fund, Class R - Research To
Prevent Blindness Endowment Fund (29.4%); Payden & Rygel EuroDirect Fund,
Class R - Walker Family Trust (50.1%); Payden & Rygel Emerging Markets Bond
Fund, Class R - Sheinberg Family Trust (33.0%); Payden & Rygel Limited Maturity
Fund, Class R - Tessera, Inc. (26.7%); Payden & Rygel High Income Fund,
Class R - Jicarilla Apache Tribe (32.5%); and Payden & Rygel Total Return Fund,
Class R - Jicarilla Apache Tribe (32.1%).
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
C-9
<PAGE> 52
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser.
During the two fiscal years ended December 31, 1999, 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
Brian W. Matthews Managing Principal,
Chief Financial Officer and Director
Christopher N. Orndorff Managing Principal
and Director
James P. Sarni Managing Principal
and Director
John C. Siciliano Managing Principal
and Director
Mary Beth Syal Managing Principal
And Director
Scott J. Weiner Managing Principal
and Director
</TABLE>
C-10
<PAGE> 53
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
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
Joan A. Payden Chairman and Trustee, Chairman
Chief Executive Officer of the Board and
and Director Officer Chief Executive
Gregory P. Brown President and Chief Vice President
Operating Officer and
Director
Christopher N. Orndorff Chief Financial Officer Trustee
</TABLE>
(c) Not applicable.
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.
C-11
<PAGE> 54
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-12
<PAGE> 55
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 14th day of February, 2000.
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.
<TABLE>
<S> <C> <C>
Trustee and February 14, 2000
Principal
/s/Joan A. Payden Executive Officer
- -------------------------
Joan A. Payden
J. Clayburn La Force* Trustee February 14, 2000
- -------------------------
J. Clayburn La Force
Dennis C. Poulsen* Trustee February 14, 2000
- -------------------------
Dennis C. Poulsen
Thomas McKernan, Jr.* Trustee February 14, 2000
- -----------------------
Thomas McKernan, Jr.
Stender E. Sweeney* Trustee February 14, 2000
- -------------------------
Stender E. Sweeney
W.D. Hilton, Jr.* Trustee February 14, 2000
- -------------------------
W.D. Hilton, Jr.
/s/John Paul Isaacson Trustee February 14, 2000
- -------------------------
John Paul Isaacson
/s/Christopher N. Orndorff Trustee and February 14, 2000
- -------------------------
Christopher N. Orndorff
/s/Bradley F. Hersh Principal Financial February 14, 2000
- -------------------------
Bradley F. Hersh and Accounting
Officer
*s/Joan A. Payden
- -------------------------
By: Joan A. Payden
Attorney-In-Fact
</TABLE>
C-13
<PAGE> 56
EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 41
<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
- ----------- ----------------
<S> <C>
(a.23) Form of Amendment No. 22 to the Master Trust
Agreement.
(a.24) Form of Amendment No. 23 to the Master Trust
Agreement.
(a.25) Form of Amendment No. 24 to the Master Trust
Agreement.
(d.22) Form of Amendment to Investment Management Agreement
between Registrant and Payden & Rygel adding the World
Target Twenty Fund to the Agreement.
(d.26) Form of Sub-Advisory Agreement between Payden & Rygel and
Metzler-Payden, LLC with respect to the World Target
Twenty Fund.
(i.8) Form of Opinion of Counsel, dated February 14, 2000.
</TABLE>
<PAGE> 1
EXHIBIT (a.23)
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 22 TO
MASTER TRUST AGREEMENT
This Amendment No. 22 to the Master Trust Agreement of The Payden & Rygel
Investment Group, dated January 22, 1992, as amended (the Agreement"), is made
as of December 17, 1999.
WHEREAS, pursuant to the Agreement, the Trustees have previously
established and designated twenty-three sub-trusts known as the Payden & Rygel
Limited Maturity Fund, Payden & Rygel Short Bond Fund, Payden & Rygel U.S.
Government Fund, Payden & Rygel GNMA 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 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;
WHEREAS, the Trustees hereby desire to establish and designate an
additional sub-trust, to be known as the Payden & Rygel Small Cap Leaders Fund,
and to fix the rights and preferences of the shares of such additional
sub-trust, effective December 17, 1999; and
<PAGE> 2
WHEREAS, the Trustees hereby desire to liquidate, and have authorized the
liquidation of, the Payden & Rygel Small Cap Growth Stock Fund and the Payden &
Rygel Small Cap Value Stock Fund, effective January 31, 2000;
NOW THEREFORE:
Amendment Effective December 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-four 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 GNMA 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
<PAGE> 3
"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 Small Cap 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
<PAGE> 4
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 January 31, 2000:
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-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 GNMA 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
<PAGE> 5
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 U.S. Growth Leaders Fund, which shall
consist of two classes of shares designated as "Class R" and "Class S"
shares; Payden & Rygel Small Cap 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 classes
thereof that may from time to time be established and designated by the
Trustees shall (unless the Trustees otherwise
<PAGE> 6
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
- ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen
- ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.
<PAGE> 1
EXHIBIT (a.24)
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 23 TO
MASTER TRUST AGREEMENT
This Amendment No. 23 to the Master Trust Agreement of The Payden & Rygel
Investment Group, dated January 22, 1992, as amended (the Agreement"), is made
as of February 29, 2000.
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 GNMA 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 U.S. Growth Leaders Fund, Payden & Rygel Small Cap 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 have the authority, without shareholder approval,
under Section 7.3 of the Agreement, to amend the Agreement in any manner, so
long as such amendment does not adversely affect the rights of any shareholder
and is not in contravention of applicable law; and
WHEREAS, the Trustees hereby desire to liquidate, and have authorized the
liquidation of, the Payden & Rygel EuroDirect Fund;
NOW THEREFORE:
The first paragraph of Section 4.2 of the Agreement is hereby amended to
read in pertinent part as follow:
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustee set
<PAGE> 2
forth in Section 4.1 to establish and designate any further Sub-Trusts, the
Trustees hereby establish and designate twenty-one 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 GNMA 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 U.S. Growth Leaders Fund, which shall consist of two classes of
shares designated as "Class R" and "Class S" shares; Payden & Rygel Small
Cap 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
<PAGE> 3
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; 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
- ------------------------ ------------------------
J. Clayburn La Force Dennis C. Poulsen
- ------------------------ ------------------------
Stender E. Sweeney Thomas V. McKernan, Jr.
<PAGE> 1
EXHIBIT (a.25)
THE PAYDEN & RYGEL INVESTMENT GROUP
AMENDMENT NO. 24 TO
MASTER TRUST AGREEMENT
This Amendment No. 24 to the Master Trust Agreement of The Payden & Rygel
Investment Group, dated January 22, 1992, as amended (the Agreement"), is made
as of March ____, 2000.
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 GNMA 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 U.S. Growth Leaders Fund, Payden & Rygel Small Cap 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 and Payden & Rygel European
Aggressive Growth 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 an
additional sub-trust, to be known as the Payden & Rygel World Target Twenty
Fund, and to fix the rights and preferences of the shares of such additional
sub-trust, effective March ____, 2000;
NOW THEREFORE:
The first paragraph of Section 4.2 of the Agreement is hereby amended to
read in pertinent part as follow:
<PAGE> 2
"Section 4.2 Establishment and Designation of Sub-Trusts. Without
limiting the authority of the Trustee set forth in Section 4.1 to establish
and designate any further Sub-Trusts, the Trustees hereby establish and
designate 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 GNMA 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 U.S. Growth
Leaders Fund, which shall consist of two classes of shares designated as
"Class R" and "Class S" shares; Payden & Rygel Small Cap 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 &
<PAGE> 3
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 European Aggressive Growth Fund, which
shall consist of two classes of shares designated as "Class R" and "Class
S" shares; and Payden & Rygel World Target Twenty 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 Thomas V. McKernan, Jr.
- ------------------------ ------------------------
W. D. Hilton, Jr. Christopher N. Orndorff
- ------------------------ ------------------------
John P. Isaacson Dennis C. Poulsen
<PAGE> 4
- ------------------------ ------------------------
J. Clayburn La Force Stender Sweeney
- ------------------------
Gerald S. Levey, M.D.
<PAGE> 1
EXHIBIT (d.22)
THE PAYDEN & RYGEL INVESTMENT GROUP
333 South Grand Avenue, 32nd Floor
Los Angeles, California 90071
March __, 2000
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 World Target Twenty 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:
World Target Twenty Fund Series
Annual Advisory Fees (as a percentage of average daily net assets) -
1.40%.
Operating Expense Limitation (as a percentage of average daily net assets)
- Class R shares, 1.70%; Class S shares, 1.95%.
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,
----------------------------------------
Edward S. Garlock
Secretary
AGREED:
PAYDEN & RYGEL
BY:
-------------------------------------
Christopher N. Orndorff
Managing Principal
<PAGE> 1
EXHIBIT (d.26)
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 March __, 2000 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 World Target Twenty 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
2
<PAGE> 3
earned and received by the Adviser for the Fund. Such fees shall be paid by the
Adviser (and not by the 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.
3
<PAGE> 4
(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.
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
4
<PAGE> 5
construction or effect. Where the effect of a requirement of the 1940 Act
reflected in any provision of this agreement is made less restrictive by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, Payden & Rygel, and 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 President
Attest: METZLER-PAYDEN, LLC
By: By:
---------------------------------- ----------------------------------
Secretary President
5
<PAGE> 1
EXHIBIT (i.8)
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 South Flower Street
Los Angeles, California
February 14, 2000
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 World
Target Twenty 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
By
------------------------------------
