PAYDEN & RYGEL INVESTMENT GROUP, 485BPOS, 2000-02-28

PAYDEN & RYGEL INVESTMENT GROUP
485BPOS, 2000-02-28

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<PAGE> 1

As filed with the Securities and Exchange Commission on
February 28, 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. 42 [X]
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 44 [X]

-----------------------------------
THE PAYDEN & RYGEL INVESTMENT GROUP
(formerly P & R Investment Trust)
(Exact Name of Registrant as Specified in Charter)

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

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

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

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

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

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

It is proposed that this filing will become effective:

[X] Immediately upon filing pursuant to paragraph (b)

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

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

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

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

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

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

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

Title of Securities being registered: Shares of Beneficial Interest
<PAGE> 2
PAYDEN & RYGEL
[LOGO]
MUTUAL FUNDS

prospectus
February 28, 2000

U.S FIXED INCOME AND
MONEY MARKET FUNDS
Limited Maturity Fund
Short Bond Fund
U.S. Government Fund
GNMA Fund
Investment Quality Bond Fund
Total Return Fund
High Income Fund
Bunker Hill Money Market Fund

TAX EXEMPT FUNDS
Short Duration Tax Exempt Fund
Tax Exempt Bond Fund
California Municipal Income Fund

U.S. EQUITY FUNDS
Growth & Income Fund
Market Return Fund
U.S. Growth Leaders Fund
Small Cap Leaders Fund

GLOBAL BOND FUNDS
Global Short Bond Fund
Global Fixed Income Fund
Emerging Markets Bond Fund

GLOBAL EQUITY FUNDS
Global Balanced Fund
European Growth & Income Fund
European Aggressive Growth Fund

The Payden & Rygel Investment Group
(the "Group") has registered each Fund
with the U.S. Securities and Exchange
Commission ("SEC"). That registration
does not imply that the SEC endorses the
Funds of this prospectus. Any representa-
tion to the contrary is a criminal offense.

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<S> <C>
U.S. FIXED INCOME AND MONEY MARKET FUNDS................. 3
Limited Maturity Fund................................ 3
Short Bond Fund...................................... 4
U.S. Government Fund................................. 5
GNMA Fund............................................ 6
Investment Quality Bond Fund......................... 7
Total Return Fund.................................... 8
High Income Fund..................................... 10
Bunker Hill Money Market Fund........................ 11

TAX EXEMPT FUNDS......................................... 12
Short Duration Tax Exempt Fund....................... 12
Tax Exempt Bond Fund................................. 13
California Municipal Income Fund..................... 15

U.S. EQUITY FUNDS........................................ 16
Growth & Income Fund................................. 16
Market Return Fund................................... 17
U.S. Growth Leaders Fund............................. 19
Small Cap Leaders Fund............................... 20

GLOBAL BOND FUNDS........................................ 21
Global Short Bond Fund............................... 21
Global Fixed Income Fund............................. 22
Emerging Markets Bond Fund........................... 24

GLOBAL EQUITY FUNDS...................................... 25
Global Balanced Fund................................. 25
European Growth & Income Fund........................ 27
European Aggressive Growth Fund...................... 28
Additional Investment Strategies and Related Risks....... 30
Management of the Funds.................................. 32
Net Asset Value.......................................... 33
Dividends Distributions and Taxes........................ 34
Shareholder Services..................................... 34
How to Redeem Shares..................................... 36
How to Purchase Shares................................... 37
Appendix A: Description of Ratings....................... 38
Appendix B: Financial Highlights......................... 43
</TABLE>

Payden Logo
<PAGE> 4

2 Payden & Rygel Investment Group
<PAGE> 5
Prospectus 3

U.S. FIXED INCOME AND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------

LIMITED MATURITY FUND

INVESTMENT OBJECTIVE:
The Fund seeks a total return that, over time, is greater than money market
funds.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund invests in a wide variety of investment grade debt securities
payable primarily in U.S. dollars. Investment grade debt securities are those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines to be of comparable quality. These include (1) debt
obligations issued or guaranteed by the U.S. Government and foreign governments
and their agencies and instrumentalities, political subdivisions of foreign
governments (such as provinces and municipalities), and supranational
organizations (such as the World Bank); (2) debt securities and commercial paper
issued by U.S. and foreign companies; and (3) U.S. and foreign mortgage-backed
and asset-backed bonds.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the Fund's maximum average portfolio maturity (on a dollar-weighted
basis) is one and one-half years.

-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and company scenario
analyses, in making investment decisions.

PRINCIPAL INVESTMENT RISKS:
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings. By investing in the Fund, therefore, you could
lose money.
-- 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.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Merrill Lynch 90-day Treasury Bill Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.
4 Payden & Rygel Investment Group
YEAR BY YEAR TOTAL RETURNS
---------------------------

During the five year period the Fund's best quarter was 1stQ 1995
(2.02%), and the worst quarter was 1stQ 1996 (0.92%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year 5 Years
------ -------
<S> <C> <C>
Limited Maturity Fund 4.65% 5.63%
Merrill Lynch 90-day 4.85% 5.35%
Treasury Bill Index
</TABLE>

dividends.
SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.28 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.22 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.50 %

Fee Waiver or Expense Reimbursement* 0.10 %

NET ANNUAL FUND OPERATING EXPENSES 0.40 %

*The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.40%. This
contract has a one-year term, renewable at the end of each fiscal year.
<PAGE> 6
4 Payden & Rygel Investment Group

U.S. FIXED INCOME AND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------

LIMITED MATURITY FUND (Continued)

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, 5, or
10 year periods. The example is for comparison only. Your actual expenses and
returns will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$41 $151 $270 $620
</TABLE>

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

SHORT BOND FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the Fund invests at least 65% of its total assets in securities with
more than one year to maturity, and its maximum average portfolio maturity (on a
dollar-weighted basis) is three years.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Merrill Lynch 1-3 year Treasury Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the six year period, the Fund's best quarter was 2ndQ 1995
(3.47%), and the worst quarter was 1stQ 1994 (-0.62%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year 5 Years Life of Fund
------ ------- ------------
<S> <C> <C> <C>
Short Bond Fund 2.68% 5.97% 5.02%
Merrill Lynch 1-3 year 3.06% 6.50% 5.48%
Treasury Index
</TABLE>

<PAGE> 7
Prospectus 5

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

SHORT BOND FUND (Continued)

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.28 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.22 %
TOTAL ANNUAL FUND OPERATING EXPENSES 0.50%
Fee Waiver or Expense Reimbursement* 0.10 %
NET ANNUAL FUND OPERATING EXPENSES 0.40%

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$41 $151 $270 $620
</TABLE>

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

U.S. GOVERNMENT FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund primarily invests in short to intermediate maturity "U.S.
Government Obligations" -- U.S. Treasury bonds, notes and bills and other bonds
and obligations issued or guaranteed by the United States Government,
Government-sponsored enterprises, or Federal agencies (such as the Government
National Mortgage Association, the Federal Home Loan Mortgage Corporation and
the Federal National Mortgage Association). Under normal market conditions, the
Fund invests at least 65% of its total assets in U.S. Government Obligations.
The Fund otherwise may invest in the same types of obligations as the Limited
Maturity Fund.
-- Except for mortgage-backed U.S. Government Obligations, the Fund invests in
debt securities with a maximum maturity of ten years. The average portfolio
maturity (on a dollar-weighted basis) is generally less than four years. The
Fund invests in mortgage-backed U.S. Government Obligations with a maximum
effective duration of five years. Duration is a mathematical concept which uses
anticipated cash flows to measure the price volatility of a security and is
calculated in terms of years. For example, when interest rates move up or down,
the price of a security with a duration of four years will move roughly twice as
much as a security with a duration of two years.
-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity.

PAST FUND PERFORMANCE:
The two charts on the next page show how the Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance since its inception to demonstrate that the Fund has
gained and lost value at different times. The table below it compares the Fund's
performance over time to the Merrill Lynch 1-5 Year Treasury Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.
<PAGE> 8
6 Payden & Rygel Investment Group

U.S. FIXED INCOME AND MONEY MARKET FUNDS
- --------------------------------------------------------------------------------

U.S. GOVERNMENT FUND (Continued)

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the five year period, the Fund's best quarter was 2ndQ 1995
(5.09%), and the worst quarter was 1stQ 1996 (-1.94%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year 5 Years
------ -------
<S> <C> <C>
U.S. Government Fund 1.78% 6.68%
Merrill Lynch 1-5 year 2.04% 6.78%
Treasury Index
</TABLE>

Other Expenses 0.22 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.50%

Fee Waiver or Expense Reimbursement* 0.10 %

NET ANNUAL FUND OPERATING EXPENSES 0.40%

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$41 $151 $270 $620
</TABLE>

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

GNMA FUND

INVESTMENT OBJECTIVE:

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

PRINCIPAL INVESTMENT STRATEGIES:

-- Under normal market conditions, the Fund invests at least 70% of its total
assets in Government National Mortgage Association mortgage backed securities
("GNMA Securities"), which are debt securities representing part ownership in a
pool of mortgage loans backed by the U.S. Government. The balance of the Fund's
assets may be invested in other "U.S. Government Obligations"-- U.S. Treasury
bonds, notes and bills, and other bonds and obligations issued or guaranteed by
the United States Government, Government-sponsored enterprises or Federal
agencies (such as the Federal Home Loan Mortgage Corporation, Federal National
Mortgage Association or Federal Farm Credit Bank). The Fund may also invest in
collateralized mortgage obligations and repurchase agreements collateralized by
U.S. Government Obligations or GNMA Securities.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the Fund's average portfolio maturity (on a dollar-weighted basis)
ranges from five to ten years.

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

PRINCIPAL INVESTMENT RISKS:

-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. However, falling interest rates typically
will not lift the prices of GNMA securities as much as the prices of comparable
debt securities. This is because the markets tend to discount GNMA security
prices for prepayment risk when interest rates fall. Finally, the longer the
Fund's average portfolio maturity, generally the greater the fluctuation in
price. By investing in the Fund, therefore, you could lose money.

-- The Fund is subject to the prepayment risk applicable to the mortgages
underlying the GNMA securities and other mortgage-backed U.S. Government
Obligations. Prepayment risk is the chance that the mortgage-backed bonds will
be paid off early due to homeowners refinancing their mortgages during periods
of falling interest rates. Forced to reinvest the unanticipated proceeds at
lower rates, the Fund would experience a decline in income and lose the
opportunity for additional price appreciation associated with falling rates.
Prepayment risk is high for the Fund.

-- 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.

<PAGE> 9
Prospectus 7

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

GNMA FUND (Continued)

PAST FUND PERFORMANCE:

The Fund opened on August 27, 1999.

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.

SHAREHOLDER FEES

(fees paid directly from your investment) 0.00 %

ANNUAL FUND OPERATING EXPENSES

(expenses deducted from Fund assets)

Management Fee 0.27 %

Distribution/Service (12b-1) Fee 0.00 %

Other Expenses* 0.23 %

TOTAL ANNUAL FUND OPERATING EXPENSES** 0.50%

Fee Waiver or Expense Reimbursement*** 0.15 %

NET ANNUAL FUND OPERATING EXPENSES 0.35%

*Other Expenses are based on estimated amounts for the current fiscal year.

**The Adviser has guaranteed that, for so long as it is the investment adviser
to the Fund, Total Annual Fund Operating Expenses (excluding interest and taxes)
will not exceed 0.50%.

***The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.35%. This
contract has a one-year term, renewable at the end of each fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$36 $146 $265 $615
</TABLE>

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

INVESTMENT QUALITY BOND FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES:

-- The Fund invests in a wide variety of investment grade debt securities
payable primarily in U.S. dollars. Investment grade debt securities are those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines to be of comparable quality. These include (1) debt
obligations issued or guaranteed by the U.S. Government and foreign governments
and their agencies and instrumentalities, political subdivisions of foreign
governments (such as provinces and municipalities), and supranational
organizations (such as the World Bank); (2) debt securities and commercial paper
issued by U.S. and foreign companies; (3) U.S. and foreign mortgage-backed and
asset-backed bonds; and (4) preferred stock.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the Fund invests at least 65% of its total assets in debt securities
with more than one year to maturity. There is no limit on the Fund's maximum
average portfolio maturity.
-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and company scenario
analyses, in making investment decisions.

U.S. FIXED INCOME FUNDS

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

INVESTMENT QUALITY BOND FUND (Continued)

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Lehman Aggregate Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.
Prospectus 9
YEAR BY YEAR TOTAL RETURNS
--------------------------

During the six year period, the Fund's best quarter was 2ndQ 1995
(6.29%), and the worst quarter was 1stQ 1996 (-3.60%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
Life of
1 Year 5 Years Fund
------ ------- -------
<S> <C> <C> <C>
Investment Quality Bond Fund -2.29% 6.99% 4.95%
Lehman Aggregate Index -0.82% 7.73% 5.88%
</TABLE>

dividends.

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $161 $280 $629
</TABLE>

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

TOTAL RETURN FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund primarily invests in a wide variety of debt instruments and
income-producing securities. These include (1) debt obligations issued or
guaranteed by the U.S. Government and foreign governments and their agencies and
instrumentalities, political subdivisions of foreign governments (such as
provinces and municipalities), and supranational organizations (such as the
World Bank); (2) debt securities and commercial paper issued by U.S. and foreign
companies; (3) U.S. and foreign mortgage-backed and asset-backed bonds; (4)
dividend-paying convertible stock; and (5) convertible bonds and preferred
stock.
-- The Fund generally invests in investment grade debt securities -- those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines to be of comparable quality. But, it may invest up to 25%
of its total assets in debt securities rated below investment grade (BB or B by
S&P or Fitch, or Ba or B by Moody's), including securities of companies
organized or headquartered in emerging market countries. Further information
regarding credit ratings is in Appendix A.
-- The Fund invests in debt securities payable in U.S. dollars and foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.
-- The Fund invests in debt securities of any maturity, and there is no limit
on the Fund's maximum average portfolio maturity.
-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and company scenario
analyses, in making investment decisions.

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

TOTAL RETURN FUND (Continued)

generally decline. When interest rates fall, the securities' prices usually
increase. Generally, the longer the Fund's average portfolio maturity, the
greater the fluctuation. The value of any security owned by the Fund may also
fall in response to events affecting the issuer of the security, such as its
ability to continue to make principal and interest payments, or its credit
ratings. By investing in the Fund, therefore, you could lose money.
-- Below investment grade debt securities (commonly known as "high yield
bonds" or "junk bonds") are speculative and involve a greater risk of default
and price changes due to changes in the issuer's creditworthiness. The market
prices of these debt securities fluctuate more than investment grade debt
securities and may decline significantly in periods of general economic
difficulty.
-- Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments and
other overall economic conditions in countries where the Fund invests. In
addition, emerging markets tend to be more volatile than the U.S. market or
developed foreign markets. Fluctuations in foreign currency exchange rates may
also adversely affect the value of foreign debt securities in which the Fund has
invested.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Lehman Aggregate Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the three year period, the Fund's best quarter was 3rdQ 1998
(4.40%), and the worst quarter was 4thQ 1999 (-0.95%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Total Return Fund -2.51% 4.68%
Lehman Aggregate Index -0.82% 5.73%
</TABLE>

SHAREHOLDER FEES
(fees paid directly from your investment 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.28 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.22 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.50%

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $161 $280 $629
</TABLE>

<PAGE> 12
10 Payden & Rygel Investment Group

U.S. FIXED INCOME FUNDS

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

HIGH INCOME FUND

INVESTMENT OBJECTIVE:
The Fund seeks high current income while providing for capital appreciation
by investing in a diversified portfolio of below investment grade bonds,
commonly known as "high yield bonds" or "junk bonds."

PRINCIPAL INVESTMENT STRATEGIES:

-- The Fund invests in a wide variety of debt instruments and income-producing
securities. These include (1) debt obligations issued or guaranteed by the U.S.
Government and foreign governments and their agencies and instrumentalities,
political subdivisions of foreign governments (such as provinces and
municipalities), and supranational organizations (such as the World Bank); (2)
debt securities, loans and commercial paper issued by U.S. and foreign
companies; (3) U.S. and foreign mortgage-backed and asset-backed bonds; (4)
dividend-paying convertible stock; and (5) convertible bonds and preferred
stock.

-- Under normal market conditions, the Fund invests at least 65% of its total
assets in debt securities rated below investment grade or those the Adviser
determines to be of comparable quality. Investment grade debt securities are
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). Further
information regarding credit ratings is in Appendix A.

-- The Fund emphasizes investments in debt securities of:
--Issuers with credit ratings at the lower-risk end of the high yield bond
spectrum which the Adviser believes have stable to improving business
prospects.
--Issuers the Adviser believes are in the growth stage of development and have
reasonable prospects for improved operating results and credit ratings.
--Issuers that have undergone leveraged buyouts or recapitalizations.
-- The Fund's total investment in convertible securities, in convertible and
non-convertible preferred stocks, and debt securities of companies headquartered
or located in emerging market countries will not exceed 20% of its total assets.
-- The Fund invests in debt securities payable primarily in U.S. dollars, but
may invest up to 10% of its total assets in debt securities payable in foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.
-- The Fund invests in debt securities of any maturity and there is no limit
on the Fund's maximum average portfolio maturity.

PRINCIPAL INVESTMENT RISKS:
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings. By investing in the Fund, therefore, you could
lose money.
-- Below investment grade debt securities are speculative and involve a
greater risk of default and price changes due to changes in the issuer's
creditworthiness. The market prices of these debt securities fluctuate more than
investment grade debt securities and may decline significantly in periods of
general economic difficulty.
-- Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments and
other overall economic conditions in countries where the Fund invests. In
addition, emerging markets tend to be more volatile than the U.S. market or
developed foreign markets. Fluctuations in foreign currency exchange rates may
also adversely affect the value of foreign debt securities in which the Fund has
invested.

PAST FUND PERFORMANCE:

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS

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

During the two year period, the Fund's best quarter was 1stQ 1998
(3.81%), and the worst quarter was 3rdQ 1998 (-1.73%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
High Income Fund 3.17% 4.48%
Merrill Lynch High Yield Index 1.57% 2.62%
</TABLE>

<PAGE> 13
Prospectus 11

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

HIGH INCOME FUND (Continued)

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)*
Management Fee 0.35 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.20 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.55%

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$56 $177 $308 $691
</TABLE>

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

BUNKER HILL MONEY MARKET FUND

INVESTMENT OBJECTIVE:
The Fund seeks to provide investors with liquidity, a stable share price,
and as high a level of current income as is consistent with the preservation of
principal and liquidity.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund purchases only high-quality corporate, bank and government debt
securities. The Fund invests only in securities rated in the highest category
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 those the
Adviser determines to be of comparable quality.
-- The Fund's average portfolio maturity (on a dollar-weighted basis) will not
exceed 90 days.

PRINCIPAL INVESTMENT RISKS:
-- Although the Fund seeks to preserve the value of your investment at $1 per
share, you could lose money by investing in this Fund.
-- A decline in short-term interest rates would lower the Fund's yield and the
return on your investment.
-- Your investment in the Fund is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

PAST FUND PERFORMANCE:

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS

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

During the two year period, the Fund's best quarter was 4thQ 1999
(1.34%), and the worst quarter was 1stQ 1999 (1.14%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Bunker Hill Money Market Fund 5.06% 5.17%
IBC Money Fund Report 4.55% 4.78%
</TABLE>

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

Seven-Day Yield as of 2/22/00 is 5.53%. Call 1-800-572-9336 between 8:00 and
5:00 p.m. (Pacific time) for the current yield.

<PAGE> 14
12 Payden & Rygel Investment Group

U.S. FIXED INCOME FUNDS

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

BUNKER HILL MONEY MARKET FUND (Continued)

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.

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.15 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.26 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.41%

Fee Waiver or Expense Reimbursement* 0.11 %

NET ANNUAL FUND OPERATING EXPENSES 0.30%

*The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.30%. 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. In each
case, 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, 5, or 10 year periods. The example is for comparison only.
Your actual expenses and returns will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$31 $121 $219 $508
</TABLE>

TAX EXEMPT FUNDS
- --------------------------------------------------------------------------------

SHORT DURATION TAX EXEMPT FUND

INVESTMENT OBJECTIVE:
The Fund seeks federal tax-free income by investing in debt obligations that
are exempt from federal income tax.

PRINCIPAL INVESTMENT STRATEGIES:
-- Under normal market conditions, the Fund invests at least 80% of its total
assets in "Municipal Securities" -- debt obligations issued by state and local
governments, territories, and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities, which pay interest income
exempt from federal income tax. However, the Fund may invest up to 20% of its
total assets in Municipal Securities that are exempt from federal income tax but
are subject to the federal alternative minimum tax.
-- The Fund generally invests in investment grade debt securities -- those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines are of comparable quality. But, it may invest up to 25%
of its total assets in debt securities rated below investment grade (BB or B by
S&P or Fitch, or Ba or B by Moody's). Further information regarding credit
ratings is in Appendix A.
-- The Fund invests in debt securities of any maturity, and there is no limit
on the Fund's maximum average portfolio maturity. But under normal market
conditions, the Fund's average portfolio maturity (on a dollar-weighted basis)
is generally one to four years.

-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and issuer scenario
analyses, in making investment decisions.

-- As a temporary defensive measure, the Fund may also invest up to 20% of its
total assets in debt securities that are subject to federal income tax.
<PAGE> 15
Prospectus 13

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

SHORT DURATION TAX EXEMPT FUND (Continued)

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Lehman 1-year General Obligation Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the five year period, the Fund's best quarter was 1stQ 1995
(1.94%), and the worst quarter was 2ndQ 1999 (-0.20%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99
-------------------------------------------

<TABLE>
<CAPTION>
1 Year 5 Years
------ -------
<S> <C> <C>
Short Duration Tax Exempt Fund 2.15% 4.11%
Lehman 1-year General 3.01% 4.66%
Obligation Index
</TABLE>

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.
SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.32 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.28 %
TOTAL ANNUAL FUND OPERATING EXPENSES* 0.60 %
Fee Waiver or Expense Reimbursement** 0.10 %
NET ANNUAL FUND OPERATING EXPENSES 0.50 %

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

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $183 $326 $742
</TABLE>

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

TAX EXEMPT BOND FUND

INVESTMENT OBJECTIVE:
The Fund seeks federal tax-free income by investing in debt obligations that
are exempt from federal income tax.

PRINCIPAL INVESTMENT STRATEGIES:
-- Under normal market conditions, the Fund invests at least 80% of its total
assets in "Municipal Securities" -- debt obligations issued by state and local
governments, territories, and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities, which pay interest income
exempt from federal income tax. However, the Fund may invest up to 20% of its
total assets in Municipal Securities that are exempt from federal income tax but
are subject to the federal alternative minimum tax.
-- The Fund generally invests in investment grade bonds -- those rated within
the four highest grades by rating agencies such as Standard & Poor's (at least
BBB), Moody's (at least Baa) or Fitch (at least BBB), or those the Adviser
determines are of comparable quality. But, it may invest up to 25% of its total
assets in bonds rated below investment grade (BB or B by S&P or Fitch, or Ba or
B by Moody's). Further information regarding credit ratings is in Appendix A.
-- The Fund invests in debt securities of any maturity, and there is no limit
on the Fund's maximum average portfolio maturity. But, under normal market
conditions, the Fund's average portfolio maturity (on a dollar-weighted basis)
is generally five to ten years.

-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and issuer scenario
analyses, in making investment decisions.

PRINCIPAL INVESTMENT RISKS:
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest
<PAGE> 16
14 Payden & Rygel Investment Group

TAX EXEMPT FUNDS
- --------------------------------------------------------------------------------

TAX EXEMPT BOND FUND (Continued)

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

-- The Fund seeks a high total return (income plus capital gains). At times,
the Fund may have a lower yield to maximize capital appreciation, and therefore
total return.

-- 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
bonds fluctuate more than investment grade bonds and may decline significantly
in periods of general economic difficulty.
-- As a temporary defensive measure, the Fund may also invest up to 20% of its
total assets in debt securities that are subject to federal income tax.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Lehman Quality Intermediate Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
--------------------------

During the six year period, the Fund's best quarter was 1stQ 1995
(6.52%), and the worst quarter was 1stQ 1994 (-6.51%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99
-------------------------------------------

<TABLE>
<CAPTION>
1 Year 5 Years Life of Fund
------ ------- ------------
<S> <C> <C> <C>
Tax Exempt Bond Fund -0.95% 5.86% 3.46%
Lehman Quality 0.25% 6.24% 4.69%
Intermediate Index
</TABLE>

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.32 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.25 %
TOTAL ANNUAL FUND OPERATING EXPENSES 0.57 %
Fee Waiver or Expense Reimbursement* 0.07 %
NET ANNUAL FUND OPERATING EXPENSES 0.50 %

*The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.50%. This
contract has a one-year term, renewable at the end of each fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $176 $312 $708
</TABLE>

<PAGE> 17
Prospectus 15

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

CALIFORNIA MUNICIPAL INCOME FUND

INVESTMENT OBJECTIVE:
The Fund seeks income that is exempt from federal and California income tax.

-- Under normal market conditions, the Fund invests at least 65% of its total
assets in California Municipal Securities (debt obligations issued by the State
of California, local governments and other authorities in California, and their
agencies and instrumentalities) or other issuers, which pay interest income
exempt from California personal income tax.

-- The Fund generally invests in investment grade debt securities -- those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines are of comparable quality. But, it may invest up to 25%
of its total assets in bonds rated below investment grade (BB or B by S&P or
Fitch, or Ba or B by Moody's). Further information regarding credit ratings is
in Appendix A.
-- The Fund invests in debt securities of any maturity, and there is no limit
on the Fund's maximum average portfolio maturity. But, under normal market
conditions, the average portfolio maturity (on a dollar-weighted basis) is
generally five to ten years.

-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
interest rate spread relationships, as well as economic and issuer scenario
analyses, in making investment decisions.

-- Because the Fund invests primarily in California Municipal Securities, its
performance is subject to economic and political developments in the State of
California. The Fund may invest more than 25% of its total assets in Municipal
Securities of issuers in particular industries, such as hospital revenue bonds,
housing agency bonds, tax-exempt industrial development bonds, transportation
bonds, or pollution control revenue bonds. Economic, political or other changes
may increase the risk of such concentration of investments.

-- 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.
-- As a temporary defensive measure, the Fund may also invest up to 20% of its
total assets in debt securities that are subject to federal income tax.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:

The two charts below show how the Fund has performed. The information gives
some indication of the risks of an investment in the Fund by comparing the
Fund's performance to the Lehman California Intermediate Index.

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

TOTAL RETURN

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

During the one year period, the Fund's best quarter was 1stQ 1999
(0.85%), and the worst quarter was 2ndQ 1999 (-1.67%).

AVERAGE ANNUAL RETURN THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year
------
<S> <C>
California Municipal Income Fund -1.22%
Lehman California Intermediate Index -0.37%
</TABLE>

<PAGE> 18
16 Payden & Rygel Investment Group

TAX EXEMPT FUNDS

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

CALIFORNIA MUNICIPAL INCOME FUND (Continued)

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.32 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.45 %

TOTAL ANNUAL FUND OPERATING EXPENSES 0.77%

Fee Waiver or Expense Reimbursement* 0.27 %

NET ANNUAL FUND OPERATING EXPENSES 0.50%

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $220 $403 $932
</TABLE>

U.S. EQUITY FUNDS
- --------------------------------------------------------------------------------

GROWTH & INCOME FUND

INVESTMENT OBJECTIVE:
The Fund seeks growth of capital and some current income.

PRINCIPAL INVESTMENT STRATEGIES:

-- The Fund is a large cap value fund. Under normal market conditions, the
Fund invests approximately 50% of its total assets in common stocks known as the
"dogs of the Dow" (the "Dogs Portfolio"), and the balance in one or more broad
market equity-based derivative instruments, including Standard & Poor's
Depositary Receipts with respect to the S&P 500 Index, DIAMONDS Trust, Series 1
with respect to the Dow Jones Industrial Average and Nasdaq-100 Shares with
respect to the Nasdaq-100 Index, and in equity index mutual funds.

-- During each month, the Fund purchases for the Dogs Portfolio the ten common
stocks included in the Dow Jones Industrial Average(1) which had the highest
dividend rates (as a percentage of their market prices) as of the end of the
preceding month. The Fund normally holds for approximately twelve months all
common stocks purchased for the Dogs Portfolio during a month, including common
stocks that may no longer be among the "dogs of the Dow" stocks.

-- Each month, the Adviser rebalances a portion of the Fund's investments. It
sells stocks in the Dogs Portfolio which were purchased approximately twelve
months earlier and which are no longer among the "dogs of the Dow". It may also
sell additional stocks in the Dogs Portfolio and reinvest in other assets (or it
may sell a portion of the remaining assets of the Fund and reinvest in "dogs of
the Dow" stocks) so that, under normal market conditions after the entire
rebalancing process is completed, approximately 50% of the rebalanced Fund
assets consists of the Dogs Portfolio (approximately 5% per common stock).

PRINCIPAL INVESTMENT RISKS
-- By investing in stocks, the Fund exposes 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.
-- Although the Fund's return will vary with changes in the stock market, the
Fund is not an index fund, and changes in the Fund's net asset value per share
will not precisely track changes in the general stock market. For example, to
the extent that the Fund invests more heavily in certain market sectors than the
Standard & Poor's 500 Stock Index, the Fund may be more volatile than the S&P
500 Index.
-- 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.

(1) "Dow Jones Industrial Average" is a trademark of Dow Jones & Company, Inc.
("Dow Jones"). Neither the Fund nor the Adviser is affiliated with, nor is the
Fund sponsored by, Dow Jones. Dow Jones has not participated in any way in the
creation of the Fund or in the selection of the stocks included in the Fund, nor
has Dow Jones reviewed or approved any information included in this Prospectus.
<PAGE> 19
Prospectus 17

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

GROWTH & INCOME FUND (Continued)

PAST FUND PERFORMANCE:

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the three year period, the Fund's best quarter was 2ndQ 1997
(14.49%), and the worst quarter was 3rdQ 1998 (-7.28%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Growth & Income Fund 12.34% 20.23%
S&P 500/BARRA Value Index 12.68% 18.86%
</TABLE>

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.50 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.25 %
------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.75 %
======

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$77 $241 $418 $933
</TABLE>

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

MARKET RETURN FUND

INVESTMENT OBJECTIVE:
The Fund seeks a total return in excess of the S&P 500 Index.(2)

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund is a large cap core fund. It divides its assets between a
portfolio of debt and other income-producing securities and a portfolio of
equity-based derivative instruments, such as stock index futures contracts and
equity swap contracts. Because of the manner in which stock index futures
contracts are priced, the Fund should outperform the S&P 500 Index, if its debt
securities portfolio earns a total return that is better than money market rates
plus the expenses of the Fund.
-- Under normal market conditions, the Fund's debt securities portfolio
comprises at least 80% of its total assets. The Fund invests in a wide variety
of debt securities, including (1) debt obligations issued or guaranteed by the
U.S. Government and foreign governments and their agencies and
instrumentalities, political subdivisions of foreign governments (such as
provinces and municipalities), and supranational organizations (such as the
World Bank); (2) debt securities and commercial paper issued by U.S. and foreign
companies; (3) U.S. and foreign mortgage-backed and asset-backed bonds; (4)
dividend-paying convertible stock; and (5) convertible bonds and preferred
stock.
-- The Fund generally invests in investment grade debt securities -- those
rated within the four highest grades by rating agencies such as Standard &
Poor's (at least BBB), Moody's (at least Baa) or Fitch (at least BBB), or those
the Adviser determines are of comparable quality. But, it may invest up to 25%
of its total assets in debt securities rated below investment grade (BB or B by
S&P or Fitch, or Ba or B by Moody's). Further information regarding credit
ratings is in Appendix A.
-- The Fund invests in debt securities payable primarily in U.S. dollars, but
may invest up to 25% of its total assets in securities payable in foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the maximum average portfolio maturity (on a dollar-weighted basis)
of the Fund's debt securities portfolio is five years.

(2) Standard & Poor's Corporation, which is not a sponsor of or in any way
affiliated with the Fund, chooses the 500 stocks included in the S&P 500 Index
based on market value and industry diversification. These 500 stocks comprise
approximately 75% of the total market capitalization within the publicly traded
U.S. equity markets.
<PAGE> 20
18 Payden & Rygel Investment Group

U.S. EQUITY FUNDS

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

MARKET RETURN FUND (Continued)

PRINCIPAL INVESTMENT RISKS
-- The Fund is affected by price movements in both the equity and bond
markets. If the market value of the debt securities portfolio declines as a
result of fluctuations in interest rates, the value of the Fund could fall even
when the equity market is rising. In addition, both the bond and equity markets
could fall, causing the value of the Fund to decline by more than the decline in
the equity markets. By investing in the Fund, therefore, you could lose money.
-- By investing in equity-based derivative instruments such as stock index
futures, the Fund exposes you to market risks. In addition, unlike most equity
funds, in which much of your return typically comes from long-term capital
gains, most of the return that you earn from the Fund will be income taxable at
ordinary income tax rates.
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings.
-- 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.
-- Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments and
other overall economic conditions in countries where the Fund invests. In
addition, fluctuations in foreign currency exchange rates may adversely affect
the value of foreign debt securities in which the Fund has invested.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Standard & Poor's 500 Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the four year period, the Fund's best quarter was 4thQ 1998
(21.02%), and the worst quarter was 3rdQ 1998 (-10.62%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Market Return Fund 18.05% 23.61%
Standard & Poor's 500 Index 21.04% 26.37%
</TABLE>

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.28 %
Distribution/Service (12b-1) Fee 0.00 %

Other Expenses 0.25 %
------

TOTAL ANNUAL FUND OPERATING EXPENSES 0.53 %

Fee Waiver or Expense Reimbursement* 0.08 %
------

NET ANNUAL FUND OPERATING EXPENSES 0.45 %
======

*The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.45%. This
contract has a one-year term, renewable at the end of each fiscal year.

<PAGE> 21
Prospectus 19

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

MARKET RETURN FUND (Continued)

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$46 $162 $289 $658
</TABLE>

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

U.S. GROWTH LEADERS FUND

INVESTMENT OBJECTIVE:

The Fund seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

-- The Fund invests primarily in common stocks of publicly traded U.S. growth
companies that are financially strong, well-established, and world leaders in
their industries. The Fund will be limited to investing in the largest 1,000
companies ranked by market capitalization (total market price of outstanding
equity securities).

-- The Fund invests principally in securities of U.S. companies, but may
invest up to 15% of its total assets in securities of foreign companies.

-- The Fund invests from time to time in Standard & Poor's Depositary
Receipts, or similar broad market equity-based derivative instruments, in order
to invest smaller amounts of cash generally related to miscellaneous daily cash
flows.

-- The Adviser selects securities based on the following criteria. The weight
it gives to a particular factor depends on the circumstances at the time of
purchase, and some portfolio holdings may not meet all of the criteria:

-- The Fund invests in companies which have a dominant market share, or are
in specialized market niches.

-- The Fund invests in companies with strong earnings and cash flows to
finance future growth.

-- The Fund invests in companies that have a global presence, that enjoy
the benefits of size and scale, and that serve underpenetrated and rapidly
growing markets.

-- The Adviser believes that companies with these characteristics should have
relatively low business risk and relatively high ability to sustain earnings
growth.

PRINCIPAL INVESTMENT RISKS:

-- By investing in stocks, the Fund exposes 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, fluctuations in foreign currency exchange rates may also adversely
affect the value of foreign securities in which the Fund has invested.

PAST FUND PERFORMANCE:

The Fund began operation on June 17, 1999.

FEES AND EXPENSES:

SHAREHOLDER FEES

(fees paid directly from your investment) 0.00 %

ANNUAL FUND OPERATING EXPENSES

(expenses deducted from Fund assets)

Management Fee 0.60 %

Distribution/Service (12b-1) Fee 0.00 %

Other Expenses* 0.40 %
-----

TOTAL ANNUAL FUND OPERATING EXPENSES** 1.00 %

Fee Waiver or Expense Reimbursement*** 0.20 %
-----

NET ANNUAL FUND OPERATING EXPENSES 0.80%
=====

*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 1.00%.

***The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.80%. This
contract has a one-year term, renewable at the end of each fiscal year.

<PAGE> 22
20 Payden & Rygel Investment Group

U.S. EQUITY FUNDS
- --------------------------------------------------------------------------------

U.S. GROWTH LEADERS FUND (Continued)

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$82 $300 $535 $1,211
</TABLE>

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

SMALL CAP LEADERS FUND

INVESTMENT OBJECTIVE:

The Fund seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

-- The Fund invests primarily in common stocks of small-capitalization
companies -- companies with a market capitalization (total market price of
outstanding equity securities) that is less than that of the 1,000 largest,
publicly traded U.S. companies. These companies tend to be unseasoned and pay
little or no dividend income, but are considered by the Fund's Adviser to have
superior growth potential.

-- The Fund invests principally in securities of U.S. companies, but may
invest up to 20% of its total assets in securities of foreign companies.

-- The Adviser selects securities of companies that it believes have superior
growth potential. These companies generally exhibit one or more of the following
characteristics:

-- They are companies which have an established product, a strong market
position and a proven record of consistent growth.

-- They are companies which offer a unique product or technology which has
significant potential to expand its reach or use in the market.

-- They are companies which the Adviser believes are undervalued in the
market and likely to growth above market expectations in the next few
years, despite an inconsistent or poor growth history.

PRINCIPAL INVESTMENT RISKS:

-- 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 large-cap
mutual funds.

PAST FUND PERFORMANCE:

The Fund opened on December 20, 1999.

FEES AND EXPENSES:

SHAREHOLDER FEES

(fees paid directly from your investment) 0.00 %

ANNUAL FUND OPERATING EXPENSES

(expenses deducted from Fund assets)

Management Fee 0.60 %

Distribution/Service (12b-1) Fee 0.00 %

Other Expenses* 0.40 %
-----

TOTAL ANNUAL FUND OPERATING EXPENSES** 1.00 %

Fee Waiver or Expense Reimbursement*** 0.20 %
-----

NET ANNUAL FUND OPERATING EXPENSES 0.80%
=====

*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 1.00%.

<PAGE> 23
Prospectus 21

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

SMALL CAP LEADERS FUND (Continued)

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>
$82 $300
</TABLE>

GLOBAL BOND FUNDS
- --------------------------------------------------------------------------------

GLOBAL SHORT BOND FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

-- The Fund invests in debt securities of any maturity. Under normal market
conditions, the Fund's maximum average portfolio maturity (on a dollar-weighted
basis) is three years.

-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
spread relationships, as well as economic and company scenario analyses, in
making investment decisions.

PRINCIPAL INVESTMENT RISKS:
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings. By investing in the Fund, therefore, you could
lose money.
-- Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments and
other overall economic conditions in countries where the Fund invests. In
addition, fluctuations in foreign currency exchange rates may adversely affect
the value of foreign debt securities in which the Fund has invested.
-- The Fund 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.
<PAGE> 24
22 Payden & Rygel Investment Group

GLOBAL BOND FUNDS
- --------------------------------------------------------------------------------

GLOBAL SHORT BOND FUND (Continued)

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to the Merrill Lynch 1-3 year Treasury Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
--------------------------

During the three year period, the Fund's best quarter was 3rdQ 1998
(2.75%), and the worst quarter was 1stQ 1997 (0.79%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99
-------------------------------------------

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Global Short Bond Fund 2.27% 5.88%
Merrill Lynch 1-3 year 3.06% 5.56%
Treasury Index
</TABLE>

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.30 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.21 %
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.51 %
Fee Waiver or Expense Reimbursement* 0.01 %
----
NET ANNUAL FUND OPERATING EXPENSES 0.50 %
====
*The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.50%. This
contract has a one-year term, renewable at the end of each fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $163 $285 $641
</TABLE>

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

GLOBAL FIXED INCOME FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return consistent with preservation of
capital.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund invests in a wide variety of investment grade debt securities.
Investment grade debt securities are those rated within the four highest grades
by rating agencies such as Standard & Poor's (at least BBB), Moody's (at least
Baa) or Fitch (at least BBB), or the Adviser determines to be of comparable
quality. These include (1) debt obligations issued or guaranteed by the U.S.
Government and foreign governments and their agencies and instrumentalities,
political subdivisions of foreign governments (such as provinces and
municipalities), and supranational organizations (such as the World Bank); (2)
debt securities and commercial paper issued by U.S. and foreign companies; and
(3) U.S. and foreign mortgage-backed and asset-backed bonds.
-- Under normal market conditions, the Fund invests at least 65% of its total
assets in debt securities of issuers organized or headquartered in at least
three countries, one of which may be the United States.
-- The Fund invests in debt securities payable in U.S. dollars and in foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.
-- The Fund invests in bonds of any maturity, and there is no limit on the
Fund's maximum average portfolio maturity. Under normal circumstances, its
average portfolio maturity (on dollar-weighted basis) will not exceed ten years.
-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
spread relationships, as well as economic and company scenario analyses, in
making investment decisions.
<PAGE> 25
Prospectus 23

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

GLOBAL FIXED INCOME FUND (Continued)

PRINCIPAL INVESTMENT RISKS:
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings. By investing in the Fund, therefore, you could
lose money.
-- Investing in foreign securities poses additional risks. The performance of
foreign securities depends on different political and economic environments and
other overall economic conditions in countries where the Fund invests. In
addition, fluctuations in foreign currency exchange rates may adversely affect
the value of foreign debt securities in which the Fund has invested.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts on the next page show how the Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance since its inception to demonstrate that the Fund has
gained and lost value at different times. The table below it compares the Fund's
performance over time to the JP Morgan Global Bond Index-Hedged and the Lehman
U.S. Treasury Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the seven year period, the Fund's best quarter was 1stQ 1995
(6.45%), and the worst quarter was 1stQ 1994 (-4.50%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year 5 Years Life of Fund
------ ------- ------------
<S> <C> <C> <C>
Global Fixed Income Fund -0.53% 8.61% 7.26%
JP Morgan Global Bond Index-
Hedged 0.72% 9.75% 8.00%
Lehman U.S. Treasury Index -2.56% 7.38% 6.23%
</TABLE>

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C>
$50 $158 $275 $617
</TABLE>
<PAGE> 26
24 Payden & Rygel Investment Group

GLOBAL BOND FUNDS
- --------------------------------------------------------------------------------

EMERGING MARKETS BOND FUND

INVESTMENT OBJECTIVE:
The Fund seeks a high level of total return.

PRINCIPAL INVESTMENT STRATEGIES:
-- Under normal market conditions, the Fund invests at least 75% of its total
assets in debt securities issued by governments, agencies and instrumentalities
of emerging market countries (or economically linked with such securities), and
corporations organized or headquartered in emerging market countries. The Fund
may invest up to 25% of its total assets in other debt securities, including
those of issuers located in countries with developed fixed income markets.

-- An "emerging markets country" is any country which the World Bank (the
International Bank for Reconstruction and Development), the International
Finance Corporation or the United Nations defines as having an emerging or
developing economy. The Fund currently concentrates its investments in Latin
America, Asia and the developing securities markets of Europe.

-- The Fund invests substantially all of its assets in debt securities of
countries whose sovereign rating is below investment grade -- BB or B (Standard
& Poor's), Ba or B (Moody's), or BB or B (Fitch), or those the Adviser
determines to be of comparable quality. Further information regarding credit
ratings is in Appendix A.

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

-- The Fund invests in debt securities of any maturity, and there is no limit
on the Fund's maximum average portfolio maturity.
-- The Fund invests in debt securities that the Adviser believes offer
attractive yields and are undervalued relative to securities of similar credit
quality and interest rate sensitivity. The Adviser reviews both historical
spread relationships, as well as economic and company scenario analyses, in
making investment decisions.

PRINCIPAL INVESTMENT RISKS:

-- 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. Fluctuations in foreign currency exchange rates may
also adversely affect the value of foreign debt securities in which the Fund has
invested. By investing in the Fund, therefore, you could lose money.

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

PAST FUND PERFORMANCE:

The two charts below show how the Fund has performed. The information gives
some indication of the risks of an investment in the Fund by comparing the
Fund's performance to the JP Morgan Emerging Markets Global Index Constrained.

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

TOTAL RETURN

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

During the one year period, the Fund's best quarter was 4thQ 1999
(11.63%), and the worst quarter was 3rdQ 1999 (0.77%).

AVERAGE ANNUAL RETURN THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year
------
<S> <C>
Emerging Markets Bond Fund 23.57%
JPMorgan Emerging Markets 19.56%
Global Index Constrained
</TABLE>

<PAGE> 27
Prospectus 25

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

EMERGING MARKETS BOND FUND (Continued)

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.45%
Distribution/Service (12b-1) Fee 0.00%

Other Expenses 0.80%
----

TOTAL ANNUAL FUND OPERATING EXPENSES* 1.25%

Fee Waiver or Expense Reimbursement** 0.45%
----

NET ANNUAL FUND OPERATING EXPENSES 0.80%
====

*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 1.25%.

**The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.80%. This
contract has a one-year term, renewable at the end of each fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$82 $354 $646 $1,478
</TABLE>

GLOBAL EQUITY FUNDS
- --------------------------------------------------------------------------------

GLOBAL BALANCED FUND

INVESTMENT OBJECTIVE:
The Fund seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:
-- The Fund allocates its assets between a common stock portfolio and a debt
securities portfolio. Four key decisions drive the management of this Fund.
-- First, the allocation decision between debt securities and common stocks
involves a combination of country level fundamental analysis and country
level quantitative analysis. The Sub-adviser examines the ratio of the bond
yield to the equity earnings yield (E/P ratio) for each major country in the
world equity market. The analysis incorporates the inflation-adjusted bond
yield and market aggregate price/cash flow ratios and is designed to
evaluate the relative global valuations of stocks versus bonds. It also
incorporates country growth prospects, interest rate and inflation
forecasts, and political climate.
-- Second, the allocation decision between the U.S. and foreign countries is
a similar combination of country level fundamental analysis and country
level quantitative analysis. The Sub-adviser follows the same process
described above to compare U.S. stocks and foreign stocks.
-- Third, the allocation decision between Japan and other foreign countries
focuses on country level fundamental analysis in which macroeconomic
analysis dominates the decision process.
-- Fourth, the decision about currency exposure is based on a combination of
fundamental economic analysis, incorporating central bank studies, and
technical analysis.
-- The Fund invests its equity portfolio in companies organized or
headquartered in the United States and foreign countries. The Fund invests at
least 65% of the equity portfolio in issuers organized or headquartered in three
or more foreign countries.
-- The Sub-adviser selects individual equity securities based on the following
process.
-- The Sub-adviser uses a proprietary quantitative model to screen and rank
all publicly traded common stocks in the specific country, based on such
indicators as the company's price earnings ratio, its earnings profile,
price to book ratio, price to cash flow ratio, and dividend yield.
-- The Sub-adviser performs in-depth qualitative research on the top ranked
names. This may involve, among other things, on-site company visits,
interviews with company managements and valuation of corporate earnings
estimates.
-- The resulting portfolio structure also depends on top-down decision
making regarding the active weights of sectors and countries within the
portfolio.
<PAGE> 28
26 Payden & Rygel Investment Group

GLOBAL EQUITY FUNDS
- --------------------------------------------------------------------------------

GLOBAL BALANCED FUND (Continued)

-- The Fund also achieves country exposure by investing in equity-based,
country-specific derivatives, such as stock index futures.

-- The Fund invests its debt securities portfolio in a wide variety of
investment grade debt securities -- those rated within the four highest grades
by rating agencies such as Standard & Poor's (at least BBB), Moody's (at least
Baa) or Fitch (at least BBB), or those the Adviser determines to be of
comparable quality. These include (1) debt obligations issued or guaranteed by
the U.S. Government and foreign governments and their agencies and
instrumentalities, political subdivisions of foreign governments (such as
provinces and municipalities), and supranational organizations (such as the
World Bank); (2) debt securities and commercial paper issued by U.S. and foreign
companies; and (3) U.S. and foreign mortgage-backed and asset-backed bonds.
-- The Fund may invest up to 20% of its total assets in securities of issuers
organized or headquartered in emerging market countries.
-- The Fund invests in securities payable in U.S. dollars and in foreign
currencies. The Fund may hedge this currency exposure to the U.S. dollar.
-- The Fund invests in debt securities of any maturity, and there is no limit
on the maximum average portfolio maturity for the debt securities allocation.

PRINCIPAL INVESTMENT RISKS:
-- The Fund is affected by price movements in both the equity and bond
markets. When the allocation strategy results in a primary emphasis on common
stocks, the Fund's volatility will be more like a common stock portfolio than a
balanced portfolio. However, under normal circumstances, the Fund's volatility
should be less than a common stock portfolio.
-- The Fund's investment results depend not only on the selection of specific
portfolio securities, but also on the Adviser's ability to anticipate correctly
the relative performance and risk of stocks and debt securities. The Fund's
investment results would underperform other global balanced funds, for example,
if only a small portion of the Fund's assets were allocated to stocks during a
significant stock market advance, or if a major portion of its assets were
allocated to stocks during a market decline. Similarly, the Fund's performance
could deteriorate if the Fund were substantially invested in bonds at a time
when interest rates increased. By investing in the Fund, therefore, you could
lose money.
-- By investing in stocks, the Fund exposes you to certain risks, including a
sudden decline in a holding's share price, or an overall decline in the stock
market. As with a 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.
-- As with most bond funds, the value of your shares in the Fund will
fluctuate along with interest rates. When interest rates rise, the market prices
of the securities the Fund owns generally decline. When interest rates fall, the
securities' prices usually increase. Generally, the longer the Fund's average
portfolio maturity, the greater the fluctuation. The value of any security owned
by the Fund may also fall in response to events affecting the issuer of the
security, such as its ability to continue to make principal and interest
payments, or its credit ratings.
-- 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. Fluctuations in foreign currency exchange rates may
also adversely affect the value of foreign debt securities in which the Fund has
invested.
-- The Fund is "non-diversified," which means it can invest in fewer
securities than a "diversified" mutual fund. As a result, events that affect a
few -- or even one -- of the Fund's investments may have a greater impact on the
value of the Fund's shares than for a diversified fund.

PAST FUND PERFORMANCE:
The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance
over time to both the MSCI World Equity Index and the JP Morgan Global Bond
Index.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS
---------------------------

During the three year period, the Fund's best quarter was 4thQ 1999
(12.35%), and the worst quarter was 3rdQ 1998 (-6.93%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
<CAPTION>
1 Year Life of Fund
------ ------------
<S> <C> <C>
Global Balanced Fund 15.96% 14.03%
JP Morgan Global Bond Index -5.14% 3.52%
MSCI World Equity Index 25.34% 22.05%
</TABLE>

<PAGE> 29
Prospectus 27

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

GLOBAL BALANCED FUND (Continued)

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00 %
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.50 %
Distribution/Service (12b-1) Fee 0.00 %
Other Expenses 0.35 %
TOTAL ANNUAL FUND OPERATING EXPENSES* 0.85%
Fee Waiver or Expense Reimbursement** 0.15 %
NET ANNUAL FUND OPERATING EXPENSES 0.70%

*The Adviser has guaranteed that, for so long as it is the investment adviser
to the Fund, Total Annual Fund Operating Expenses (excluding interest and
taxes) will not exceed 0.85%.
**The Adviser has agreed to reduce its fees or absorb expenses to limit Net
Annual Fund Operating Expenses (excluding interest and taxes) to 0.70%. This
contract has a one-year term, renewable at the end of each fiscal year.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$72 $257 $458 $1,038
</TABLE>

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

EUROPEAN GROWTH & INCOME FUND

INVESTMENT OBJECTIVE:
The Fund seeks capital appreciation and some current income.

PRINCIPAL INVESTMENT STRATEGIES:

-- Under normal market conditions, the Fund invests primarily in common stocks
of mid-capitalization and large capitalization issuers organized or
headquartered in countries of the European Union with developed capital markets.

-- The investments will be selected in such a way that companies of growth
sectors will be the main focus of the investment portfolio. These sectors
include, but are not limited to, biotechnology, pharmaceuticals, information
technology and communication technology.

-- The Sub-adviser selects securities based on the following process:

-- The Sub-adviser uses a proprietary quantitative model to screen and rank
all publicly traded common stocks of countries of the European Union, based on
such indicators as the company's cash flow, earnings trend, earnings
revisions, ratio of price to earnings, and ratio of price to growth rate.

-- The Sub-adviser performs in-depth qualitative research on the top ranked
names. This may involve, among other things, on-site company visits,
interviews with company management and valuation of corporate earnings
estimates.

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.
Fluctuations in foreign currency exchange rates may also adversely affect the
value of foreign securities in which the Fund has invested.

<PAGE> 30
28 Payden & Rygel Investment Group

GLOBAL EQUITY FUNDS
- --------------------------------------------------------------------------------

EUROPEAN GROWTH & INCOME FUND (Continued)

PAST FUND PERFORMANCE:

The two charts below show how the Fund has performed and how its performance
has varied from year to year. The bar chart shows changes in the Fund's yearly
performance since its inception to demonstrate that the Fund has gained and lost
value at different times. The table below it compares the Fund's performance to
the Dow Jones Europe STOXX Index. (You should note that during this time period
the Fund utilized a more mechanistic investment strategy in which it invested on
a monthly basis in the common stocks of approximately 60 issuers which had the
lowest "peg ratios" (ratio of the company's current price/ earnings ratio as
compared to the latest published long-term earnings per share growth forecast
for the company) of issuers with the largest market capitalizations in Europe.
The Sub-adviser then followed a monthly rebalancing process.)

Both charts assume reinvestment of dividends and distributions. Of course,
past performance is no guarantee of future results.

YEAR BY YEAR TOTAL RETURNS

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

During the two year period, the Fund's best quarter was 1stQ 1998
(17.51%), and the worst quarter was 3rdQ 1998 (-15.29%).

AVERAGE ANNUAL RETURNS THROUGH 12/31/99

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

<TABLE>
1 Year Life of Fund
------ ------------
<S> <C> <C>
European Growth & Income Fund 10.54% 12.48%
Dow Jones Europe STOXX Index 18.20% 23.45%
</TABLE>

FEES AND EXPENSES:

SHAREHOLDER FEES
(fees paid directly from your investment) 0.00%
ANNUAL FUND OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fee 0.50%
Distribution/Service (12b-1) Fee 0.00%
Other Expenses 0.40%
TOTAL ANNUAL FUND OPERATING EXPENSES* 0.90%

*The Adviser has guaranteed that, for so long as it is the investment adviser to
the Fund, Total Annual Fund Operating Expenses (excluding interest and taxes)
will not exceed 0.90%.

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$92 $288 $500 $1,112
</TABLE>

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

EUROPEAN AGGRESSIVE GROWTH FUND

INVESTMENT OBJECTIVE:

The Fund seeks long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES:

-- Under normal market conditions, the Fund invests primarily in the common
stocks of 40-70 issuers organized or headquartered in European countries,
including emerging market countries in Europe. These companies are primarily
small-capitalization and mid-capitalization companies with a market
capitalization (total price of outstanding equity securities) that is less than
the 500 largest publicly traded companies in Europe.

-- The Sub-adviser selects securities based on the following process.

-- The Sub-adviser uses a proprietary quantitative model to screen and rank
all publicly traded small and mid-cap European common stocks, based on such
indicators as the company's cash flow, earnings trend, earnings revisions,
ratio of price to earnings, and ratio of price to growth rate.

<PAGE> 31
Prospectus 29

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

EUROPEAN AGGRESSIVE GROWTH FUND (Continued)

-- 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. Fluctuations in foreign currency exchange rates may
also adversely affect the value of foreign securities in which the Fund has
invested.

PAST FUND PERFORMANCE:

The Fund began operation on June 17, 1999.

FEES AND EXPENSES:

SHAREHOLDER FEES

(fees paid directly from your investment) 0.00 %

ANNUAL FUND OPERATING EXPENSES

(expenses deducted from Fund assets)

Management Fee 0.80 %

Distribution/Service (12b-1) Fee 0.00 %

Other Expenses* 0.25 %

TOTAL ANNUAL FUND OPERATING EXPENSES** 1.05%

*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 1.05%.

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 Total Annual Fund Operating
Expenses. The example is for comparison only. Your actual expenses and returns
will be different.

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ------ ------- ------- --------
<S> <C> <C> <C>
$108 $336 $582 $1,288
</TABLE>

<PAGE> 32
30 Payden & Rygel Investment Group

ADDITIONAL INVESTMENT STRATEGIES AND RELATED RISKS
- --------------------------------------------------------------------------------

MORTGAGE-BACKED SECURITIES. Each Fund, except the Tax Exempt Funds and the
Growth & Income, Small Cap Leaders, U.S. Growth Leaders, European Aggressive
Growth Fund and European Growth & Income Funds, may invest in obligations issued
to provide financing for U.S. residential housing and commercial mortgages. Each
Fund, except the Tax Exempt Funds and the U.S. Government, Growth & Income,
Small Cap Leaders Stock, U.S. Growth Leaders and European Growth & Income Funds,
may invest in foreign mortgage-related securities. Payments made on the
underlying mortgages and passed through to a Fund represent both regularly
scheduled principal and interest payments, as well as prepayments of principal.
Mortgage-backed securities may be prepaid prior to maturity, and hence the
actual life of the security cannot be accurately predicted. During periods of
falling interest rates, prepayments may accelerate, which would require a Fund
to reinvest the proceeds at a lower interest rate. Although generally rated
investment grade, the securities could become illiquid or experience losses if
guarantors or insurers default.

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

REGISTERED INVESTMENT COMPANIES. The Market Return Fund may invest in shares of
equity index mutual funds, and the Growth & Income Fund may invest up to 50% of
its total assets in a combination of broad market equity-based derivative
instruments, including Standard and Poor's Depositary Receipts (SPDRs), DIAMONDS
Trust, Series 1 (Diamonds) and Nasdaq-100 Shares (QQQs), and equity index mutual
funds. The U.S. Growth Leaders Fund may also invest in one or more broad market
equity-based derivatives, such as SPDRs, Diamonds or QQQs. However, under the
Investment Company Act of 1940, the Group and its affiliated persons may not
hold in the aggregate more than 3% of the outstanding SPDRs, Diamonds or QQQs,
or the shares of any such equity index mutual fund.

SPDRs are shares of a publicly traded unit investment trust which owns the
stocks included in the S&P 500 Index; changes in the prices of SPDRs track the
movement of the Index relatively closely. Diamonds are shares of a publicly
traded unit investment trust which owns the stocks included in the Dow Jones
Industrial Average; changes in the prices of Diamonds track the movement of the
DJIA relatively closely. QQQs are shares of a publicly traded unit investment
trust which owns the stocks included in the Nasdaq-100 Index; changes in the
prices of QQQs track the movement of the Index relatively closely. SPDRs,
Diamonds, and QQQs are each subject to the risks of an investment in a broadly
based portfolio of common stocks, including the risk of declines in the general
level of stock prices. They are also subject to the risks of trading halts due
to market conditions or other reasons.

Equity index mutual funds own the stocks included in indices such as the S&P
500 Index, and are intended to closely track the relevant Index. Although such
index mutual funds generally have substantial assets and low operating expenses,
investment in such a fund by a Fund will involve a duplication of expenses, as
it will require payment by the Fund of its pro rata share of advisory and
administrative fees charged by the index mutual fund.

BELOW INVESTMENT GRADE DEBT OBLIGATIONS. Each Tax Exempt Fund and each of the
Total Return, High Income, Market Return and Emerging Markets Bond Funds may
invest in below investment grade debt obligations. Investment grade debt
securities are those rated within the four highest grades by rating agencies
such as Standard & Poor's (at least BBB), Moody's (at least Baa) or Fitch (at
least BBB), or those determined by the Adviser to be of comparable quality.
Lower quality debt securities are more speculative, less liquid and involve a
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities fluctuate more than
those of investment grade securities and may decline significantly in periods of
general economic difficulty. If the rating of a debt security falls below BB or
B by S&P or Fitch, or Ba or B by Moody's, then the Total Return, Short Duration
Tax Exempt, Tax Exempt Bond, California Municipal Income and Market Return Funds
will discontinue making investments in securities of that issuer and will
liquidate any current holdings as soon as the Adviser determines it is in the
best interest of the Fund to do so. Further information regarding investment
ratings is in Appendix A.

FOREIGN INVESTMENTS. Each Fund, except the Tax Exempt Funds and the U.S.
Government, GNMA and Growth & Income Funds, may invest in securities of foreign
issuers. Investing in securities of foreign issuers involves

<PAGE> 33
Prospectus 31

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

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 a 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. Each Global Bond Fund, each Global Equity Fund
and each U.S. Equity Fund, and each of the Total Return and High Income Funds
normally conduct their foreign currency exchange transactions either on a spot
(cash) basis at the spot rate prevailing in the foreign currencies, or on a
forward basis (contracts to purchase or sell a specified currency at a specified
future date and price). None of these Funds will generally enter into a forward
contract with a term of greater than one year. Although forward contracts are
used primarily to protect a Fund from adverse currency movements, they may also
be used to increase exposure to a currency, and involve the risk that
anticipated currency movements will not be accurately predicted and a Fund's
total return will be adversely affected as a result. Open positions in forward
contracts are covered by the segregation with the Group's Custodian of cash,
U.S. Government securities or other debt obligations and are marked-to-market
daily.

EMERGING MARKETS. Each of the Total Return, High Income, Emerging Markets Bond
and Global Balanced Funds 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.

OPTIONS AND FUTURES CONTRACTS. Each Fund, except the Bunker Hill Money Market
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.
Each Fund may also employ combinations of put and call options, including
without limitation, straddles, spreads, collars, and strangles. The Funds
generally use 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 a Fund, to reduce the volatility of the currency exposure
associated with investment in non-U.S. securities, or as an efficient means of
adjusting exposure to the bond, stock and currency markets and not for
speculation. However, each of the Funds 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 a Fund's total return, and a Fund's attempt to use those
instruments for hedging may not succeed. The aggregate market value of a Fund's
portfolio securities and foreign currencies covering put options on securities
and currencies written by the Fund will not exceed 50% of its net assets.
The following chart summarizes the types of futures and options transactions
in which the Funds may engage:

TYPES OF CONTRACTS

<TABLE>
<CAPTION>
Other
Interest Stock Security
Rate Index Indices Currency Securities
-------- ----- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Fixed Income Yes No Yes No Yes
Funds
(except Bunker Hill,
Total Return and
High Income Funds)
Total Return and High Yes Yes Yes Yes Yes
Income Funds
Bunker Hill Fund No No No No No
Tax Exempt Funds Yes No Yes No Yes
U.S. Equity Funds No Yes Yes No Yes
(except Market
Return Fund)
Market Return Fund Yes Yes Yes Yes Yes
Global Bond Funds Yes No Yes Yes Yes
Global Balanced Fund Yes Yes Yes Yes Yes
European Growth & No Yes Yes Yes Yes
Income and European
Aggressive Growth
Funds
</TABLE>

<PAGE> 34
32 Payden & Rygel Investment Group

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

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

A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
streams. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Group's
Custodian. Swap transactions do not involve the delivery of securities or other
underlying assets or principal, and the risk of loss with respect to such
transactions is limited to the net amount of payments that a Fund is
contractually obligated to make or receive.

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

TEMPORARY DEFENSIVE MEASURES. During times when the Adviser believes that a
temporary defensive posture is warranted, each Fund may hold part or all of its
assets in cash, U.S. Government and Government agency securities, money market
obligations, short-term corporate debt securities and money market funds. This
may help a Fund minimize or avoid losses during adverse market, economic or
political conditions. However, during such a period, a Fund may not achieve its
investment objective.

PORTFOLIO TURNOVER. The Funds' Adviser and Sub-adviser will sell a security when
appropriate, regardless of how long a Fund has held that security. Buying and
selling securities generally involves some expense to the Fund, such as broker
commissions and other transaction costs, that adversely affect 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 (a) 100% for each Tax Exempt
Fund, each U.S. Equity Fund, each Global Equity Fund, and each of the High
Income and Limited Maturity Funds, and (b) 200% for each Global Bond Fund and
each of the Short Bond, U.S. Government, GNMA, Investment Quality Bond and Total
Return Funds.

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 FUNDS
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

Payden & Rygel, located at 333 South Grand Avenue, Los Angeles, California
90071, serves as investment adviser to the Funds. 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 Funds within the broad investment parameters
established by the Adviser's Investment Policy Committee. The Investment Policy
Committee, comprised of John Isaacson, Brian Matthews, Christopher Orndorff,
James Sarni and Scott Weiner supervises these teams.

John Isaacson is a Managing Principal of Payden & Rygel. He joined the
Company in 1988 and has 27 years of experience in the investment business. Brian
Matthews is a Managing Principal who joined the Company in 1986 and has 16 years
of experience in the investment business. Christopher Orndorff is a Managing
Principal of the Company; he joined Payden & Rygel in 1990 and has 15 years of
experience in the investment business. Jim Sarni is a Managing Principal who
joined the Company in 1990 and has 15 years of experience in the investment
business. Scott Weiner is a Managing Principal of the Company; he joined Payden
& Rygel in 1993 and has 14 years of experience in the investment business.
Together, they are responsible for defining the broad investment parameters of
the Funds, including the types of strategies to be employed and the range of
securities acceptable for investment.

For the fiscal year ended October 31, 1999, the Adviser earned a fee from
each Fund as follows: Limited Maturity, 0.16%; Short Bond Fund, 0.18%; U.S.
Government Fund,

<PAGE> 35
Prospectus 33

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

0.18%; GNMA Fund, 0.00%; Investment Quality Bond Fund, 0.28%; Total Return Fund,
0.28%; High Income Fund, 0.35%; Bunker Hill Money Market Fund, 0.03%; Short
Duration Tax Exempt Fund, 0.00%; Tax Exempt Bond Fund, 0.25%; California
Municipal Income Fund, 0.05%; Growth & Income Fund, 0.50%; Market Return Fund,
0.20%; U.S. Growth Leaders Fund, 0.00%; Global Short Bond Fund, 0.29%; Global
Fixed Income Fund, 0.30%; Emerging Markets Bond Fund, 0.00%; Global Balanced
Fund, 0.00%; European Growth & Income Fund, 0.44%; and European Aggressive
Growth Fund, 0.00%. The Small Cap Leaders Fund was not open during this period.

THE SUB-ADVISER

Metzler/Payden, LLC ("Metzler/Payden") serves as sub-investment manager for
the European Growth & Income, Global Balanced and European Aggressive Growth
Funds. The Adviser has delegated to Metzler/Payden the day-to-day investment
management responsibilities for these Funds.

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 DM11 billion for institutional clients and mutual
funds, including European 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. Bernard Ebert, Rainer Matthes, Klaus
Hagedorn and Nader 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, who
joined Metzler in 1993, is head of Conceptual Portfolio Management at Metzler
and has eight years of investment experience. Mr. Hagedorn, with 30 years of
investment experience, has been at Metzler since 1988 and is Head of Investment
Strategy. Mr. Purschaker has seven 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 Funds within the broad investment parameters established by the
Sub-advisor's Investment Policy Committee.

NET ASSET VALUE
- --------------------------------------------------------------------------------

The price of each Fund's shares is its net asset value per share. The net
asset value per share of each Fund is determined as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) by
dividing the difference between the value of assets and liabilities of the 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.

<PAGE> 36
34 Payden & Rygel Investment Group

DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------

Each of the following Funds declares and distributes dividends to
shareholders as follows: (1) monthly, for the Investment Quality Bond, Total
Return, Market Return, Global Short Bond and Global Fixed Income Funds, (2)
quarterly, for the European Growth & Income, Global Balanced, High Income,
Emerging Markets Bond and Growth & Income Funds, and (3) semi-annually, for the
U.S. Growth Leaders, Small Cap Leaders and European Aggressive Growth Funds. The
Bunker Hill Money Market Fund accrues dividends daily and declares and
distributes them to shareholders monthly.

Currently, each of the Limited Maturity, Short Bond, U.S. Government, GNMA,
Short Duration Tax Exempt, Tax Exempt Bond and California Municipal Income Funds
declares and distributes dividends to shareholders monthly. Effective April 1,
2000, each of these seven Funds will accrue dividends daily and declare and
distribute them to shareholders monthly.

The Funds distribute any net realized capital gains from the sale of
portfolio securities at least once yearly. Each 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.
Substantially all dividends paid by the Short Duration Tax Exempt, Tax
Exempt Bond and California Municipal Income Funds will be exempt from federal
income taxes; however, a portion of the dividends may be a tax preference item
for purposes of the alternative minimum tax. Dividends paid by the other Funds,
and distributions paid by all Funds from long-term capital gains, are taxable to
you. Any short-term capital gains or taxable interest income, therefore, will be
taxable to you as ordinary income. The Funds 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.
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
- --------------------------------------------------------------------------------

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

EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for any class of shares of any other Fund.
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 at 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 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 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.

<PAGE> 37
Prospectus 35

CHECKWRITING
Checkwriting is available for investors of the Limited Maturity, Bunker Hill
Money Market and Short Duration Tax Exempt Funds. Each check you write on your
Bunker Hill Money Market Fund account must be at least $500. To obtain checks,
call a Fund Representative for a signature card and complete and return it to
the Fund. To pay the check, the Fund redeems shares from your Fund account at
the net asset value per share computed on the day the check is presented to the
Fund for payment. You may incur a taxable capital gain or loss on the shares
redeemed each time a check is paid. The Group may charge a transaction fee of
$2.00 per check to your account, if you have total assets with the Group of less
than $25,000. The Fund reserves the right to modify or terminate the
checkwriting privilege on 30 days notice.
The Fund credits checks received to your account on the day received by the
Fund. The Group may charge a $20.00 fee on the account if a check is returned
because it fails to meet the Fund's checkwriting criteria or if there are
insufficient funds in the account.

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

ELECTRONIC INVESTMENT PLAN. You elect to make additional investments in 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 at 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, and it must be received by the Fund 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
(800-572-9336), visit our Web site at www.payden.com, or write to Payden & Rygel
Investment Group, 333 South Grand Avenue, Los Angeles, CA 90071.

<PAGE> 38
36 Payden & Rygel Investment Group

HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------

Each 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 (213) 625-1900, or (800)
5PAYDEN (800-572-9336), or via the internet at www.payden.com using the Account
Access function under Mutual Funds (user registration required). 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 Funds 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 at 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 (800-572-9336), if you 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.

The Group has authorized one or more brokers to accept redemption orders on
behalf of the Funds, and such brokers are authorized to designate intermediaries
to accept redemption orders on behalf of the Funds. A Fund will be deemed to
have received a redemption order when an authorized broker or broker-authorized
designee accepts the order. A Customer's redemption order will be priced at the
Fund's net asset value next computed after the order is accepted by an
authorized broker or broker-authorized designee. The authorized broker or
broker-authorized designee may charge the customer a fee for handling the
redemption order.

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.
<PAGE> 39
Prospectus 37

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------

You may purchase shares of the Funds 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 219318

Kansas City, MO 64121-9828

BY FEDERAL FUNDS WIRE
Complete application and mail to:
Payden & Rygel Investment Group

P.O. Box 219318

Kansas City, MO 64121-9828

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 (800-572-9336),
to advise of any purchases by wire.

Your purchase will be at the net asset value per share next determined after
the Distributor receives your order in proper form. It will accept purchase
orders only on days on which the 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
Except for the Limited Maturity, Short Bond, Total Return and Global Short
Bond Funds, the minimum initial and additional investments per 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>

For each of the Limited Maturity, Short Bond, Total Return and Global Short
Bond Funds, the minimum investment is $100,000.(3) The minimum investment amount
may be waived from time to time by the Distributor.

ADDITIONAL INVESTMENTS

You may make additional investments at any time at net asset value by check,
by ACH (by telephone or via the internet at 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.

PURCHASES THROUGH BROKERS

The Group has authorized one or more brokers to accept purchase orders on
behalf of the Funds, and such brokers are authorized to designate intermediaries
to accept purchase orders on behalf of the Funds. A Fund will be deemed to have
received a purchase order when an authorized broker or broker-authorized
designee accepts the order. A Customer's purchase order will be priced at the
Fund's net asset value next computed after the order is accepted by an
authorized broker or broker-authorized designee. The authorized broker or
broker-authorized designee may charge the customer a fee for handling the
purchase order.

OTHER PURCHASE INFORMATION

The Funds issue full and fractional shares, but do not issue certificates.
Some Funds may not be available in all jurisdictions. The Group reserves the
right, in its sole discretion, to suspend the offering of shares of any Fund; 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.

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

(3 )The minimum investment level is waived for current investors whose
investment in any one of these four Funds was less than $100,000 on December 30,
1997. However, if such an investor wishes to make an additional investment in
the Fund, the additional investment must be enough to meet the $100,000 minimum
investment level.
<PAGE> 40
38 Payden & Rygel Investment Group

APPENDIX A: DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------

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

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

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

BONDS
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations.
They are neither highly protected nor poorly secured. Interest payments and
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

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

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

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

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

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

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

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

BONDS
AAA: Bonds rated AAA have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal) is extremely strong.
<PAGE> 41
Prospectus 39

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

AA: Bonds rated AA differ from the highest-rated obligations only in a small
degree. The obligor's capacity to meet its financial commitment on the
obligation (i.e., pay interest and repay principal) is very strong.
A: Bonds rated A are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in higher
rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation (i.e., pay interest and repay principal) is still
strong.
BBB: Bonds rated BBB exhibit adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation (i.e., pay interest and repay principal).
BB: Bonds rated BB are less vulnerable to nonpayment than other speculative
issues. However, they face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation (i.e.,
pay interest and repay principal).
B: Bonds rated B are more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation (i.e., pay interest and repay principal). Adverse business,
financial, or economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC: An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated CC is currently highly vulnerable to nonpayment.
C: The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: An obligation rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
The Standard & Poor's ratings may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.

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

BONDS
AAA: Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Debt rated BBB is considered to be of satisfactory credit quality.
Ability to pay interest and principal is adequate. Adverse changes in economic
conditions and circumstances are more likely to impair timely payment than
higher rated bonds.
BB: Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified, which could
assist in the obligor satisfying its debt service requirements.
B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
<PAGE> 42
40 Payden & Rygel Investment Group

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

safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC: Bonds have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery. Plus (+) and minus (-) signs are used with a
rating symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the "DDD," "DD," or "D"
categories.

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

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

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

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

RATING DEFINITIONS
A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B: Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as for companies in the highest rating category.
B: A strong company with a solid financial record and well received by its
natural money markets. Some minor weaknesses may exist, but any deviation from
the company's historical performance levels should be both limited and
short-lived. The likelihood of a problem developing is small, yet slightly
greater than for a higher-rated company.
B/C: Company is clearly viewed as a good credit. While some shortcomings are
apparent, they are not serious and/or are quite manageable in the short-term.
C: Company is inherently a sound credit with no serious deficiencies, but
financials reveal at least one fundamental area of concern that prevents a
higher rating. Company may recently have experienced a period of difficulty, but
those pressures should not be long-term in nature. The company's ability to
absorb a surprise, however, is less than that for organizations with better
operating records.

CREDIT RATINGS -- MUNICIPAL SECURITIES AND COMMERCIAL PAPER

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

U.S. TAX-EXEMPT MUNICIPALS
Moody's ratings for U.S. Tax-Exempt Municipals range from Aaa to B and utilize
the same definitional elements as are set forth in the Prospectus under the
"Bonds" section of the Moody's descriptions.
Advance refunded issues: Advance refunded issues that are secured by
escrowed funds held in cash, held in trust, reinvested in direct non-callable
United States government obligations or non-callable obligations unconditionally
guaranteed by the U.S. government are identified with a # (hatchmark) symbol,
e.g., # Aaa.

MUNICIPAL NOTE RATINGS
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG), and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows for their
servicing or from established and broad-based access to the market for
refinancing, or both. Loans bearing the designation MIG2/VMIG 2 are of high
quality, with ample margins of protection, although not as large as the
preceding group.
<PAGE> 43
Prospectus 41

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

COMMERCIAL PAPER
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment ability of rated issuers:
Prime-1: Issuers rated Prime-1 (or related supporting institutions) have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
(a) leading market positions in well established industries; (b) high rates of
return on funds employed; (c) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (d) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (e) well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

MUNICIPAL BOND RATINGS
AAA -- Prime Grade: These are obligations of the highest quality. They have
the strongest capacity for timely payment of debt service.

General Obligations Bonds: In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure
appears more than adequate to meet future expenditure requirements. Quality
of management appears superior.

Revenue Bonds: Debt service coverage has been, and is expected to remain,
substantial, stability of the pledged revenues is also exceptionally strong
due to the competitive position of the municipal enterprise or to the nature
of the revenues. Basic security provisions (including rate covenant,
earnings test for issuance of additional bonds and debt service reserve
requirements) are rigorous. There is evidence of superior management.
AA -- High Grade: The investment characteristics of bonds in this group are
only slightly less marked than those of the prime quality issues. Bonds rated AA
have the second strongest capacity for payment of debt service.
A -- Good Grade: Principal and interest payments on bonds in this category
are regarded as safe although the bonds are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than bonds
in higher rated categories. This rating describes the third strongest capacity
for payment of debt service. Regarding municipal bonds, the rating differs from
the two higher ratings because:

General Obligation Bonds: There is some weakness, either in the local
economic base, in debt burden, in the balance between revenues and
expenditures, or in quality of management. Under certain adverse
circumstances, any one such weakness might impair the ability of the issuer
to meet debt obligations at some future date.

Revenue Bonds: Debt service coverage is good, but not exceptional. Stability
of the pledged revenues could show some variations because of increased
competition or economic influences on revenues. Basic security provisions,
while satisfactory, are less stringent. Management performance appearance
appears adequate.

Rating Refinements: Standard & Poor's letter ratings may be modified by the
addition of a plus (+) or a minus (-) sign, which is used to show relative
standing within the major rating categories, except in the AAA rating
category.

MUNICIPAL NOTE RATINGS
Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, or SP-2) to distinguish more clearly the credit
quality of notes as
<PAGE> 44
42 Payden & Rygel Investment Group

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

compared to bonds. Notes rated SP-1 have a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given the designation of SP-1. Notes rated SP-2 have a
satisfactory capacity to pay principal and interest.

COMMERCIAL PAPER
A-1: A short-term obligation rated A-1 is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity to
meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.

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

COMMERCIAL PAPER
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment. Those issues regarded as having the strongest
degree of assurance of repayment are denoted with a plus (+) sign designation.

IBCA, LIMITED
IBCA analyzes credit quality of short term debt (maturities of one year or
less).
A: An issuer of impeccable financial condition, with a consistent record of
above average performance.
B: An issuer with a sound risk profile and without significant problems. The
issuer's performance has generally been in line with or better than that of its
peers.
C: An issuer which has an adequate risk profile but possesses one or more
troublesome aspects, giving rise to the possibility of risk developing, or which
has generally failed to perform in line with its peers.

In addition, ratings of "A/B" and "B/C" may be assigned.

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

ISSUER RATINGS

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

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

RATINGS DEFINITIONS
A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and very good access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B: Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as for companies in the highest rating category.
B: A strong company with a solid financial record and well received by its
natural money markets. Some minor weaknesses may exist, but any deviation from
the company's historical performance levels should be both limited and
short-lived. The likelihood of a problem developing is small, yet slightly
greater than for a higher-rated company.
B/C: Company is clearly viewed as a good credit. While some shortcomings are
apparent, they are not serious and/or are quite manageable in the short-term.
C: Company is inherently a sound credit with no serious deficiencies, but
financials reveal at least one fundamental area of concern that prevents a
higher rating. Company may recently have experienced a period of difficulty, but
those pressures should not be long-term in nature. The company's ability to
absorb a surprise, however, is less than that for organizations with better
operating records.
<PAGE> 45
Prospectus 43

APPENDIX B: FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

This financial highlights table will help you understand the financial
performance of each of the Funds for the past five years (or if shorter, the
period of the Fund's operations) through October 31, 1999. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, whose report, along with
the Funds' financial statements, are included in the Group's annual report,
which is available on request. The Small Cap Leaders Fund was not open during
the period.

- --------------------------------------------------------------------------------
PAYDEN & RYGEL LIMITED MATURITY FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31,1997 OCTOBER 31, 1996 OCTOBER 31, 1995(a)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning
of period $ 10.08 $ 10.06 $ 10.06 $ 10.06 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment activities:
Net investment income 0.56 0.56 0.54 0.53 0.56
Net realized and
unrealized gains
(losses) (0.09) 0.02 0.07
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 0.47 0.58 0.54 0.53 0.63
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From net investment income (0.57) (0.56) (0.54) (0.53) (0.57)
In excess of net
investment income
From net realized gains
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.57) (0.56) (0.54) (0.53) (0.57)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of
period $ 9.98 $ 10.08 $ 10.06 $ 10.06 $ 10.06
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total return 4.71% 5.87% 5.46% 5.41% 6.43%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) 97,820 $117,042 $152,429 $50,771 $18,414
Ratio of gross expense to
average net assets 0.50% 0.47% 0.52% 0.62% 0.83%
Ratio of net expense to
average net assets 0.38% 0.29% 0.30% 0.30% 0.33%
Ratio of gross investment
income to average net
assets 5.44% 5.40% 5.30% 5.13% 5.09%
Ratio of net investment
income to average net
assets 5.56% 5.58% 5.52% 5.45% 5.59%
</TABLE>

(a) The Fund commenced operation on May 1, 1994.

<PAGE> 46
44 Payden & Rygel Investment Group

- --------------------------------------------------------------------------------
PAYDEN & RYGEL SHORT BOND FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(b)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of
period $ 9.94 $ 9.92 $ 9.97 $ 10.04 $ 9.68
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.56 0.63 0.58 0.54 0.54
Net realized and unrealized
gains (losses) (0.28) 0.02 (0.05) (0.06) 0.36
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 0.28 0.65 0.53 0.48 0.90
- --------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.56) (0.63) (0.58) (0.54) (0.54)
In excess of net investment
income
From net realized gains (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.56) (0.63) (0.58) (0.55) (0.54)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.66 $ 9.94 $ 9.92 $ 9.97 $ 10.04
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Total return 2.89% 6.80% 5.52% 4.86% 9.56%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $54,559 $108,661 $94,256 $97,966 $19,157
Ratio of gross expense to
average net assets 0.50% 0.50% 0.49% 0.57% 1.03%
Ratio of net expense to
average net assets 0.40% 0.30% 0.40% 0.40% 0.40%
Ratio of gross investment
income to average net
assets 5.58% 5.84% 5.91% 5.50% 5.09%
Ratio of net investment
income to average net
assets 5.68% 6.04% 6.00% 5.67% 5.72%
</TABLE>

(b) The Fund commenced operation on January 1, 1994.

<PAGE> 47
Prospectus 45

- --------------------------------------------------------------------------------
PAYDEN & RYGEL U.S. GOVERNMENT FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(c)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning
of period $ 10.90 $ 10.56 $ 10.54 $ 10.61 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment activities:
Net investment income 0.57 0.56 0.60 0.58 0.53
Net realized and
unrealized gains
(losses) (0.39) 0.33 0.02 (0.04) 0.61
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 0.18 0.89 0.62 0.54 1.14
- -----------------------------------------------------------------------------------------------------------------------------
Distributions to
shareholders:
From net investment
income (0.57) (0.55) (0.60) (0.58) (0.53)
In excess of net
investment income
From net realized gains (0.06) (0.03)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.63) (0.55) (0.60) (0.61) (0.53)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of
period $ 10.45 $ 10.90 $ 10.56 $ 10.54 $ 10.61
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total return 1.76% 8.60% 6.10% 5.20% 11.61%*
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $72,535 $71,855 $15,479 $22,114 $10,894
Ratio of gross expense to
average net assets 0.50% 0.54% 0.63% 0.78% 1.84%**
Ratio of net expense to
average net assets 0.40% 0.34% 0.45% 0.45% 0.45%**
Ratio of gross investment
income to average net
assets 5.29% 5.18% 5.31% 5.26% 4.92%**
Ratio of net investment
income to average net
assets 5.39% 5.38% 5.49% 5.59% 6.31%**
</TABLE>

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

PAYDEN & RYGEL GNMA FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1999(d)
<S> <C>
- ---------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.00
- ---------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.09
Net realized and unrealized gains (losses) 0.10
- ---------------------------------------------------------------------------------
Total from investment activities 0.19
- ---------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.08)
In excess of net investment income
From net realized gains
- ---------------------------------------------------------------------------------
Total distributions to shareholders (0.08)
- ---------------------------------------------------------------------------------
Net asset value -- end of period $ 10.11
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total return 1.82%*
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $121,161
Ratio of gross expense to average net assets 0.90%**
Ratio of net expense to average net assets 0.35%**
Ratio of gross investment income to average net assets 5.41%**
Ratio of net investment income to average net assets 5.96%**
</TABLE>

(d) The Fund commenced operation on August 27, 1999.

* Not annualized

** Annualized

<PAGE> 48
46 Payden & Rygel Investment Group

- --------------------------------------------------------------------------------
PAYDEN & RYGEL INVESTMENT QUALITY BOND FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(b)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of
period $ 10.17 $ 10.01 $ 9.81 $ 9.96 $ 9.09
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.58 0.60 0.58 0.63 0.57
Net realized and unrealized
gains (losses) (0.65) 0.20 0.22 (0.17) 0.87
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities (0.07) 0.80 0.80 0.46 1.44
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.58) (0.59) (0.60) (0.61) (0.57)
In excess of net investment
income
From net realized gains (0.08) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.66) (0.64) (0.60) (0.61) (0.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.44 $ 10.17 $ 10.01 $ 9.81 $ 9.96
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (0.71%) 8.33% 8.44% 4.86% 16.39%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $195,228 $173,974 $94,987 $32,304 $25,822
Ratio of gross expense to
average net assets 0.50% 0.50% 0.53% 0.64% 1.11%
Ratio of net expense to
average net assets 0.50% 0.44% 0.45% 0.00% 0.45%
Ratio of gross investment
income to average net
assets 6.06% 6.06% 5.95% 5.77% 5.54%
Ratio of net investment
income to average net
assets 6.06% 6.12% 6.03% 6.41% 6.20%
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL TOTAL RETURN FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997(e)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.23 $ 10.25 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.66 0.57 0.46
Net realized and unrealized gains (losses) (0.60) 0.20 0.23
- -----------------------------------------------------------------------------------------------------------------------
Total from investment activities (0.06) 0.77 0.69
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.57) (0.58) (0.44)
In excess of net investment income (0.13)
From net realized gains (0.05) (0.08)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.62) (0.79) (0.44)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.67 $ 10.23 $ 10.25
- -----------------------------------------------------------------------------------------------------------------------
Total return 0.55% 7.72% 7.10%*
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $230,440 $174,612 $ 98,863
Ratio of gross expense to average net assets 0.50% 0.52% 0.69%**
Ratio of net expense to average net assets 0.50% 0.44% 0.45%**
Ratio of gross investment income to average net assets 5.58% 5.99% 5.97%**
Ratio of net investment income to average net assets 5.58% 6.07% 6.21%**
</TABLE>

(b) The Fund commenced operation on January 1, 1994.

(e) The Fund commenced operation on December 9, 1996.

* Not annualized

** Annualized

<PAGE> 49
Prospectus 47

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

PAYDEN & RYGEL HIGH INCOME FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998(f)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 9.77 $ 10.00
- ----------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.89 0.47
Net realized and unrealized gains (losses) (0.34) (0.34)
- ----------------------------------------------------------------------------------------------------
Total from investment activities 0.55 0.13
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.80) (0.36)
In excess of net investment income
From net realized gains
- ----------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.80) (0.36)
- ----------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.52 $ 9.77
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total return 5.65% 1.28%*
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $109,297 $91,669
Ratio of gross expense to average net assets 0.55% 0.71%**
Ratio of net expense to average net assets 0.55% 0.54%**
Ratio of gross investment income to average net assets 7.99% 7.58%**
Ratio of net investment income to average net assets 7.99% 7.75%**
</TABLE>

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

PAYDEN & RYGEL BUNKER HILL MONEY MARKET FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998(g)
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.05 0.05
Net realized and unrealized gains (losses)
- ----------------------------------------------------------------------------------------------------
Total from investment activities 0.05 0.05
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.05) (0.05)
In excess of net investment income
From net realized gains
- ----------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.05) (0.05)
- ----------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total return 4.97% 4.65%*
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $87,968 $26,455
Ratio of gross expense to average net assets 0.41% 0.71%**
Ratio of net expense to average net assets 0.30% 0.29%**
Ratio of gross investment income to average net assets 4.72% 4.81%**
Ratio of net investment income to average net assets 4.83% 5.23%**
</TABLE>

(f) The Fund commenced operation on December 30, 1997.

(g) The Fund commenced operation on December 17, 1997.

* Not annualized

** Annualized

<PAGE> 50
48 Payden & Rygel Investment Group

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

PAYDEN & RYGEL SHORT DURATION TAX EXEMPT FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(h)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of
period $ 10.11 $ 10.08 $ 10.01 $ 10.08 $ 9.93
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.37 0.42 0.38 0.38 0.42
Net realized and unrealized
gains (losses) (0.15) 0.03 0.07 (0.06) 0.15
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 0.22 0.45 0.45 0.32 0.57
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.37) (0.41) (0.38) (0.38) (0.42)
In excess of net investment
income
From net realized gains (0.09) (0.01) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.46) (0.42) (0.38) (0.39) (0.42)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.87 $ 10.11 $ 10.08 $ 10.01 $ 10.08
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total return 2.29% 4.55% 4.55% 3.28% 5.88%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $15,061 $16,825 $38,176 $36,336 $16,019
Ratio of gross expense to
average net assets 0.85% 0.68% 0.62% 0.70% 0.91%
Ratio of net expense to
average net assets 0.50% 0.44% 0.45% 0.45% 0.45%
Ratio of gross investment
income to average net
assets 3.27% 3.75% 3.58% 3.56% 3.66%
Ratio of net investment
income to average net
assets 3.62% 3.99% 3.75% 3.81% 4.12%
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL TAX EXEMPT BOND FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(i)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of
period $ 9.92 $ 9.71 $ 9.47 $ 9.59 $ 8.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.42 0.40 0.44 0.45 0.46
Net realized and unrealized
gains (losses) (0.49) 0.20 0.24 (0.12) 0.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities (0.07) 0.60 0.68 0.33 1.15
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.42) (0.39) (0.44) (0.45) (0.46)
In excess of net investment
income
From net realized gains
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.42) (0.39) (0.44) (0.45) (0.46)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.43 $ 9.92 $ 9.71 $ 9.47 $ 9.59
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (0.81%) 6.32% 7.33% 3.52% 13.25%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $46,452 $67,889 $57,579 $49,862 $40,052
Ratio of gross expense to
average net assets 0.57% 0.57% 0.59% 0.61% 0.74%
Ratio of net expense to
average net assets 0.50% 0.49% 0.45% 0.45% 0.45%
Ratio of gross investment
income to average net
assets 4.07% 4.00% 4.46% 4.57% 4.68%
Ratio of net investment income
to average net assets 4.14% 4.08% 4.60% 4.73% 4.97%
</TABLE>

(h) The Fund commenced operation on September 1, 1994.

(i) The Fund commenced operation on December 21, 1993.

* Not annualized

** Annualized

<PAGE> 51
Prospectus 49

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

PAYDEN & RYGEL CALIFORNIA MUNICIPAL INCOME FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1999(j)
<S> <C>
- ---------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.00
- ---------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.26
Net realized and unrealized gains (losses) (0.38)
- ---------------------------------------------------------------------------------
Total from investment activities (0.12)
- ---------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.26)
In excess of net investment income
From net realized gains
- ---------------------------------------------------------------------------------
Total distributions to shareholders (0.26)
- ---------------------------------------------------------------------------------
Net asset value -- end of period $ 9.62
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total return (1.22%)*
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $28,690
Ratio of gross expense to average net assets 0.77%**
Ratio of net expense to average net assets 0.50%**
Ratio of gross investment income to average net assets 3.17%**
Ratio of net investment income to average net assets 3.44%**
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL GROWTH & INCOME FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997(k)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 14.45 $ 12.77 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.19 0.21 0.17
Net realized and unrealized gains (losses) 2.15 1.71 2.74
- -----------------------------------------------------------------------------------------------------------------------
Total from investment activities 2.34 1.92 2.91
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.19) (0.24) (0.14)
In excess of net investment income
From net realized gains (0.33)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.52) (0.24) (0.14)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 16.27 $ 14.45 $ 12.77
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Total return 16.47% 15.15% 29.19%*
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $268,924 $250,553 $150,944
Ratio of gross expense to average net assets 0.75% 0.77% 0.89%**
Ratio of net expense to average net assets 0.75% 0.54% 0.54%**
Ratio of gross investment income to average net assets 1.19% 1.32% 1.25%**
Ratio of net investment income to average net assets 1.19% 1.55% 1.60%**
</TABLE>

(j) The Fund commenced operation on December 17, 1998.

(k) The Fund commenced operation on November 1, 1996.

* Not annualized

** Annualized

<PAGE> 52
50 Payden & Rygel Investment Group

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

PAYDEN & RYGEL MARKET RETURN FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996(l)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 13.31 $ 12.80 $ 10.86 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.76 0.73 0.63 0.50
Net realized and unrealized gains (losses) 2.37 1.46 2.64 0.86
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment activities 3.13 2.19 3.27 1.36
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.77) (0.71) (0.63) (0.50)
In excess of net investment income
From net realized gains (0.73) (0.97) (0.70)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (1.50) (1.68) (1.33) (0.50)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 14.94 $ 13.31 $ 12.80 $10.86
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total return 24.41% 18.48% 31.74% 14.06%*
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $82,969 $43,390 $20,195 $5,789
Ratio of gross expense to average net
assets 0.53% 0.69% 0.96% 4.14%**
Ratio of net expense to average net assets 0.45% 0.45% 0.45% 0.00%**
Ratio of gross investment income to average
net assets 5.29% 5.45% 4.85% 1.81%**
Ratio of net investment income to average
net assets 5.37% 5.69% 5.36% 5.95%**
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL U.S. GROWTH LEADERS FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1999(m)
<S> <C>
- ---------------------------------------------------------------------------------
Net asset value -- beginning of period $10.00
- ---------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.03
Net realized and unrealized gains (losses) 0.50
- ---------------------------------------------------------------------------------
Total from investment activities 0.53
- ---------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
In excess of net investment income
From net realized gains
- ---------------------------------------------------------------------------------
Total distributions to shareholders 0.00
- ---------------------------------------------------------------------------------
Net asset value -- end of period $10.53
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total return 5.30%*
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $4,419
Ratio of gross expense to average net assets 4.61%**
Ratio of net expense to average net assets 0.80%**
Ratio of gross investment income to average net assets (2.84)%**
Ratio of net investment income to average net assets 0.97%**
</TABLE>

(l) The Fund commenced operation on December 1, 1995.

(m) The Fund commenced operation on June 17, 1999.

* Not annualized

** Annualized

<PAGE> 53
Prospectus 51

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

PAYDEN & RYGEL GLOBAL SHORT BOND FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996(n)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.31 $ 10.17 $ 10.07 $ 10.00
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.67 0.92 0.58 0.05
Net realized and unrealized gains
(losses) (0.41) (0.15) 0.11 0.06
- -------------------------------------------------------------------------------------------------------------------------
Total from investment activities 0.26 0.77 0.69 0.11
- -------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.96) (0.63) (0.59) (0.04)
In excess of net investment income
From net realized gains
Return of capital (0.02)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (0.98) (0.63) (0.59) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.59 $ 10.31 $ 10.17 $ 10.07
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total return 2.57% 7.87% 7.02% 1.10%*
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $213,593 $251,609 $220,865 $28,913
Ratio of gross expense to average net
assets 0.51% 0.51% 0.53% 2.31%**
Ratio of net expense to average net
assets 0.50% 0.44% 0.45% 0.45%**
Ratio of gross investment income to
average net assets 3.89% 4.31% 4.76% 3.00%**
Ratio of net investment income to
average net assets 3.90% 4.38% 4.84% 4.86%**
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL GLOBAL FIXED INCOME FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997 OCTOBER 31, 1996 OCTOBER 31, 1995(o)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of
period $ 10.91 $ 10.16 $ 10.35 $ 10.32 $ 9.77
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
activities:
Net investment income 0.76 0.45 1.03 0.54 0.89
Net realized and unrealized
gains (losses) (0.69) 0.72 (0.16) 0.19 0.53
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
activities 0.07 1.17 0.87 0.73 1.42
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.79) (0.42) (1.06) (0.70) (0.87)
In excess of net investment
income
From net realized gains
Return of capital (0.33)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions to
shareholders (1.12) (0.42) (1.06) (0.70) (0.87)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 9.86 $ 10.91 $ 10.16 $ 10.35 $ 10.32
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total return 0.56% 11.81% 8.84% 7.41% 15.10%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period
(000) $489,687 $524,650 $535,644 $651,165 $540,041
Ratio of gross expense to
average net assets 0.49% 0.49% 0.49% 0.53% 0.50%
Ratio of net expense to
average net assets 0.49% 0.49% 0.49% 0.53% 0.50%
Ratio of gross investment
income to average net
assets 4.48% 5.13% 5.69% 5.67% 8.94%
Ratio of net investment income
to average net assets 4.48% 5.13% 5.69% 5.67% 8.94%
</TABLE>

(n) The Fund commenced operation on September 18, 1996.

(o) The Fund commenced operation on September 1, 1992.

* Not annualized

** Annualized

<PAGE> 54
52 Payden & Rygel Investment Group

- --------------------------------------------------------------------------------
PAYDEN & RYGEL EMERGING MARKETS BOND FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1999(j)
<S> <C>
- --------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.83
Net realized and unrealized gains (losses) 0.43
- --------------------------------------------------------------------------------
Total from investment activities 1.26
- --------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.75)
In excess of net investment income
From net realized gains
- --------------------------------------------------------------------------------
Total distributions to shareholders (0.75)
- --------------------------------------------------------------------------------
Net asset value -- end of period $ 10.51
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total return 12.92%*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $ 11,283
Ratio of gross expense to average net assets 1.35%**
Ratio of net expense to average net assets 0.80%**
Ratio of gross investment income to average net assets 9.36%**
Ratio of net investment income to average net assets 9.91%**
</TABLE>

- --------------------------------------------------------------------------------
PAYDEN & RYGEL GLOBAL BALANCED FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997(e)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $10.84 $10.79 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.02 0.20 0.05
Net realized and unrealized gains (losses) 1.65 0.63 0.90
- ------------------------------------------------------------------------------------------------------------------------
Total from investment activities 1.67 0.83 0.95
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.17) (0.05)
In excess of net investment income
From net realized gains (0.86) (0.61) (0.11)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.86) (0.78) (0.16)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $11.65 $10.84 $ 10.79
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Total return 15.85% 8.21% 9.49%*
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $8,624 $7,078 $10,312
Ratio of gross expense to average net assets 1.56% 1.43% 1.64%**
Ratio of net expense to average net assets 0.70% 0.69% 0.70%**
Ratio of gross investment income to average net assets 1.53% 2.37% 2.38%**
Ratio of net investment income to average net assets 2.39% 3.11% 3.32%**
</TABLE>

(e) The Fund commenced operation on December 9, 1996.

(j) The Fund commenced operation on December 17, 1998.

* Not annualized

** Annualized

<PAGE> 55
Prospectus 53

- --------------------------------------------------------------------------------
PAYDEN & RYGEL EUROPEAN GROWTH & INCOME FUND
For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1997(p)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- beginning of period $ 11.46 $ 10.19 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.15 0.17 (0.04)
Net realized and unrealized gains (losses) 0.18 1.28 0.23
- ------------------------------------------------------------------------------------------------------------------------
Total from investment activities 0.96 1.45 0.19
- ------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (0.09) (0.17)
From net realized gains (0.40) (0.01)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (0.49) (0.18) 0.00
- ------------------------------------------------------------------------------------------------------------------------
Net asset value -- end of period $ 11.93 $ 11.46 $ 10.19
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Total return 8.39% 14.31% 1.90%*
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $38,243 $39,529 $13,608
Ratio of gross expense to average net assets 0.96% 1.20% 2.48%**
Ratio of net expense to average net assets 0.90% 0.69% 0.69%**
Ratio of gross investment income to average net assets 1.19% 2.26% (0.07)%**
Ratio of net investment income to average net assets 1.25% 2.77% 1.72%**
</TABLE>

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

PAYDEN & RYGEL EUROPEAN AGGRESSIVE GROWTH FUND

For a Share Outstanding Throughout the Period

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1997(m)
<S> <C>
- ----------------------------------------------------------------------------------
Net asset value -- beginning of period $ 10.00
- ----------------------------------------------------------------------------------
Income (loss) from investment activities:
Net investment income 0.03
Net realized and unrealized gains (losses) 1.25
- ----------------------------------------------------------------------------------
Total from investment activities 1.28
- ----------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
In excess of net investment income
From net realized gains
- ----------------------------------------------------------------------------------
Total distributions to shareholders 0.00
- ----------------------------------------------------------------------------------
Net asset value -- end of period $ 11.28
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Total return 12.80%*
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000) $10,187
Ratio of gross expense to average net assets 2.89%**
Ratio of net expense to average net assets 0.95%**
Ratio of gross investment income to average net assets (1.63)%**
Ratio of net investment income to average net assets 0.31%**
</TABLE>

(m) The Fund commenced operation on June 17, 1997.

(p) The Fund commenced operation on June 30, 1997.

* Not annualized

** Annualized

<PAGE> 56
54 Payden & Rygel Investment Group

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

THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 57
Prospectus 55

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

THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 58
Payden & Rygel Investment Group

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

THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 59

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

2 World Financial Center

New York, New York 10281

COUNSEL
Paul, Hastings, Janofsky and Walker LLP
555 South Flower Street
Los Angeles, California 90071
<PAGE> 60
FOR MORE INFORMATION ABOUT THE PAYDEN & RYGEL MUTUAL FUNDS, THE FOLLOWING
DOCUMENTS ARE AVAILABLE FREE UPON REQUEST:

ANNUAL/SEMI-ANNUAL REPORTS:

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

STATEMENT OF ADDITIONAL INFORMATION (SAI):

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

You can get free copies of the Annual and Semi-Annual Reports and the SAI, or
request other information and discuss your questions about the Funds by calling
us at 1-800-5PAYDEN, or by writing us at:

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

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

- - For a fee, by writing the Public Reference Section of the SEC, Washington,
D.C. 20549-6009 by e-mail at [email protected]., or by calling
1-800-SEC-0330.

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

Payden & Rygel Investment Group: Investment Company Act File No. 811-6625.
<PAGE> 61
THE PAYDEN & RYGEL INVESTMENT GROUP

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 EUROPEAN AGGRESSIVE GROWTH FUND

333 South Grand Avenue
Los Angeles, California 90071
1-800-5PAYDEN (572-9336)

STATEMENT OF ADDITIONAL INFORMATION

February 28, 2000

The Payden & Rygel Investment Group (the "Group") is a professionally managed,
open-end management investment company with multiple funds available for
investment. This Statement of Additional Information ("SAI") contains
information about the Group's twenty-one funds (each a "Fund" and collectively
the "Funds"). This SAI contains information in addition to that set forth in the
combined prospectus for the Funds dated February 28, 2000. The SAI is not a
prospectus and should be read in conjunction with the Prospectus. In addition,
the Group's 1999 Annual Report to Shareholders is incorporated by reference into
this SAI. You may order copies of the Prospectus and the Annual Report without
charge at the address or telephone number listed above.

<PAGE> 62

TABLE OF CONTENTS

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

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

INVESTMENT STRATEGIES/TECHNIQUES AND RELATED RISKS................ 5

MANAGEMENT OF THE GROUP........................................... 29

PORTFOLIO TRANSACTIONS............................................ 35

PURCHASES AND REDEMPTIONS......................................... 36

VALUATION OF PORTFOLIO SECURITIES................................. 36

TAXATION.......................................................... 37

DISTRIBUTION AGREEMENTS........................................... 40

FUND PERFORMANCE.................................................. 41

OTHER INFORMATION................................................. 44
</TABLE>

2
<PAGE> 63

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 the Funds listed on the cover page of this SAI.

FUNDAMENTAL AND OPERATING POLICIES

Each 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 a 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, no Fund may:

(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) each Fund, other than Bunker Hill Money Market Fund, may enter into
financial and currency futures contracts and options on such futures contracts,
(ii) each Global Bond Fund, each Global Equity Fund and each U.S. Equity Fund,
and each of the Total Return and High Income Funds, may enter into forward
foreign currency exchange contracts (the Funds do not consider such contracts to
be commodities), and (iii) each Fund, other than the U.S. Government and Bunker
Hill Money Market Funds, may invest in instruments which have the
characteristics of both futures contracts and securities.

(3) LOANS. Make loans, except that (i) each Fund may purchase money market
securities and enter into repurchase agreements, (ii) each Fund may acquire
bonds, debentures, notes and other debt securities, and (iii) each Fund, other
than the U.S. Government, California Municipal Income, and Emerging Markets Bond
Funds, may lend portfolio securities in an amount not to exceed 30% of its total
assets (with the value of all loan collateral being "marked to market" daily at
no less than 100% of the loan amount).

(4) MARGIN. Purchase securities on margin, except that (i) each Fund may use
short-term credit necessary for clearance of purchases of portfolio securities,
and (ii) each Fund, other than the U.S. Government and Bunker Hill Money Market
Funds, may make margin deposits in connection with futures contracts and options
on futures contracts.

(5) MORTGAGING. Mortgage, pledge, hypothecate or in any manner transfer any
security owned by a Fund as security for indebtedness, except as may be
necessary in connection with permissible borrowings and then only in amounts not
exceeding 30% of the Fund's total assets valued at market at the time of the
borrowing.

(6) ASSETS INVESTED IN ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the Fund's total assets, more than 5% of the its total assets
would be invested in the securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities).

(7) SHARE OWNERSHIP OF ANY ISSUER. Purchase a security if, as a result, with
respect to 50% of the Fund's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).

(8) REAL ESTATE. Purchase or sell real estate (although it may purchase
securities secured by real estate partnerships or interests therein, or issued
by companies or investment trusts which invest in real estate or interests
therein) or real estate limited partnership interests.

3
<PAGE> 64

(9) SHORT SALES. Effect short sales of securities.

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

In addition, as a matter of fundamental policy:

(11) GLOBAL DIVERSIFICATION. Under normal market conditions, each of the Global
Fixed Income and Global Short Bond Funds invests at least 65% of its total
assets in debt securities of issuers located in at least three countries (one of
which may be the United States).

(12) TAX EXEMPT SECURITIES. Under normal market conditions, each of the Short
Duration Tax Exempt, Tax Exempt Bond and California Municipal Income Funds
invest at least 80% of the value of its net assets in a non-diversified
portfolio of debt obligations issued by state and local governments, territories
and possessions of the U.S., regional government authorities, and their agencies
and instrumentalities which provide interest income that, in the opinion of bond
counsel to the issuer at the time of original issuance, is exempt from federal
income taxes ("municipal securities").

(13) SECTOR DIVERSIFICATION. Neither the Growth & Income Fund nor the Market
Return Fund will purchase any security which would cause 25% or more of its
total assets at the time of purchase to be invested in the securities of any one
or more issuers conducting their principal business activities in the same
industry, provided that (i) there is no limitation with respect to U.S.
Government obligations and repurchase obligations secured by such obligations,
(ii) wholly owned finance companies are considered to be in the industries of
their parents, (iii) SPDRs and other similar derivative instruments are divided
according to the industries of their underlying common stocks, and (iv)
utilities are divided according to their services (for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry). Each foreign government and supranational organization is considered
to be an industry.

(14) BELOW INVESTMENT GRADE DEBT. The High Income Fund invests at least 65% of
its total assets in debt securities rated below investment grade, or those
determined by the Adviser to be of comparable quality.

OPERATING POLICIES

As a matter of operating policy, no Fund may:

(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% (and in the case of the Bunker Hill Money Market Fund, 10%) 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. However, pursuant
to an Order issued by the SEC on December 29, 1999, any Fund may purchase shares
of the Bunker Hill Money Market Fund, provided that the investment does not
exceed 25% of the investing Fund's total assets.

(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 each
Fund, other than the Bunker Hill Money Market 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.

4
<PAGE> 65

In addition:

(6) BORROWINGS. The U.S. Government Fund does not borrow amounts exceeding 33%
of total assets valued at market (including reverse repurchase agreements and
delayed delivery transactions).

(7) TAX EXEMPT SECURITIES. Under normal circumstances, the California Municipal
Income Fund invests at least 65% of the value of its net assets will be invested
in securities of the State of California, local governments and governmental
authorities within California and their agencies and instrumentalities which
provide interest income that, in the opinion of bond counsel to the issuer at
the time of original issuance, is exempt from California personal income taxes.

INVESTMENT STRATEGIES/TECHNIQUES AND RELATED RISKS

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

FUND DIVERSIFICATION

Each of the High Income Fund, Bunker Hill Money Market Fund and European
Aggressive Growth Fund is classified as a "diversified" fund. Each of the other
Funds is classified as a "non-diversified" fund. As provided in the 1940 Act, a
diversified fund has, with respect to at least 75% of its total assets, no more
than 5% of its total assets invested in the securities of one issuer, plus cash,
Government securities, and securities of other investment companies. As the
Adviser and Sub-adviser may from time to time invest a large percentage of each
non-diversified Fund's assets in securities of a limited number of issuers, each
non-diversified Fund may be more susceptible to risks associated with a single
economic, political or regulatory occurrence than a diversified investment
company. However, each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code, and therefore 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 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

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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.

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.

COUNTRY FUNDS. Subject to the provisions of the Investment Company Act of 1940,
each of the Global Balanced and European Growth & Income Funds may invest in the
shares of investment companies that invest in specified foreign markets. Several
foreign governments permit investments by non-residents in their markets only
through participation in certain investment companies specifically organized to
participate in such markets. Each of the Global Balanced and European Growth &
Income Funds may also invest a portion of its assets in unit trusts and country
funds that invest in foreign markets that are smaller than those in which the
Fund would ordinarily invest directly. Investments in such pooled vehicles
should enhance the geographical diversification of the portfolio's assets,
thereby reducing the risks associated with investing in certain smaller foreign
markets. Investments by each of the Global Balanced and European Growth & Income
Funds in such vehicles should also provide increased liquidity and lower
transaction costs for the Fund than are normally associated with direct
investment in such markets. However, an investment in a country fund by a Fund
will involve payment by the Fund of its pro rata share of advisory and
administrative fees charged by such country fund. At the present time, each of
the Global Balanced and European Growth & Income Funds intends to limit its
investments in these vehicles, together with its investments in other investment
companies, to no more than 10% of its total assets.

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EQUITY DERIVATIVE INSTRUMENTS.

Standard and Poor's Depositary Receipts ("SPDRs") 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 the October 1 through
December 31, 1999 period of 6.9 million shares per day. DIAMONDS Trust, Series 1
("Diamonds") shares trade on the American Stock Exchange at approximately
one-one hundredth the value of the Dow Jones Industrial Average. Diamonds are
relatively liquid with an average daily volume during the October 1 through
December 31, 1999 period of 800,000 shares per day. Nasdaq-100 Shares ("QQQs")
trade on the American Stock Exchange at approximately one-twentieth the value of
the Nasdaq-100. QQQs are relatively liquid with an average daily volume during
the October 1 through December 31, 1999 period of 9.7 million shares per day.

Because each of these derivative instruments exactly replicate the particular
stock index to which they are related, 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 the share prices of each of
these derivative instruments should closely track the movement of the particular
stock index to which they are related.

The administrator of the SPDR, Diamond and QQQ programs is the American Stock
Exchange, and in each case, it receives a fee to cover its costs of about 0.18 %
per year. In each case, this fee is deducted from the dividends paid to the
investor in the particular derivative instrument. Investors in shares of a Fund
that invests in one or more of these derivative instruments will incur not only
the operational costs of the Fund, but will also indirectly incur the expenses
deducted by the administrator of each of these programs.

FIXED INCOME SECURITIES

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

U.S. TREASURY OBLIGATIONS

U.S. Treasury obligations are debt securities issued by the U.S. Treasury. They
are direct obligations of the U.S. Government and differ mainly in the lengths
of their maturities (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.

FOREIGN GOVERNMENT OBLIGATIONS

Foreign government obligations are debt securities issued or guaranteed by a
supranational organization, or a foreign sovereign government or one of its
agencies, authorities, instrumentalities or political subdivisions, including a
foreign state, province or municipality.

BANK OBLIGATIONS

Bank obligations include certificates of deposit, bankers' acceptances, and
other debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with an international commercial
transaction.

The Funds will not invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, (ii) in the case of U.S. banks, the bank is a member of the Federal
Deposit Insurance Corporation, and (iii) in the case of foreign banks, the
security is, in the opinion of Payden & Rygel, of an investment quality
comparable with other

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debt securities which may be purchased by the Fund. These limitations do not
prohibit investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.

CORPORATE DEBT SECURITIES

Investments in U.S. dollar denominated securities of domestic or foreign issuers
are limited to corporate debt securities (corporate bonds, debentures, notes and
other similar corporate debt instruments) which meet the minimum rating criteria
set forth in the Prospectus. The rate of return or return of principal on some
debt obligations may be linked or indexed to the level of exchange rates between
the U.S. dollar and a foreign currency or currencies. Except as otherwise
indicated in the Prospectus, the debt securities in which the Funds invest will
be considered "investment grade," which means they are rated within the four
highest grades by rating agencies such as Standard & Poor's (at least BBB),
Moody's (at least Baa) or Fitch (at least BBB), or if not rated, are determined
by the Adviser or Sub-adviser to be of comparable quality. Credit ratings
evaluate the safety of principal and interest payments of securities, not their
market value. The rating of an issuer is also heavily weighted by past
developments and does not necessarily reflect probable future conditions. There
is frequently a lag between the time a rating is assigned and the time it is
updated. As credit rating agencies may fail to timely change credit ratings of
securities to reflect subsequent events, the Adviser will also monitor issuers
of such securities.

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

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

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

MORTGAGE-RELATED SECURITIES

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

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

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

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

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

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

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

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Like a bond, interest
and prepaid principal is paid, in most cases, semi-annually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC or
FNMA.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life depend upon the prepayment experience
of the collateral. CMOs provide for a modified form of call protection through a
de facto breakdown of the underlying pool of mortgages according to how quickly
the loans are repaid. Monthly payment of principal received from the pool of
underlying mortgages, including prepayments, is first returned to investors
holding the shortest maturity class. Investors holding the longer maturity
classes receive principal only after the earlier classes have been retired.

FOREIGN MORTGAGE-RELATED SECURITIES Foreign mortgage-related securities are
interests in pools of mortgage loans made to residential home buyers domiciled
in a foreign country. These include mortgage loans made by trust and mortgage
loan companies, credit unions, chartered banks, and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related, and private organizations (e.g., Canada Mortgage and Housing
Corporation and First Australian

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

Timely payment of interest and principal of these pools may be supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance and letters of credit, issued by governmental entities,
private insurers and mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Fund's investment quality standards.
However, there can be no assurance that private insurers or guarantors will meet
their obligations. In addition, the Funds may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experience
and practices of the originator/services and poolers the Adviser or Sub-adviser
determines that the securities meet the Funds' quality standards.

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

ASSET BACKED RECEIVABLES

Asset-backed securities include, but are not limited to, Certificates for
Automobile Receivables ("CARSsm") and credit card receivable securities. CARSsm
represent undivided fractional interests in a trust with assets consisting of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing these contracts. In addition to the general risks
pertaining to all asset-backed securities, CARSsm are subject to the risks of
delayed payments or losses if the full amounts due on underlying sales contracts
are not realized by the trust due to unanticipated legal or administrative costs
of enforcing the contracts, or due to depreciation, damage or loss of the
vehicles securing the contracts. Credit card receivable securities are backed by
receivables from revolving credit card accounts. Since balances on revolving
credit card accounts are generally paid down more rapidly than CARSsm, issuers
often lengthen the maturity of these securities by providing for a fixed period
during which interest payments are passed through and principal payments are
used to fund the transfer of additional receivables to the underlying pool. The
failure of the underlying receivables to generate principal payments may
therefore shorten the maturity of these securities. In addition, unlike most
other asset-backed securities, credit card receivable securities are backed by
obligations that are not secured by interests in personal or real property.

FLOATING RATE AND VARIABLE RATE DEMAND NOTES

Floating rate and variable rate demand notes and bonds have a stated maturity in
excess of one year, but permit a holder to demand payment of principal plus
accrued interest upon a specified number of days notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer has a corresponding right, after a
given period, to prepay in its discretion the outstanding principal of the
obligation plus accrued interest upon a specific number of days notice to the
holders. The interest rate of a floating rate instrument may be based on a known
lending rate, such as a bank's prime rate, and is reset whenever such rate is
adjusted. The interest rate on a variable rate demand note is reset at specified
intervals at a market rate.

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

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

MONEY MARKET FUNDS

To maintain liquidity, each Fund may invest in unaffiliated money market funds.
Under normal circumstances, a money market investment made by either of the
Short Duration Tax Exempt or Tax Exempt Bond Funds will be in federal tax-free
mutual funds. No money market fund investment by any Fund will be in excess of
3% of the total assets of the money market fund. None of the Funds anticipates
investing more than 15% of its net assets in money market funds. However,
pursuant to an Order issued by the SEC on December 29, 1999, any Fund may, and
intends to, purchase shares of the Bunker Hill Money Market Fund, provided that
the investment does not exceed 25% of the investing Fund's total assets. An
investment in a money market mutual fund by a Fund will involve indirectly
payment by the Fund of its pro rata share of advisory and administrative fees of
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, each Fund may enter into repurchase agreements
(agreements to purchase U.S. Treasury notes and bills, subject to the seller's
agreement to repurchase them at a specified time and price) with
well-established registered securities dealers or banks.

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

DELAYED DELIVERY TRANSACTIONS

These transactions involve a commitment by a Fund to purchase or sell securities
for a predetermined price or yield, with payment and delivery taking place more
than seven days in the future, or after a period longer than the customary
settlement period for that type of security. When delayed delivery purchases are
outstanding, a Fund will set aside and maintain until the settlement date in a
segregated account cash, U.S. Government securities or high grade debt
obligations in an amount sufficient to meet the purchase price. When purchasing
a security on a delayed delivery basis, a Fund assumes the rights and risks of
ownership of the security, including the risk of price and yield fluctuations,
and takes such fluctuations into account when determining its net asset value,
but does not accrue

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income on the security until delivery. When a Fund sells a security on a delayed
delivery basis, it does not participate in future gains or losses with respect
to the security. If the other party to a delayed delivery transaction fails to
deliver or pay for the securities, a Fund could miss a favorable price or yield
opportunity or could suffer a loss. A Fund will not invest more than 35% of its
total assets in when-issued and delayed delivery transactions.

REVERSE REPURCHASE AGREEMENTS

Each Fund may enter into reverse repurchase agreements (agreements to sell
portfolio securities, subject to such Fund's agreement to repurchase them at a
specified time and price) with well-established registered dealers and banks.
Each Fund covers its obligations under a reverse repurchase agreement by
maintaining a segregated account comprised of cash, U.S. Government securities
or high-grade debt obligations, maturing no later than the expiration of the
agreement, in an amount (marked-to-market daily) equal to its obligations under
the agreement. Reverse repurchase agreements are the economic equivalent of
borrowing by a Fund, and are entered into by a Fund to enable it to avoid
selling securities to meet redemption requests during market conditions deemed
unfavorable by the Adviser or Sub-adviser.

ILLIQUID SECURITIES

No Fund may invest more than 15% (or in the case of the Bunker Hill Money Market
Fund, more than 10%) of the value of its net assets in securities that at the
time of purchase have legal or contractual restrictions on resale or are
otherwise illiquid. The Adviser or Sub-adviser will monitor the amount of
illiquid securities in each Fund's portfolio, to ensure compliance with the
Fund's investment restrictions.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placement or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and the Fund might
be unable to dispose of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty satisfying redemption
requests within seven days. The Fund might also have to register such restricted
securities in order to dispose of them, resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. In accordance with guidelines established by the Board, the Adviser
or Sub-adviser will determine the liquidity of each investment using various
factors such as (1) the frequency of trades and quotations, (2) the number of
dealers and prospective purchasers in the marketplace, (3) dealer undertakings
to make a market, (4) the nature of the security (including any demand or tender
features) and (5) the likelihood of continued marketability and credit quality
of the issuer.

BUNKER HILL MONEY MARKET FUND

The operations of the Bunker Hill Money Market Fund are governed by Rule 2a-7
under the 1940 Act. Under the rule, the Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase instruments having
remaining maturities of 397 days or less only (25 months or less in the case of
U.S. Government securities), and invest only in securities determined by the
Board of Trustees to be of high quality with minimal credit risks.

FOREIGN INVESTMENTS

The Prospectus describes the extent to which the Funds may invest in securities
of issuers organized or headquartered in foreign countries. Generally, such
investments are likely to be made in the Pacific Basin (Australia, New Zealand
or Japan), Canada, and the developed countries of Europe (Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands,
Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom). In
addition, certain of the Funds may make foreign

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investments in issuers organized or headquartered in emerging market countries.
A Fund may elect not to invest in all such countries, and it may also invest in
other countries when such investments are consistent with the Fund's investment
objective and policies.

RISKS OF FOREIGN INVESTING

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

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

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

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

Emerging markets can be substantially more volatile than both U.S. and more
developed foreign markets. Such volatility may be exacerbated by illiquidity.
The average daily trading volume in all of the emerging markets combined is a
small fraction of the average daily volume of the U.S. market. Small trading
volumes may result in a Fund being forced to purchase securities at a
substantially higher priced than the current market, or to sell securities at
much lower prices than the current market.

CURRENCY FLUCTUATIONS. To the extent that a Fund invests in securities
denominated in foreign currencies, a change in the value of any such currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of the Fund's assets denominated in that currency. Such changes will also
affect the Fund's income. The value of a Fund's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.

MARKET CHARACTERISTICS. The Group expects that most foreign securities in which
the Funds invest will be purchased in over-the-counter markets or on bond
exchanges located in the countries in which the principal offices of the issuers
of the various securities are located, if that is the best available market.
Foreign bond markets may be more volatile than those in the United States. While
growing in volume, they usually have substantially less volume than U.S.
markets, and the Funds' portfolio securities may be less liquid and more
volatile than U.S. Government securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.

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

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

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

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

COSTS. The expense ratios of Funds investing in foreign securities (before
reimbursement by the Adviser pursuant to the expense limitation described in the
Prospectus under "Management of the Funds -- Expense Guarantee") are likely to
be higher than those of investment companies investing in domestic securities,
since the cost of maintaining the custody of foreign securities is higher.

MUNICIPAL SECURITIES

Each of the Short Duration Tax Exempt, Tax Exempt Bond and California Municipal
Income Funds invest primarily in a non-diversified portfolio of debt obligations
issued by state and local governments, territories and possessions of the U.S.,
regional government authorities, and their agencies and instrumentalities which
provide interest income that, in the opinion of bond counsel to the issuer at
the time of original issuance, is exempt from federal income taxes ("municipal
securities"). Municipal securities include both notes (which have maturities of
less than one year) and bonds (which have maturities of one year or more) that
bear fixed or variable rates of interest.

In general, "municipal securities" debt obligations are issued to obtain funds
for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.

The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water, and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assurance (although without obligation) to make up deficiencies in the
debt service reserve fund.

Each Fund may purchase insured municipal debt in which scheduled payments of
interest and principal are guaranteed by a private, non-governmental or
governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the value of the shares of the Fund.

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

Securities of issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures of referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore, as
a result of legislation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.

Certain of the municipal securities in which each Fund may invest, and certain
of the risks of such investments, are described below.

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MORAL OBLIGATION SECURITIES

Municipal securities may include "moral obligation" securities which are usually
issued by special purpose public authorities. If the issuer of moral obligation
bonds cannot fulfill its financial responsibilities from current revenues, it
may draw upon a reserve fund, the restoration of which is a moral commitment but
not a legal obligation of the state or municipality which created the issuer.

ZERO COUPON SECURITIES

Zero coupon securities are debt securities issued or sold at a discount from
their face value. These securities do not entitle the holder to interest
payments prior to maturity or a specified redemption date, when they are
redeemed at face value. Zero coupon securities may also take the form of debt
securities that have been stripped of their unmatured interest coupons, the
coupons themselves, and receipts and certificates representing interests in such
stripped obligations and coupons. The market prices of zero coupon securities
tend to be more sensitive to interest rate changes, and are more volatile, than
interest bearing securities of like maturity. The discount from face value is
amortized over the life of the security and such amortization will constitute
the income earned on the security for accounting and tax purposes. Even though
income is accrued on a current basis, a Fund does not receive the income
currently in cash. Therefore, the Fund may have to sell other portfolio
investments to obtain cash needed to make income distributions.

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities are municipal debt obligations issued to provide
financing for residential housing mortgages to targeted groups. Payments made on
the underlying mortgages and passed through to the Fund will represent both
regularly scheduled principal and interest payments. The Fund may also receive
additional principal payments representing prepayments of the underlying
mortgages. Investing in such municipal debt obligations involves special risks
and considerations, including the inability to predict accurately the maturity
of the Fund's investments as a result of prepayments of the underlying mortgages
(which may require the Fund to reinvest principal at lower yields than would
otherwise have been realized), the illiquidity of certain of such securities,
and the possible default by insurers or guarantors supporting the timely payment
of interest and principal.

MUNICIPAL LEASE OBLIGATIONS

Municipal lease obligations are lease obligations or installment purchase
contract obligations of municipal authorities. Although lease obligations do not
constitute general obligations of the municipality for which its taxing power is
pledged, a lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
The Fund may also purchase "certificates of participation", which are securities
issued by a particular municipality or municipal authority to evidence a
proportionate interest in base rental or lease payments relating to a specific
project to be made by the municipality, agency or authority. However, certain
lease obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase payments in
any year unless money is appropriated for such purpose for such year. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of default and foreclosure might prove
difficult. In addition, these securities represent a relatively new type of
financing, and certain lease obligations may therefore be considered to be
illiquid securities.

Subject to its ability to invest in below investment grade municipal securities
as described above, a Fund will attempt to minimize the special risks inherent
in municipal lease obligations and certificates of participation by purchasing
only lease obligations which meet the following criteria: (1) rated A or better
by at least one national recognized securities rating organization; (2) secured
by payments from a governmental lessee which has actively traded debt
obligations; (3) determined by the Adviser to be critical to the lessee's
ability to deliver essential services; and (4) contain legal features which the
Adviser deems appropriate, such as covenants to make lease payments without the
right of offset or counterclaim, requirements for insurance policies, and
adequate debt service reserve funds.

SHORT-TERM OBLIGATIONS

Short-term municipal obligations include the following:

TAX ANTICIPATION NOTES are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.

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REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program. They also are usually general obligations of the issuer.

BOND ANTICIPATION NOTES normally are issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the notes.

SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are short-term (365 days
or less) promissory notes issued by municipalities to supplement their cash
flow.

FLOATING RATE AND VARIABLE RATE DEMAND NOTES

Floating rate and variable rate demand notes and bonds may have a stated
maturity in excess of one year, but permit a holder to demand payment of
principal plus accrued interest upon a specified number of days notice.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. The issuer has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal of
the obligation plus accrued interest upon a specific number of days notice to
the holders. The interest rate of a floating rate instrument may be based on a
known lending rate, such as a bank's prime rate, and is reset whenever such rate
is adjusted. The interest rate on a variable rate demand note is reset at
specified intervals at a market rate.

A Fund will limit its purchase of municipal securities that bear floating rates
and variable rates of interest to those meeting the rating quality standards set
forth in the Prospectus. Frequently, such obligations are secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying creditor or of the bank, as the case may be, must, as determined
by the Adviser under the supervision of the Board of Trustees, also be
equivalent to the quality standards set forth above. In addition, the Adviser
monitors the earning power, cash flow and other liquidity ratios of the issuers
of such obligations, as well as the creditworthiness of the institution
responsible for paying the principal amount of the obligations under the demand
feature.

A Fund may also invest in municipal securities in the form of "participation
interests" in variable rate tax-exempt demand obligations held by a financial
institution, usually a commercial bank. Municipal participation interests
provide the purchaser with an undivided interest in one or more underlying
municipal securities and the right to demand payment from the institution upon a
specified number of days' notice (no more than seven) of the unpaid principal
balance plus accrued interest. In addition, the municipal participation
interests are typically enhanced by an irrevocable letter of credit or guarantee
from such institution. Since the Fund has an undivided interest in the
obligation, it participates equally with the institution with the exception that
the institution normally retains a fee out of the interest paid for servicing,
providing the letter of credit or guarantee, and issuing the repurchase
commitment.

OBLIGATIONS WITH PUTS ATTACHED

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

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

SPECIAL RISKS OF INVESTING PRIMARILY IN CALIFORNIA MUNICIPAL SECURITIES

Because the California Municipal Income Fund focuses its investments primarily
on California municipal securities, the value of its portfolio investments will
be highly sensitive to events affecting the fiscal stability of the State of
California and its municipalities, authorities and other instrumentalities that
issue securities. There have been a number of political developments, voter
initiatives, state constitutional amendments and legislative actions in
California in recent years that may affect the ability of the State government
and municipal governments to pay interest and repay principal on the securities
they have issued.

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In particular, various developments regarding the California Constitution and
state statutes which limit the taxing and spending authority of California
governmental entities may impair the ability of California issuers to maintain
debt service on their obligations. The following information constitutes only a
brief summary, based upon information the Fund has drawn from sources that it
believes are reliable.

In 1978, Proposition 13, an amendment to the California Constitution, was
approved, limiting real property valuation for property tax purposes and the
power of local governments to increase real property tax revenues and revenues
from other sources. Legislation adopted after Proposition 13 provided for
assistance to local governments, including the distribution of the then-existing
surplus in the General Fund, reallocation of revenues to local governments, and
assumption by the State of certain local government obligations. However, more
recent legislation reduced such State assistance. There can be no assurance that
any particular level of State aid to local governments will be maintained in
future years. The United States Supreme Court has upheld certain provisions of
Proposition 13 against claims that it violated the equal protection clause of
the Constitution.

In 1979, an amendment was passed adding Article XIIIB to the State Constitution.
As amended in 1996, Article XIIIB imposes an "appropriations limit" on the
spending authority of the State and local government entities. In general, the
appropriations limit is based on certain 1978-79 expenditures, adjusted annually
to reflect changes in the cost of living, population and certain services
provided by State and local government entities. The "appropriations limit" does
not include appropriations for qualified capital outlay projects, certain
increases in transportation-related taxes, and certain emergency appropriations.

If a government entity raises revenues beyond its "appropriation limit" in any
year, a portion of the excess which cannot be appropriated within the following
year's limit must be returned to the entity's taxpayers within two subsequent
fiscal years, generally by a tax credit, refund or temporary suspension of tax
rates or fee schedules. "Debt service" is excluded from these limitations, and
is defined as "appropriations required to pay the cost of interest and
redemption charges, including the funding of any reserve or sinking fund
required in connection therewith, on indebtedness existing or legally authorized
as of January 1, 1979 or on bonded indebtedness thereafter approved [by the
voters]." In addition, Article XIIIB requires the State Legislature to establish
a prudent State reserve, and to require the transfer of 50% of excess revenue to
the State School Fund; any amounts allocated to the State School Fund will
increase the appropriations limit.

In November 1988, California voters approved Proposition 98. This initiative
requires that revenues in excess of amounts permitted to be spent and which
would otherwise be returned by revisions of tax rates or fee schedules, be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and accountability.
No such transfer or allocation of funds will be required if certain designated
state officials determine that annual student expenditures and class size meet
certain criteria as set forth in Proposition 98. All funds allocated to the
State School Fund shall cause the appropriation limits to be annually increased
for any such allocation made in the prior year. Proposition 98 also requires the
State of California to provide a minimum level of funding for public schools and
community colleges. The initiative permits the enactment of legislation, by a
two-thirds vote, to suspend the minimum funding requirement for one year.

In November 1996, California voters approved Proposition 218. This initiative
applied the provisions of Proposition 62 to all entities, including charter
cities. It requires that all taxes for general purposes obtain a simple majority
popular vote and that taxes for special purposes obtain a two-thirds majority
vote. Prior to the effectiveness of Proposition 218, charter cities could levy
certain taxes such as transient occupancy taxes and utility user's taxes without
a popular vote. Proposition 218 will also limit the authority of local
governments to impose property-related assessments, fees and charges, requiring
that such assessments be limited to the special benefit conferred and
prohibiting their use for general governmental services. Proposition 218 also
allows voters to use their initiative power to reduce or repeal previously
authorized taxes, assessments, fees and charges.

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Certain tax-exempt securities in which the State Trust may invest, may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law that could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be subject to state
laws, and California law limits the remedies of a creditor secured by a mortgage
or deed of trust on real property.

California is the most populous state in the nation with a total population
estimated at 33.4 million. The State now comprises 12.4% of the nation's
population and 12.7% of its total personal income. Its economy is broad and
diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through a
severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been performing
strongly since the start of 1994. The unemployment rate, while still higher than
the national average, fell to an average of 5.9% during 1998, compared to over
10% at the worst of the recession, and to 4.8% in November 1999.

Certain of the State's significant industries, such as high technology, are
sensitive to economic disruptions in their export markets and the State's rate
of economic growth, therefore, could be adversely affected by any such
disruption. A significant downturn in U.S. stock market prices could adversely
affect California's economy by reducing household spending and business
investment, particularly in the important high technology sector. Moreover, a
large and increasing share of the State's General Fund revenue in the form of
income and capital gains taxes is directly related to, and would be adversely
affected by a significant downturn in the performance of, the stock markets.

In addition, it is impossible to predict the time, magnitude or location of a
major earthquake or its effect on the California economy. In January 1994, a
major earthquake struck the Los Angeles area, causing significant damage in a
four county area. The possibility exists that another such earthquake could
create a major dislocation of the California economy and significantly affect
state and local government budgets.

The recession severely affected state revenues while the State's health and
welfare costs were increasing. Consequently, the State had a lengthy period of
budget imbalance; the State's accumulated budget deficit approached $2.8 billion
at its peak at June 30, 1993. The large budget deficits depleted the State's
available cash resources and it had to use a series of external borrowings to
meet its cash needs. With the end of the recession, the State's financial
condition improved, with a combination of better than expected revenues,
slowdown in growth of social welfare programs, and continued spending restraint.
The accumulated budget deficit from the recession years was eliminated. No
deficit borrowing has occurred at the end of the last several fiscal years. The
State issued $1.0 billion of revenue anticipation notes for the 1999-2000 fiscal
year.

State Budget. On June 29, 1999, the Governor of California signed the 1999-2000
Budget Act. The Budget Act estimated General Fund revenues and transfers of
$63.0 billion, and contained expenditures totaling $63.7 billion. The Budget Act
also contained expenditures of $16.1 billion from special funds and $1.5 billion
from bond funds. The Administration estimated a budget reserve balance at June
30, 2000, of approximately $880 million. Not included in this amount was an
additional $300 million which (after the Governor's vetoes) was "set aside" to
provide funds for employee salary increases (to be negotiated in bargaining with
employee unions), and for litigation reserves. The Budget Act anticipates normal
cash flow borrowing during the fiscal year. Continued State economic expansion
and large revenue increases enabled the Governor and State legislature to
provide increases in spending programs in the 1999-2000 budget. These included
large increases in education and health and human services funding.

The Governor's 2000-2001 proposed budget provides for total State spending of
$85.1 billion (excluding expenditures of federal funds and selected bond funds),
an increase of 3.7% from the current year. Approximately 80% of this total is
from the General Fund and 20% from special funds. The proposed budget assumes
that General Fund revenues will total $68.2 billion in 2000-01, a 4.7% increase
from the current year. General Fund expenditures are proposed to be $68.8
billion, an increase of 4.5%. After accounting for various set-asides, the
year-end reserve is estimated to be $1.2 billion, or about 1.8% of total 2000-01
General Fund revenues.

State Indebtedness. As of January 1, 2000, the State had over $20.5 billion
aggregate amount of its general obligation bonds outstanding and unused general
obligation bond authorizations in an aggregate amount of approximately $11.8
billion. The State also builds and acquires capital facilities through the use
of lease purchase borrowing. As of January 1, 2000, the State had approximately
$6.7 billion of outstanding Lease-Purchase Debt.

In addition to the general obligation bonds, State agencies and authorities had
approximately $26 billion aggregate principal amount of revenue bonds and notes
outstanding as of June 30, 1999. Revenue bonds represent both obligations
payable from State revenue-producing enterprises and projects, which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities and pollution control facilities.

Litigation. The State is a party to numerous legal proceedings, many of which
normally occur in governmental operations. In addition, the State is involved in
certain other legal proceedings that, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.

Ratings. Because of the State's budget problems, the State's General Obligation
bonds were downgraded in July 1994 to Al from Aa by Moody's, to A from A+ by
Standard & Poor's, and to A from AA by Fitch. All three rating agencies
expressed uncertainty in the State's ability to balance the budget by 1996.
However, in 1996, citing California's improving economy and budget situation,
both Fitch and Standard & Poor's raised their ratings from A to A+. In October
1997, Fitch raised its rating from A+ to AA- referring to California's
fundamental strengths, the extent of economic recovery and the return of
financial stability. In October 1998, Moody's raised its rating from A1 to Aa3
citing the State's continuing economic recovery and a number of actions taken to
improve the State's credit condition, including the rebuilding of cash and
budget reserves. In August 1999, Standard & Poor's raised its rating from A+ to
AA- citing the State's strong economic performance and its return to structural
fiscal balance. In February 2000, Fitch raised its rating from AA- to AA, citing
California's fundamental strengths, sustained favorable economy and financial
operations.

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<PAGE> 79

The foregoing discussion of the 1999-2000 fiscal year budget and the proposed
2000-2001 fiscal year budget is based in large part on statements made in a
recent "Preliminary Official Statement" distributed by the State of California.
In that document, the State indicated that its discussion of the fiscal year
budget is based on estimates and projections of revenues and expenditures for
the current fiscal year and must not be construed as statements of fact. The
State noted further that the estimates and projections are based upon various
assumptions which may be affected by numerous factors, including future economic
conditions in the state and the nation, and that there can be no assurance that
the estimates will be achieved.

Local Governments. Some local governments in California have experienced notable
financial difficulties. On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the "Pools"), filed for
protection under Chapter 9 of the federal Bankruptcy Code. On June 12, 1996,
Orange County emerged from bankruptcy after the successful sale of $880 million
in municipal bonds allowed the county to pay off the last of its creditors. On
January 7, 1997, Orange County returned to the municipal bond market with a $136
million bond issue maturing in 13 years at an insured yield of 7.23%. In
December 1997, Moody's raised its ratings on $325 million of Orange County
pension obligation bonds to Baa3 from Ba. In February 1998 Fitch assigned
outstanding Orange County pension obligation bonds a BBB rating. In September
1999, Moody's assigned the County an issuer (implied general obligation) rating
of Aa3 and, among other things, upgraded the ratings on the County's pension
obligation bonds to A1. In January 2000, Standard & Poor's upgraded its rating
on the County's pension obligation bonds from BB to A- and in February 2000
Fitch upgraded its rating on the County's pension obligation bonds from BBB to
AA-.

Los Angeles County, the nation's largest county, has also experienced financial
difficulty. Between 1992 and 1995, the County's long term bonds were downgraded
three times. This occurred as a result of, among other things, severe operating
deficits for the County's health care system. In addition, the County was
affected by an ongoing loss of revenue caused by the State's property tax shift
initiatives in 1993 through 1995. The County's improving financial condition has
been reflected in improved general obligation bond ratings. In June 1999, the
Los Angeles County Board of Supervisors approved a budget of approximately $15
billion for 1999-2000, up from the $13.6 billion approved for the previous
fiscal year. The County's financial condition will continue to be affected by
the large number of County residents who are dependent on government services
and by a structural deficit in its health department.

<PAGE> 80

OPTIONS AND FUTURES CONTRACTS

As described in the Prospectus, each Fund, except the Bunker Hill Money Market
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, a Fund may also
use those instruments, provided the Board of Trustees determines that their use
is consistent with the Fund's investment objectives, and their use is consistent
with restrictions applicable to options and futures contracts currently eligible
for use by that Fund.

OPTIONS ON SECURITIES OR INDICES

A Fund may purchase and write options on securities and indices. An index is a
statistical measure designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators, such as the Merrill Lynch 1 to 3
year Global Government Bond Index, the Lehman Brothers Government/Corporate
Index, the S%P 500 Index, or the Nasdaq-100 Index.

An option on a security (or an index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (in the case of "American Style"
options) or at the expiration of the option (in the case of "European Style"
options). The writer of a call or put option on a security is obligated upon
exercise of the option to deliver the underlying security upon payment of the
exercise price or to pay the exercise price upon delivery of the underlying
security, as the case may be. The writer of an option on an index is obligated
upon exercise of the option to pay the difference between the cash value of the
index and the exercise price multiplied by a specified multiplier for the index
option.

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

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<PAGE> 81

is covered if the Fund maintains cash or cash equivalents equal to the exercise
price in a segregated account with its Custodian. A put option is also covered
if the Fund holds a put on the same security or index as the put written, and
the exercise price of the put held is (i) equal to or greater than the exercise
price of the put written, or (ii) less than the exercise price of the put
written, provided the difference is maintained by the Fund in cash or cash
equivalents in a segregated account with its Custodian.

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

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

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

FOREIGN CURRENCY OPTIONS

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. A Fund will use foreign currency options separately or in
combination to control currency volatility. Among the strategies employed to
control currency volatility is an option collar. An option collar involves the
purchase of a put option and the simultaneous sale of a call option on the same
currency with the same expiration date but with different exercise (or "strike")
prices. Generally, the put option will have an out-of-the-money strike price,
while the call option will have either an at-the-money strike price or an
in-the-money strike price. Currency options traded on U.S. or other exchanges
may be subject to position limits which may limit the ability of a Fund to
reduce foreign currency risk using such options.

COMBINATIONS OF OPTIONS

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 a Fund seeks to
close out an option position. Among the possible reasons for the absence of a
liquid secondary market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (iv)
interruption of the normal operations of an exchange; (v) inadequacy of the
facilities of an exchange or the Options Clearing Corporation to handle current
trading volume; or (vi) a decision by an exchange to discontinue the trading of
options or a particular class or series of options (in which event the secondary
market on that exchange or in that class or series of options could cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
generally continue to be exercisable in accordance with their terms). If a Fund
were unable to close out an option that it had purchased on a security, it would
have to exercise the option

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<PAGE> 82

in order to realize any profit. If a Fund were unable to close out a covered
call option that it had written on a security, it would not be able to sell the
underlying security unless the option expired without exercise. As the writer of
a covered call option, a Fund forgoes, during the option's life, the opportunity
to profit from increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the call.

If trading were suspended in an option purchased by a Fund, the Fund would not
be able to close out the option. If restrictions on exercise were imposed, the
Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on a security, currency or index written by a Fund is
covered by an option on the same security, currency or index purchased by the
Fund, movements in the index may result in a loss to the Fund; however, such
losses may be mitigated by changes in the value of the Fund's securities during
the period the option was outstanding.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may use interest rate, foreign currency or index futures contracts, as
specified in the Prospectus. An interest rate or foreign currency contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument or foreign currency at a specified
price and time. A futures contract on an index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of these securities is made.

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

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

As long as required by regulatory authorities the Funds will use futures
contracts and futures options for hedging purposes and not for speculation and
will comply with applicable regulations of the Commodity Futures Trading
Corporation which limit trading of futures contracts (See "Limitations on the
Use of Futures and Options"). For example, a Fund might use futures contracts to
hedge against anticipated changes in interest rates that might adversely affect
either the value of the Fund's securities or the price of the securities which
the Fund intends to purchase. A Fund's hedging activities may include sales of
futures contracts as an offset against the effect of expected increases in
interest rates, and purchases of futures contracts as an offset against the
effect of expected declines in interest rates. Although other techniques could
be used to reduce a Fund's exposure to interest rate fluctuations, a Fund may be
able to hedge its exposure more effectively and at a lower cost by using futures
contracts and futures options.

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

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<PAGE> 83

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

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

LIMITATIONS ON USE OF FUTURES AND FUTURES OPTIONS

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

When purchasing a futures contract, a Fund will maintain with its Custodian (and
mark to market on a daily basis) cash, U.S. Government securities, or other
liquid securities that, when added to the amounts deposited with a futures
commission merchant as margin, are equal to the market value of the futures
contract. Alternatively, a Fund may "cover" its position by purchasing a put
option on the same futures contract with a strike price as high or higher than
the price of the contract held by the Fund.

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

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

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

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

The requirements for qualification as a regulated investment company also may
limit the extent to which the Funds may enter into futures, futures options or
forward contracts. See "Taxation."

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<PAGE> 84

RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS

There are several risks associated with the use of futures contracts and futures
options as hedging techniques. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. There
can be no guarantee that there will be a correlation between price movements in
the hedging vehicle and in the Fund securities being hedged. In addition, there
are significant differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
hedge not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses, because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or a futures option position, in which
event the Fund would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.

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

DEALER OPTIONS

The Funds may engage in transactions involving dealer options on securities,
currencies or indices as well as exchange-traded options. Certain risks are
specific to dealer options. While a Fund would look to a clearing corporation to
exercise exchange-traded options, if a Fund were to purchase a dealer option it
would rely on the dealer from whom it purchased the option to perform if the
option were exercised. Failure by the dealer to do so would result in the loss
of the premium paid by the Fund as well as loss of the expected benefit of the
transaction.

Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, a Fund may generally be able to realize the value
of a dealer option it has purchased only by exercising or reselling the option
to the dealer who issued it. Similarly, when a Fund writes a dealer option, the
Fund may generally be able to close out the option prior to its expiration only
by entering into a closing purchase transaction with the dealer to whom the Fund
originally wrote the option. While the Funds will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Fund, there can be no assurance
that the Fund will be able to liquidate a dealer option at a favorable price at
any time prior to expiration. Unless a Fund, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the other party, the Funds may be
unable to liquidate a dealer option. With respect to options written by a Fund,
the inability to enter into a closing transaction may result in material losses
to the Fund. For example, since a Fund must maintain a secured position with
respect to any call option on security it writes, the Fund may not sell the
assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.

The Staff of the SEC has taken the position that many purchased dealer options
and the assets used to secure written dealer options are illiquid securities. A
Fund may treat the cover used for these written dealer options as liquid if the
dealer agrees that the Fund may repurchase the dealer option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
dealer

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option would be considered illiquid only to the extent the maximum purchase
price under the formula exceeds the intrinsic value of the option. Accordingly,
the Funds will treat certain dealer options as subject to the Funds' limitation
on illiquid securities. If the SEC changes its position on the liquidity of
dealer options on securities, currencies or indices, the Funds will change their
treatment of such instruments accordingly.

SWAPS

No Fund enters into any swap, cap or floor transaction unless the unsecured
senior debt or the claims paying ability of the other party to the transaction
is rated at least "A" at the time of purchase by at least one of the established
rating agencies. The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as principals and
agents utilizing standard swap documentation, and the Adviser has determined
that the swap market has become relatively liquid. Swap transactions do not
involve the delivery of securities or other underlying assets or principal, and
the risk of loss with respect to such transactions is limited to the net amount
of payments that a Fund is contractually obligated to make or receive. Caps and
floors are more recent innovations for which standardized documentation has not
yet been developed and, accordingly, they are less liquid than swaps. A Fund
will not enter into a swap transaction at any time that the aggregate amount of
its net obligations under such transactions exceeds 15% of its total assets.

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

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

INTEREST RATE AND INDEX SWAPS

An interest rate swap is a contract between two entities ("counterparties") to
exchange interest payments (of the same currency) between the parties. In the
most common interest rate swap structure, one counterparty agrees to make
floating rate payments to the other counterparty, which in turn makes fixed rate
payments to the first counterparty. Interest payments are determined by applying
the respective interest rates to an agreed upon amount, referred to as the
"notional principal amount." In most such transactions, the floating rate
payments are tied to the London Interbank Offered Rate, which is the offered
rate for short-term eurodollar deposits between major international banks. The
same process applies when dealing with an index swap. The buyer of the swap pays
on a floating rate basis and receives a fixed rate payment, based on the total
return of the particular reference index.

CROSS-CURRENCY SWAPS

A cross-currency swap is a contract between two counterparties to exchange
interest and principal payments in different currencies. A cross-currency swap
normally has an exchange of principal at maturity (the final exchange); an
exchange of principal at the start of the swap (the initial exchange) is
optional. An initial exchange of notional principal amounts at the spot exchange
rate serves the same function as a spot transaction in the foreign exchange
market (for an immediate exchange of foreign exchange risk). An exchange at
maturity of notional principal amounts at the spot exchange rate serves the same
function as a forward transaction in the foreign exchange market (for a future
transfer of foreign exchange risk). The currency swap market convention is to
use the spot rate rather than the forward rate for the exchange at maturity. The
economic difference is realized through the coupon exchanges over the life of
the swap. In contrast to single currency interest rate swaps, cross-currency
swaps involve both interest rate risk and foreign exchange risk.

EQUITY SWAPS

An equity swap is a derivative instrument which involves an agreement between a
Fund and another party to exchange payments calculated as if they were interest
on a fictitious ("notional") principal amount. The Fund will typically pay a
floating rate of interest, such as the three-month London Interbank Offered
Rate, and receive the total return, i.e., price change plus dividends, of a
specified equity index, such as the S&P 500 Index. If the total return on the
equity index is negative for the contract period, the Fund will pay its

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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. None of the Funds will
use reverse swap contracts to short the equity market.

A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amounts of the two payment
streams. The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess is maintained in a segregated account by the Fund's
Custodian. If the Fund enters into a swap on other than a net basis, the Fund
maintains a segregated account in the full amount accrued on a daily basis of
the Fund's obligations with respect to the transaction. Such segregated accounts
are maintained in accordance with applicable regulations of the Securities and
Exchange Commission.

SWAP OPTIONS

A swap option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment to
enter into a swap that starts at some future date with specified rates. A swap
option may be structured European-style (exercisable on the pre specified date)
or American-style (exercisable during a designated period). The right pursuant
to a swap option must be exercised by the right holder. The buyer of the right
to pay fixed pursuant to a swap option is said to own a put. The buyer of the
right to receive fixed pursuant to a swap option is said to own a call.

CAPS AND FLOORS

An interest rate cap is a right to receive periodic cash payments over the life
of the cap equal to the difference between any higher actual level of interest
rates in the future and a specified strike (or "cap") level. The cap buyer
purchases protection for a floating rate move above the strike. An interest rate
floor is the right to receive periodic cash payments over the life of the floor
equal to the difference between any lower actual level of interest rates in the
future and a specified strike (or "floor") level. The floor buyer purchases
protection for a floating rate move below the strike. The strikes are typically
based on the three-month LIBOR (although other indices are available) and are
measured quarterly. Rights arising pursuant to both caps and floors are
exercised automatically if the strike is in the money. Caps and floors eliminate
the risk that the buyer fails to exercise an in-the-money option.

RISKS ASSOCIATED WITH SWAPS

The risks associated with swaps are similar to those described above with
respect to dealer options. In connection with such transactions, a Fund relies
on the other party to the transaction to perform its obligations pursuant to the
underlying agreement. If there were a default by the other party to the
transaction, the Fund would have contractual remedies pursuant to the agreement,
but could incur delays in obtaining the expected benefit of the transaction or
loss of such benefit. In the event of insolvency of the other party, the Fund
might be unable to obtain its expected benefit. In addition, while each Fund
will seek to enter into such transactions only with parties which are capable of
entering into closing transactions with the Fund, there can be no assurance that
a Fund will be able to close out such a transaction with the other party, or
obtain an offsetting position with any other party, at any time prior to the end
of the term of the underlying agreement. This may impair a Fund's ability to
enter into other transactions at a time when doing so might be advantageous.

FOREIGN CURRENCY TRANSACTIONS

The Funds normally conduct their foreign currency exchange transactions either
on a spot (cash) basis at the spot rate prevailing in the foreign currencies or
on a forward basis. Under normal circumstances, the Adviser expects that each of
these Funds will enter into forward currency contracts (contracts to purchase or
sell a specified currency at a specified future date and price). None of these
Funds will generally enter into a forward contract with a term of greater than
one year. Although forward contracts are used primarily to protect the Fund from
adverse currency movements, they may also be used to increase exposure to a
currency, and involve the risk that anticipated currency movements will not be
accurately predicted and a Fund's total return will be adversely affected as a
result. Open positions in forward contracts are covered by the segregation with
the Group's Custodian of cash, U.S. Government securities or other debt
obligations and are marked-to-market daily.

26
<PAGE> 87

Precise matching of the amount of forward currency contracts and the value of
securities denominated in such currencies of each of the Total Return and High
Income Funds and each of the U.S. Equity, Global Bond and Global Equity Funds
will not generally be possible, since the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Prediction of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. Under certain circumstances, a Fund may commit a
substantial portion of its assets to the consummation of these contracts. No
Fund will enter into such forward contracts or maintain a net exposure to such
contracts where the consummation of the contracts would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, the Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served by doing so.

At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.

It may be necessary for a Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the Fund is obligated to
deliver.

If a Fund retains a portfolio security and engages in an off-setting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
foreign currency. Should forward prices decline during the period between the
date the Fund enters into a forward contract for the sale of a foreign currency
and the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.

Each Fund's dealings in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, each Fund
reserves the right to enter into forward foreign currency contracts for
different purposes and under different circumstances. Use of forward currency
contracts to hedge against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result from an increase in the value of that currency.

Although each Fund values its assets daily in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. Foreign exchange dealers do not charge a fee for conversion, but
they do realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to a Fund at one rate, while offering a
lesser rate of exchange should the Fund desire to resell that currency to the
dealer.

LENDING OF PORTFOLIO SECURITIES

To realize additional income, certain of the Funds may lend securities with a
value of up to 33% of its total assets to broker-dealers, institutional
investors or other persons. Each loan will be secured by collateral which is
maintained at no less than 100% of the value of the securities loaned by
"marking to market" daily. A Fund will have the right to call each loan and
obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within a longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. Loans will only be made to persons deemed by
the Adviser to be of good standing in accordance with standards approved by the
Board of Trustees and will not be made unless, in the judgment of the Adviser,
the consideration to be earned from such loans would justify the risk.

27
<PAGE> 88

RESERVES

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

BORROWING

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

AVERAGE MATURITY AND DURATION CALCULATIONS

AVERAGE MATURITY

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

DURATION

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

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

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

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

28
<PAGE> 89

MANAGEMENT OF THE GROUP

TRUSTEES AND OFFICERS

The Trustees are responsible for the overall management of the Funds, including
establishing the Funds' policies, general supervision and review of their
investment activities. The officers, who administer the Funds' 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, and President and CEO, Payden & Rygel
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 Officer,
3333 Fairview Road Automobile Club of Southern California
Costa Mesa, CA 92626

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

Stender E. Sweeney Trustee Private Investor

W.D. Hilton, Jr. Trustee Managing Trustee, NGC Settlement Trust;
2608 Eastland Avenue, previously, Chief Financial Officer,
Suite 202 Texas Association of School Boards and
Greenville, TX 75402 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.

29
<PAGE> 90

Trustees, other than those Trustees who are affiliated persons (as that term is
defined in Section 2(a)(3) of the 1940 Act) of the Adviser or Sub-adviser,
currently receive an annual retainer of $25,000, plus $2,500 for each regular
Board of Trustees meeting and/or committee meeting attended, $2,000 for each
special Board of Trustees meeting and/or committee meeting and reimbursement of
related expenses. Chairmen of Board committees each receive an annual retainer
of $2,000. If more than one Board or committee meeting occurs on the same day,
only one fee is paid. 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 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>
PENSION OR
RETIREMENT ESTIMATED TOTAL
BENEFITS ANNUAL COMPENSATION
AGGREGATE ACCRUED AS BENEFITS FROM GROUP AND
COMPENSATION PART OF GROUP UPON GROUPCOMPLEX
NAME FROM GROUP EXPENSES RETIREMENT PAID TO TRUSTEE
- ---- -------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Dennis Poulsen $24,500 None N/A $24,500
James Clayburn La Force $27,500 None N/A $27,500
Stender Sweeney $27,500 None N/A $27,500
W.D. Hilton $27,500 None N/A $27,500
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>
Joan A. Payden Chairman President and CEO, Payden & Rygel

John C. Siciliano President, Chief Operating Officer Managing Director, Payden & Rygel (since 1998);
previously, Senior Vice President, Dresdner
Kleinwort Benson North America; Executive Vice
President and Chief Financial Officer, Technicolor,
Inc.

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

David L. Wagner Vice President Portfolio Manager, Payden & Rygel

Gregory P. Brown Vice President Institutional Marketing, Payden & Rygel (since 1996);
previously, Vice President - Corporate Banking, Wells
Fargo Bank

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

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

PRINCIPAL SHAREHOLDERS

As of February 11, 2000, the following persons held of record more than 5% of
the outstanding shares of the Group's Funds:

30
<PAGE> 91

Limited Maturity Fund: Tessera, Inc., San Jose, CA 95134, 26.7%; Center Theatre
Group, Los Angeles, CA 90012, 9.5%; Bert Bell NFL Retirement Plan, Brooklyn, NY
11231, 7.5%; Agouron Institute, Poway, CA 92064, 7.2%; Indian River Memorial
Hospital, Vero Beach, FL 32960, 6.6%; Academy of Motion Pictures Arts and
Sciences, Beverly Hills, CA 90211, 6.1%.

Short Bond Fund: Jicarrila Apache Tribe, Dulce, NM 87528, 15.3%; Southern
California Local Union 831 Employer Health Trust, El Monte, CA 91731, 9.9%; Lon
V. Smith Foundation, Beverly Hills, CA 90210, 9.8%; Southern California Pipe
Trades Trust Fund, San Diego, CA 92186, 6.7%; Bert Bell NFL Retirement Plan,
Brooklyn, NY 11231, 6.7%; Agouron Institute, Poway, CA 92064, 6.5%; Doris Stein
Charitable Trust #4, Beverly Hills, CA 90218, 5.3%.

U.S. Government Fund: Valley Medical Center, Renton, WA 98055, 74.5%, Dan Murphy
Foundation, Los Angeles, CA 90016, 9.1%.

GNMA Fund: Weingart Foundation, Los Angeles, CA 90017, 48.7%; Jicarilla Apache
Tribe, Pittsburg, PA 15230, 34.8%.

Investment Quality Bond Fund: Atlantic Richfield Company Accumulation Plan,
Boston, MA 02109, 15.2%; North Broward Hospital, Fort Lauderdale, FL 33316,
13.9%; Dan Murphy Foundation, Los Angeles, CA 90016, 9.1%; White House
Historical Association, Washington, D.C. 20006, 6.7%; Lon V. Smith Foundation,
Beverly Hills, CA 90210, 5.1%.

Total Return Fund: Jicarilla Apache Tribe, Dulce, NM 87528, 32.1%; Academy of
Motion Picture Arts and Sciences, Beverly Hills, CA 90211, 10.1%; Dan Murphy
Foundation, Los Angeles, CA 90016, 9.3%; Bert Bell NFL Retirement Plan,
Brooklyn, NY. 11231, 8.4%; Amateur Athletic Foundation, Los Angeles, CA 90018,
7.7%; Walt Disney Disability Trust, Burbank, CA 91521, 7.0%; The Academy
Foundation, Beverly Hills, CA 90211, 6.4%; Sisters of Providence, St. Paul. MN
55164, 6.1%.

High Income Fund: Jicarilla Apache Tribe, Dulce, NM 87528, 32.5%; Fairfax County
Supplemental Retirement System Fund, Fairfax, VA 22030, 9.3%; Sisters of
Providence, St. Paul, MN 55164, 5.9%; Fairfax County Uniformed Retirement
System, Fairfax, VA 22030, 5.5%.

Bunker Hill Money Market Fund: Santa Clara Valley Transit Authority, San Jose,
California 95134, 13.3%; Payden & Rygel European Aggressive Growth Fund, Los
Angeles, California 90071, 8.5%; Payden & Rygel High Income Fund, Los Angeles,
California 90071, 5.8%.

Short Duration Tax Exempt Fund: C. Leif, Los Angeles, CA 90069, 18.7%; Scott
King, Malibu, CA 90265, 11.1%; Joan A. Payden, Los Angeles, CA 90071, 10.2%;
Nordskog Family, Thousand Oaks, CA 91361, 8.8%; Wertheimer Family Trust, Santa
Monica, CA 90402, 7.0%; Estate of Mark Goodson, New York, NY 10018, 6.7%;
Phillip & Jane Williams Living Trust, Pacific Palisades, CA 90272, 6.5%; Rustic
Canyon Partners, Santa Monica, CA 90404, 5.9%.

Tax Exempt Bond Fund: Estate of Mark Goodson, New York, NY 10022, 15.5%; Paula
Dermody Trust, Reno, NV 89510, 11.7%; C. Leif, Los Angeles, CA 90069, 9.8%;
Leonard Horvitz Trust, Moreland Hills, OH 44022, 7.8%; Wertheimer Family Trust,
Santa Monica, CA 90402, 7.3%; Ronald and Mary Bension Trust, LaCanada, CA 91011,
6.2%; Nordskog Family Trust, Thousand Oaks, CA 91361, 5.3%.

California Municipal Income Fund: Walker Family Trust, Flintridge, CA 91011,
19.3%; GFC Partnership, New York, NY 10018, 14.0%; Casey Myers Trusts, Beverly
Hills, CA 90210, 13.8%; Wertheimer Family Trust, Santa Monica, CA 90402, 10.0%.

Market Return Fund: Research to Prevent Blindness, New York, NY 10022, 29.4%;
Vanderbilt University, Nashville, TN 37240, 19.6%; Wasserman Foundation, Beverly
Hills, CA 90210, 17.5%; Good Samaritan Hospital Pension Plan, San Diego, CA
92186, 13.7%.

U.S. Growth Leaders Fund: Sheinberg Family Trust, Beverly Hills, CA 90210,
21.7%; Research to Prevent Blindness Endowment Fund, New York, NY 10022, 20.2%;
Beverly Haas IRA, Santa Monica, CA 90405, 14.0%; Joan A. Payden, Los Angeles, CA
90071, 12.6%.

Small Cap Leaders Fund: Wasserman Foundation, Beverly Hills, CA 90210, 17.1%; C.
Leif, Los Angeles, CA 90069, 13.1%; Research to Prevent Blindness Endowment
Fund, New York, NY 10022, 12.7%; Sheinberg Family Trust, Beverly Hills, CA
90210, 10.9%; Sidney Sheinberg IRA, Beverly Hills, CA 90210, 8.1%; The Hogan
Family Foundation, Inc., Westlake Village, CA 91361, 5.2%.

31
<PAGE> 92

Global Short Bond Fund: Navistar International Corp, Chicago, IL 60611, 24.9%;
Kaiser Permanente, Oakland, CA 94612, 19.3%; Annuity Board of the Southern
Baptist Convention, Dallas, TX 75221, 14.0%; Hoag Memorial Hospital Board, Los
Angeles, CA 90051, 9.4%; Michigan State University, Farmington, MI 48333, 7.6%;
Texas A & M University, College Station, TX, 6.3%.

Global Fixed Income Fund:City of Worcester Retirement System, Worcester, MA
01608, 5.3%; Southern California Edison VEBA, Chicago, IL 60675, 5.2%; Torrance
Health Association, Torrance, CA 90505, 5.1%.

Emerging Markets Bond Fund: Sheinberg Family Trust, Beverly Hills, CA 90210,
33.0%; Dan Murphy Foundation, Los Angeles, CA 90016, 18.5%; Joan Payden, Los
Angeles, CA 90071, 13.2%; Amateur Athletic Foundation, Los Angeles, CA, 12.9%;
Wertheimer Family Trust, Santa Monica, CA 90402, 7.0%; Isaacson Family Trust,
Los Angeles, CA 90049, 5.4%.

Global Balanced Fund: Lon V. Smith Foundation, Beverly Hills, CA 90210, 46.5%;
Joan A. Payden, Los Angeles, CA 90071, 20.6%; Walker Family Trust, Flintridge,
CA 91011, 7.1%.

European Growth & Income Fund: Research to Prevent Blindness Endowment Fund, New
York, NY 10022, 22.0%; Sheinberg Family Trust, Beverly Hills, CA 90210, 20.9%.

European Aggressive Growth Fund: Sheinberg Family Trust, Beverly Hills, CA
90210, 16.0%; Research to Prevent Blindness Endowment Fund, New York, NY 10022,
10.4%; Joan A. Payden, Los Angeles, CA 90071, 5.6%.

The Fund has no information regarding the beneficial ownership of such shares.
As of February 11, 2000, the officers and directors of the Group as a group
owned less than 1% of the outstanding shares of each of the Funds, except for
the Market Return Fund, 1.2%; Limited Maturity Fund, 2.0%; California Municipal
Income Fund, 3.0%; Emerging Markets Bond Fund, 13.2%; High Income Fund, 1.3%;
European Aggressive Growth Fund, 6.8%; Growth & Income Fund, 1.7%; and Global
Balanced Fund, 20.6%.

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
January 31, 2000, its staff consisted of 105 employees, 42 of whom either have
advanced degrees and/or are Chartered Financial Analysts. As of such date, it
had over 250 clients, including pension funds, endowments, credit unions,
foundations, corporate cash accounts and individuals, and managed total assets
of over $28 billion, with about $6 billion invested globally.

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

The Adviser provides investment management services to the Funds 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 a Fund's business, except the following
expenses, which are paid by each Fund: (i) the fees and expenses incurred by a
Fund in connection with the management of the investment and reinvestment of the
Fund's assets; (ii) the fees and expenses of Trustees who are not affiliated
persons, as defined in Section 2(a)(3) of the 1940 Act, of the Adviser; (iii)
the fees and expenses of the Trust's Custodian, Transfer Agent, Fund Accounting
Agent and Administrator; (iv) the charges and expenses of legal counsel and
independent accountants for the Group; (v) brokers' commissions and any issue or
transfer taxes chargeable to a Fund in connection with its securities and
futures transactions; (vi) all taxes and corporate fees payable by a Fund to
federal, state or other governmental agencies; (vii) the fees of any trade
associations of which the Group may be a member; (viii) the cost of fidelity
bonds and trustees and officers errors and omission insurance; (ix) the fees and
expenses involved in registering and maintaining registration of a Fund and of
its shares with the SEC, registering the Group as a broker or dealer and
qualifying the shares of a Fund under state securities laws, including the
preparation and printing of the Trust's registration statements, prospectuses
and statements of additional information for filing under federal and state
securities laws for such purposes; (x) communications expenses with respect to
investor services and all expenses of shareholders' and trustees' meetings and
of preparing, printing and mailing reports to shareholders in the amount
necessary for distribution to the shareholders; (xi) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business, and (xii) any expenses assumed by the
Group pursuant to a plan of distribution adopted in conformity with Rule 12b-1
under the 1940 Act.

32
<PAGE> 93

The Investment Advisory Agreement provides that the Adviser receives a monthly
fee from each Fund at the following annual rates: the Limited Maturity, Short
Bond, U.S. Government, Investment Quality Bond, Total Return and Market Return
Funds, 0.28% for the first $1 billion of each Fund's average daily net assets
and 0.25% of each Fund's average daily net assets above $1 billion; the GNMA
Fund, 0.27% of average daily net assets; the Bunker Hill Money Market Fund,
0.15% of average daily net assets; the High Income Fund, 0.35% of average daily
net assets; the Short Duration Tax Exempt and Tax Exempt Bond Funds, 0.32% for
the first $500 million of each Fund's average daily net assets, 0.28% of average
daily net assets for the next $500 million and 0.25% of each Fund's average
daily net assets above $1 billion; the California Municipal Income Fund, 0.32%
for the first $1 billion of average daily net assets, and 0.25% of average daily
net assets above $1 billion; the Growth & Income Fund, 0.50% for the first $2
billion of the Fund's average daily net assets and 0.30% of the Fund's average
daily net assets above $2 billion; the U.S. Growth Leaders and Small Cap Leaders
Funds, 0.60% for the first $1 billion of each Fund's average daily net assets
and 0.50% of each Fund's average daily net assets above $1 billion; the Global
Short Bond and Global Fixed Income Funds, 0.30% of the first $2 billion of each
Fund's average daily net assets, and 0.25% of each Fund's average daily net
assets above $2 billion; the Emerging Markets Bond Fund, 0.45% of average daily
net assets; the Global Balanced Fund, 0.50% of the first $1 billion of average
daily net assets of the portfolio and 0.40% of the Fund's average daily net
assets above $1 billion; the European Growth & Income Fund, 0.50% of the first
$2 billion of average daily net assets of the portfolio, and 0.40% of the Fund's
average daily net assets above $2 billion; and the European Aggressive Growth
Fund, 0.80% of the first $1 billion of average daily net assets of the portfolio
and 0.60% of the Fund's average daily net assets above $1 billion.

Gross fees earned by the Adviser during the last three fiscal years ended
October 31, are shown below.

<TABLE>
<CAPTION>
FISCAL YEAR ENDING OCTOBER 31
------------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Limited Maturity Fund $ 305,823 $ 404,336 $ 272,105
Short Bond Fund 291,286 285,676 250,179
U.S. Government Fund 59,618 171,501 205,918
GNMA Fund * * 39,460
Investment Quality Bond Fund 153,572 405,163 621,792
Total Return Fund 99,922 269,905 561,800
High Income Fund * 156,900 385,590
Bunker Hill Money Market Fund * 25,057 79,021
Short Duration Tax Exempt Fund 113,695 80,235 50,966
Tax Exempt Bond Fund 162,255 210,770 195,513
California Municipal Income Fund * * 65,908
Growth & Income Fund 391,158 1,120,128 1,369,985
Market Return Fund 31,634 97,322 170,628
U.S. Growth Leaders Fund * * 7,222
Global Short Bond Fund 386,216 812,952 725,931
Global Fixed Income Fund 1,805,589 1,557,710 1,564,341
Emerging Markets Bond Fund * * 38,583
Global Balanced Fund** 43,057 46,512 40,161
European Growth & Income Fund** 14,831 135,841 192,513
European Aggressive Growth Fund** * * 24,421
</TABLE>

* Fund had not commenced operations

** Including advisory Fee earned by the Sub-adviser

The Small Cap Leaders Fund did not commence operations until December 20, 1999.

The Agreement provides that the Adviser will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of the Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence in the
performance of the Adviser's duties or from reckless disregard by the Adviser of
its duties and obligations thereunder. Unless earlier terminated as described
below, the Agreement will continue in effect with respect to each Fund for two
years after the Fund's inclusion in its Master Trust Agreement (on or around its
commencement of operations) and then continue for each Fund for periods not
exceeding one year so long as such continuation is approved annually by the
Board of Trustees (or by a majority of the outstanding voting shares of each
Fund as defined in the 1940 Act) and by a majority of the Trustees who are not
interested persons of any party to the Agreement by vote cast in person at a
meeting called for such purpose. The Agreement terminates upon assignment and
may be terminated with respect to a Fund without penalty on 60 days' written
notice at the option of either party thereto or by the vote of the shareholders
of the Fund.

33
<PAGE> 94

SUB-ADVISER

The Sub-adviser provides investment management services to the European Growth &
Income and Global Balanced Funds pursuant to a Sub-Advisory Agreement with the
Adviser dated as of October 1, 1998, and to the European Aggressive Growth Fund
pursuant to a Sub-Advisory Agreement with the Adviser dated as of June 16, 1999.
Each 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. Fees paid to the Sub-adviser for its services for the fiscal year ending
October 31, 1998 were as follows: Global Balanced Fund -- $1,138; and European
Growth & Income Fund -- $8,129. Fees paid to the Sub-adviser for its services
for the fiscal year ending October 31, 1999 were as follows: Global Balanced
Fund -- $1,514; European Growth & Income Fund -- $149,754; and European
Aggressive Growth Fund -- $0.00.

Each 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, each Sub-Advisory Agreement will continue in effect for an initial period
of two years with respect to a Fund, and thereafter for successive annual
periods, subject to annual approval by the Board of Trustees in the same manner
as the Investment Management Agreement. Each Sub-Advisory Agreement terminates
upon assignment or upon termination of the Investment Management Agreement with
respect to a Fund, and may be terminated with respect to a Fund without penalty
on 60 days' written notice by the Adviser or the Board of Trustees or
shareholders of the Fund, or upon 90 days' written notice by the Sub-adviser.

ADMINISTRATOR, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT

Treasury Plus, Incorporated, located at 333 South Grand Avenue, Los Angeles,
California 90071, is a wholly owned subsidiary of the Adviser which serves as
Administrator to the Fund. Under its Administration Agreement with the Group,
the Administrator has agreed to prepare periodic reports to regulatory
authorities, maintain financial accounts and records of the Fund, transmit
communications by the Fund to shareholders of record, make periodic reports to
the Board of Trustees regarding Fund operations, and overview the work of the
fund accountant and transfer agent.

For providing administrative services to the Group, the Administrator receives a
monthly fee at the annual rate of 0.08% 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.

During the last three fiscal years, the Administrator earned the amounts listed
below.

FISCAL YEAR ENDING OCTOBER 31
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Limited Maturity Fund $ 65,533 $ 86,644 $ 61,484
Short Bond Fund 62,419 61,216 55,860
U.S. Government Fund 12,775 36,750 46,546
GNMA Fund * * 11,690
Investment Quality Bond Fund 32,908 86,821 139,777
Total Return Fund 21,412 57,837 127,499
High Income Fund * 26,897 69,769
Bunker Hill Money Market Fund * 10,023 33,955
Short Duration Tax Exempt Fund 21,318 15,044 10,064
Tax Exempt Bond Fund 30,423 39,519 38,239
California Municipal Income Fund * * 13,321
Growth & Income Fund 46,939 134,415 173,294
Market Return Fund 6,779 20,855 39,051
U.S. Growth Leaders Fund * * 843
Global Short Bond Fund 77,243 162,590 152,625
Global Fixed Income Fund 361,118 311,542 329,411
Emerging Markets Bond Fund * * 5,510
Global Balanced Fund 5,167 5,581 5,102
European Growth & Income Fund 1,780 16,301 24,331
</TABLE>

34
<PAGE> 95

<TABLE>
<S> <C> <C> <C>
European Aggressive Growth Fund * * 2,129
</TABLE>

* Fund had not commenced operations

The Small Cap Leaders Fund did not commence operations until December 20, 1999.

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 Funds, 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 Funds pay commissions to brokers in connection with the purchase and sale of
equity securities, options and futures contracts. There is generally no stated
commission in the case of fixed-income securities, which are traded in the
over-the-counter markets, but the price paid by a Fund usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by a Fund includes a disclosed, fixed commission or discount retained by
the underwriter or dealer. Agency transactions involve the payment by a Fund of
negotiated brokerage commissions. Such commissions vary among different brokers.
Also, a particular broker may charge different commissions according to such
factors as the difficulty and size of the transaction. Transactions in foreign
securities involve commissions which are generally higher than those in the
United States.

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

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

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

The only Funds which paid brokerage commissions during the last three fiscal
years are noted below:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCTOBER 31
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Investment Quality Bond Fund $ 9,225 $ 50,315 $ 36,000
Tax Exempt Bond Fund 2,080 5,221 5,800
Market Return Fund 2,504 10,707 855
Global Fixed Income Fund 50,895 28,750 0
</TABLE>

35
<PAGE> 96

<TABLE>
<S> <C> <C> <C>
Total Return Fund 12,935 56,435 16,000
European Growth & Income Fund 24,579 81,875 56,092
Global Balanced Fund 27,711 25,719 21,104
Growth & Income Fund 57,494 49,233 23,701
Short Bond Fund 0 18,986 0
US Growth Leaders Fund * * 4,088
European Aggressive Growth Fund * * 29,751
</TABLE>

* Fund had not commenced operations.

The Board of Trustees will periodically review the Adviser's and Sub-adviser's
performance of their responsibilities in connection with the placement of
portfolio transactions on behalf of the Funds.

PURCHASES AND REDEMPTIONS

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

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

Each Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of its net assets during any 90-day period for any one shareholder. Each Fund
reserves the right to pay any redemption price exceeding this amount in whole or
in part by a distribution in kind of securities held by the Fund in lieu of
cash. It is highly unlikely that shares would ever be redeemed in kind. If
shares are redeemed in kind, however, the redeeming shareholder would incur
transaction costs upon the disposition of the securities received in the
distribution.

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

VALUATION OF PORTFOLIO SECURITIES

Equity securities for which the primary market is the U.S. are valued at last
sale price or, if no sale has occurred, at the closing bid price. Equity
securities for which the primary market is outside the U.S. are valued using the
official closing price or the last sale price in the principal market where they
are traded. If the last sale price on the local exchange is unavailable, the
last evaluated quote or last bid price is normally used.

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

Foreign securities are valued at the closing bid price in the principal market
where they are traded, or, if closing prices are unavailable, at the last traded
bid price available prior to the time a fund's net asset value is determined.
Foreign security prices that cannot be obtained by the quotation services are
priced individually by the pricing service using dealer-supplied quotations.
Short-term obligations that mature in 60 days or less are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees. All
other securities and other assets are appraised at their fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees.

36
<PAGE> 97

Generally, trading in corporate bonds, U.S. government securities, foreign
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. The values of any such securities held by a Fund are
determined as of such times for the purpose of computing the Fund's net asset
value. Foreign currency exchange rates are also generally determined prior to
the close of the New York Stock Exchange. If an extraordinary event that is
expected to affect the value of a portfolio security materially occurs after the
close of an exchange on which that security is traded, then the security will be
valued at fair value as determined in good faith under procedures established by
and under the general supervision of the Board of Trustees.

With respect to the Bunker Hill Money Market Fund, the calculation of the net
asset value per share of the Fund is based upon the amortized cost method of
pricing pursuant to Rule 2a-7 under the 1940 Act. The net asset value per share
of the Fund will normally remain constant at $1.00.

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

TAXATION

Each Fund intends to qualify annually and has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). To qualify as a regulated investment company, a Fund must, among
other things, (a) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock, securities or foreign currencies,
or other income (including gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); and (b) diversify its holdings so that,
at the end of each quarter of the taxable year, (i) at least 50% of the market
value of a Fund's assets is represented by cash, U.S. Government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of a Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies) or of two or more issuers which the Fund
controls and which are engaged in the same or similar trades or businesses (the
"Diversification Test"). The Treasury Department is authorized to promulgate
regulations under which gains from foreign currencies (and options, futures, and
forward contracts on foreign currency) would constitute qualifying income for
purposes of the Qualifying Income Test only if such gains are directly relating
to investing in stocks or securities. To date, such regulations have not been
issued.

In addition, no definitive guidance currently exists with respect to the
classification of interest rate swaps and cross-currency swaps as securities or
foreign currencies for purposes of certain of the tests described above.
Accordingly, to avoid the possibility of disqualification as a regulated
investment company, a Fund will limit its positions in swaps to transactions for
the purpose of hedging against either interest rate or currency fluctuation
risks, and will treat swaps as excluded assets for purposes of determining
compliance with the Diversification Test.

As a regulated investment company, a Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (any
net long-term capital gains in excess of the sum of net short-term capital
losses and capital loss carryovers from the prior eight years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders, if
the Fund distributes 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 long-term capital losses) and 90% of its net exempt
interest income each taxable year. Each Fund intends to distribute to its
shareholders substantially all of its investment company taxable income monthly
and any net capital gains annually. Investment company taxable income or net
capital gains not distributed by a Fund on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid the tax, a Fund must distribute during each calendar year an
amount at least equal to the sum of (1) 98% of its ordinary income (with
adjustments) for the calendar year and foreign currency gains or losses for the
calendar year, (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the twelve month period
ending on October 31 of the calendar year, and (3) all ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by the Fund in October, November, or December of that year to
shareholders of record on a date in such a month and paid by a Fund during
January of the following year. Such distributions will be taxable to
shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in

37
<PAGE> 98

which the distributions are received. To avoid application of the excise tax,
the Funds intend to make their distributions in accordance with the distribution
requirements.

DISTRIBUTIONS

The Short Duration Tax Exempt and Tax Exempt Bond Funds intend to qualify to pay
"exempt-interest" dividends to its shareholders, who may exclude those dividends
from their gross income for federal income tax purposes. In order to be able to
pay those dividends, a Fund must satisfy the additional requirement that, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.

With the exception of the Short Duration Tax Exempt and Tax Exempt Bond Funds,
dividends paid out of a Fund's investment company taxable income will be taxable
to a U.S. shareholder as ordinary income. Distributions received by tax-exempt
shareholders will not be subject to federal income tax to the extent permitted
under the applicable tax exemption.

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

HEDGING TRANSACTIONS

Many of the options, futures contracts and forward contracts used by the Funds
are "section 1256 contracts." Any gains or losses on section 1256 contracts are
generally considered 60% long-term and 40% short-term capital gains or losses
("60/40"). Also, section 1256 contracts held by a Fund at the 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 60/40 gain or loss.

Generally, the hedging transactions and certain other transactions in options,
futures and forward contracts undertaken by a Fund, may result in "straddles"
for U.S. federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by a Fund. In addition, losses realized
by a Fund on positions that are part of a straddle may be deferred under the
straddle rules, rather than being taken into account in calculating the
investment company taxable income or net capital gain for the taxable year in
which such losses are realized. Because limited regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.

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

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

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

SALES OF SHARES

Upon disposition of shares of a Fund (whether by redemption, sale or exchange),
a shareholder will realize a gain or loss. Such gain or loss will be capital
gain or loss if the shares are capital assets in the shareholder's hands, and
will be long-term 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

38
<PAGE> 99

realized by a shareholder on a disposition of shares held by the shareholder for
six months or less will be treated as a long-term capital loss to the extent of
any distributions of capital gain dividends received by the shareholder with
respect to such shares.

BACKUP WITHHOLDING

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

FOREIGN INVESTMENTS

Under the Code, gains or losses attributable to fluctuations in exchange rates
which occur between the time a Fund amortizes or accrues premiums or discounts,
accrues interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to its shareholders as ordinary income.

Income received by a Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes. In
addition, the Adviser intends to manage the Funds with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of a Fund's total assets at the close of its taxable
year consists of securities of foreign corporations, the Fund will be eligible
to elect to "pass-through" to the Fund's shareholders the amount of foreign
income and similar taxes paid by the Fund. If this election is made, a
shareholder generally subject to tax will be required to include in gross income
(in addition to taxable dividends actually received) his pro rata share of the
foreign income taxes paid by the Fund, and may be entitled either to deduct (as
an itemized deduction) his or her pro rata share of foreign taxes in computing
his taxable income or to use such amount (subject to limitations) as a foreign
tax credit against his or her U.S. federal income tax liability. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified in writing within 60 days after
the close of a Fund's taxable year whether the foreign taxes paid by the Fund
will "pass-through" for that year. Absent the Fund making the election to "pass
through" the foreign source income and foreign taxes, none of the distributions
may be treated as foreign source income for purposes of the foreign tax credit
calculation.

Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of a Fund's income will flow through to shareholders of the Fund.
With respect to such election, gains from the sale of securities will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income, and to certain other types
of income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit is modified for purposes of the Federal alternative minimum tax and can
be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible in
computing alternative minimum taxable income.

39
<PAGE> 100

CERTAIN DEBT SECURITIES

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

Some of the debt securities (with a fixed maturity date of more than one year
from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount issued after July 18, 1984 is treated as ordinary income
to the extent the gain, or principal payment, does not exceed the "accrued
market discount" on such debt security. Market discount generally accrues in
equal daily installments. A Fund may make one or more of the elections
applicable to debt securities having market discount, which could affect the
character and timing of recognition of income.

Some of the debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having an
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income ratably over the term of the debt security, even though payment
of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.

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

OTHER TAXES

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

Shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in a Fund. The
information above is only a summary of some of the tax considerations generally
affecting the Funds and their shareholders. Paul, Hastings, Janofsky & Wolfson
LLP, counsel to the Group, has expressed no opinion in respect thereof.

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 Funds, but is not
obligated to sell any specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Investment Management Agreement described above. Pursuant to the Agreement,
the Group has agreed to indemnify the Distributor to the extent permitted by
applicable law against certain liabilities under the Securities Act of 1933.

No compensation is payable by the Funds to the Distributor for its distribution
services, except pursuant to the Distribution Plan described below. The
Distributor pays for the personnel involved in accepting orders for purchase and
redemption of Fund shares, expenses incurred in connection with the printing of
Prospectuses and Statements of Additional Information (other than those sent to

40
<PAGE> 101

existing shareholders), sales literature, advertising and other communications
used in the public offering of shares of a Fund, and other expenses associated
with performing services as distributor of the Funds' shares. Each Fund pays the
expenses of issuance, registration and transfer of its shares, including filing
fees and legal fees.

DISTRIBUTION PLAN

Under a plan of distribution with respect to the Class D shares of the Bunker
Hill Money Market Fund (the "Distribution Plan") adopted by the Board of
Trustees on September 9, 1997, pursuant to Rule 12b-1 under the 1940 Act, the
Distributor incurs the expense of distributing the Class D shares of the Fund.
The Distribution Plan provides for compensation to the Distributor for the
services it provides, and the costs and expenses it incurs, related to marketing
the Class D shares of the Fund. The Distributor is paid for: (a) expenses
incurred in connection with advertising and marketing shares of the Class D
shares of the Fund including but not limited to any advertising by radio,
television, newspapers, magazines, brochures, sales literature, telemarketing or
direct mail solicitations; (b) periodic payments of fees or commissions for
distribution assistance made to one or more securities brokers, dealers or other
industry professionals such as investment advisers, accountants, estate planning
firms and the Distributor itself in respect of the average daily value of Class
D shares of the Fund owned by clients of such service organizations, and (c)
expenses incurred in preparing, printing and distributing the Fund's Prospectus
and Statement of additional Information.

The Distribution Plan continues in effect from year to year, provided that each
such continuance is approved at least annually by a vote of the Board of
Trustees of the Group, including a majority vote of the Trustees who are not
"interested persons" of the Group (as defined in the 1940 Act) and have no
direct or indirect financial interest in the operations of the Plan or in any
agreement relating to the Plan (the "Rule 12b-1 Trustees"), cast in person at a
meeting called for the purpose of voting on such continuance. The Distribution
Plan may be terminated with respect to the Fund at any time, without penalty, by
the vote of a majority of the Rule 12b-1 Trustees or by the vote of the holders
of a majority of the outstanding shares of the Class D shares of the Fund. The
Distribution Plan may not be amended to increase materially the amounts to be
paid by the Class D shares of the Fund for the services described therein
without approval by the shareholders of the Class D shares of the Fund, and all
material amendments are required to be approved by the Board of Trustees in the
manner described above. The Distribution Plan will automatically terminate in
the event of its assignment. The Class D shares of the Fund will not be
contractually obligated to pay expenses incurred under the Distribution Plan if
the Plan is terminated or not continued with respect to the Class D shares of
the Fund.

Under the Distribution Plan, the Distributor is compensated for
distribution-related expenses with respect to the Class D shares of the Fund at
the annual rate, payable monthly of up to 0.35% of the average daily net assets
of the Class D shares of the Fund. The Distributor recovers the distribution
expenses it incurs through the receipt of compensation payments from the Group
under the Distribution Plan.

If the Distributor incurs expenses greater than the maximum distribution fees
payable under the Distribution Plan, as described above, with respect to the
Class D shares of the Fund, the Class D shares of the Fund will not reimburse
the Distributor for the excess in the subsequent year. Because the Distribution
Plan is a "reimbursement-type" plan, the distribution fees are payable only to
the extent of the Distributor's actual distribution related expenses.

The Distributor pays broker-dealers and others out of its distribution fees
quarterly trail commissions of up to 0.35% of the average daily net assets
attributable to shares of the Fund held in the accounts of their customers.

Currently, there are no Class D Shares of the Fund outstanding and the Group
does not market the Class D Shares.

FUND PERFORMANCE

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

Performance information for a Fund may be compared to various unmanaged indices
(such as the Lehman Brothers Municipal Bond Index) or indices prepared by Lipper
Analytical Services and other entities or organizations which track the
performance of investment companies or investment advisers. Comparisons may also
be made to indices or data in publications such as The Bond Buyer, Forbes,
Barron's, The Wall Street Journal, The New York Times, and Business Week. For
example, a Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance a Fund
to other funds in appropriate categories over specific

41
<PAGE> 102

periods of time may also be quoted in advertising. Unmanaged indices generally
do not reflect deductions for administrative and management costs and expenses.
Payden & Rygel may also report to shareholders or to the public in
advertisements concerning the performance of Payden & Rygel as adviser to
clients other than the Funds, and on the comparative performance or standing of
Payden & Rygel in relation to other money managers. Such comparative information
may be compiled or provided by independent rating services or other
organizations.

Information regarding a Fund may also be included in newsletters or other
general communications by Payden & Rygel to advisory clients and potential
clients. These publications principally contain information regarding market and
economic trends and other general matters of interest to investors, such as:
principles of investing which, among other things includes asset allocation,
model portfolios, diversification, risk tolerance and goal setting, saving for
college or other goals or charitable giving; long-term economic or market
trends; historical studies of gold, other commodities, equities, fixed income
securities and statistical market indices; new investment theories or
techniques; economic and/or political trends in foreign countries and their
impact on the United States; municipal bond market fundamentals and trends;
corporate financing trends and other factors that may impact corporate debt; and
housing trends and other economic factors that may impact mortgage rates and
lending activity. In addition, Payden & Rygel may quote financial or business
publications and periodicals as they relate to fund management, investment
philosophy and investment techniques. Materials may also include discussions
regarding Payden & Rygel's asset allocation services and other Payden & Rygel
funds, products and services.

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

If appropriate, the Group may compare the performance of a Fund or the
performance of securities in which a Fund may invest to averages published by
IBC USA (Publications, Inc.). These averages assume reinvestment of
distributions. The IBC/Donoghue's Money Fund Averages(TM)/All Taxable, which is
reported in the Donoghue's Money Fund Report(R), covers over 772 taxable money
market funds. The Fund may quote its fund number, Quotron(TM) number and CUSIP
number or quote its current portfolio manager or any member of Payden & Rygel's
market strategy group.

YIELD CALCULATIONS

Yields for each class of shares of a Fund (other than the Bunker Hill Money
Market Fund) used in advertising are computed by dividing the interest income of
the class for a given 30-day or one month period, net of expenses allocable to
the class, by the average number of shares of the class entitled to receive
dividends during the period, dividing this figure by the class' net asset value
per share at the end of the period and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate. Income
is calculated for purposes of yield quotations in accordance with standardized
methods applicable to bond funds. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased with
respect to bonds trading at a discount by adding a portion of the discount to
daily income. For a Fund's investments denominated in foreign currencies, income
and expenses are calculated first in their respective currencies, and converted
to U.S. dollars either when they are actually converted or at the end of the
period, whichever is earlier. Capital gains and losses are generally excluded
from the calculation, as are gains and losses from currency exchange rate
fluctuations.

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

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

With respect to the Bunker Hill Money Market Fund, yields and effective yields
for each class of shares of the Fund used in advertising are based on a seven
day base period. A yield quotation is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a

42
<PAGE> 103

hypothetical charge reflecting deductions from shareholder accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then multiplying the base period
return by 365/7 with the resulting yield figure carried to at least the nearest
0.01%. An effective yield quotation, carried to at least the nearest 0.01%, is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then compounding the base period return by adding 1, raising the sum
to a power equal to 365 divided by 7, and subtracting 1 from the result.

Because yield accounting methods differ from the methods used for other
accounting purposes, the Fund's yield may not equal its distribution rate or
income reported in the Fund's financial statements. Yields and other performance
information may be quoted numerically, or in a table, graph or similar
illustration.

TOTAL RETURN CALCULATIONS

Total returns quoted in advertising with respect to a class of shares of the
Fund reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the class' net asset
value per share over the period. Average annual total returns for each class are
calculated by determining the growth or decline in value of a hypothetical
historical investment in that class of shares of a Fund over a stated period,
and then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would result from an average annual total return of 7.18%, which is the
steady annual total return that would equal 100% growth on a compounded basis in
ten years. While average annual total returns are a convenient means of
comparing investment alternatives, investors should realize that a Fund's
performance is not constant over time, but changes from year to year, and that
average annual total returns represent averaged figures as opposed to the actual
year-to-year performance of the Fund.

For Class R Shares, the one-year, five-year and since inception total returns
for each of the Funds through October 31, 1999 (except as otherwise noted) were
as follows:

<TABLE>
<CAPTION>
ANNUALIZED
RETURN SINCE
1 YEAR 5 YEAR INCEPTION* INCEPTION DATE
------ ------ ------------ ------------------
<S> <C> <C> <C> <C>
Limited Maturity Fund 4.71% 5.57% 5.41% May 1, 1994
Short Bond Fund 2.89% 5.90% 5.08% January 1, 1994
U.S. Government Fund 1.76% 6.84% January 1, 1995
GNMA Fund 1.82% August 27, 1999
Investment Quality Bond Fund (0.71)% 7.31% 5.22% January 1, 1994
Total Return Fund 0.55% 5.26% December 9, 1996
High Income Fund 5.65% 3.76% December 30, 1997
Bunker Hill Money Market Fund 4.97% 5.14% December 17, 1997
Short Duration Tax Exempt Fund 2.29% 4.10% 3.89% September 1, 1994
Tax Exempt Bond Fund (0.81)% 5.81% 3.49% December 21, 1993
California Municipal Income Fund (1.22)% December 17, 1998
Growth & Income Fund 16.47% 20.11% November 1, 1996
Market Return Fund 24.41% 22.48% December 1, 1995
U.S. Growth Leaders Fund 5.30% June 17, 1999
Global Short Bond Fund 2.57% 5.93% September 18, 1996
Global Fixed Income Fund 0.56% 8.63% 7.35% September 1, 1992
Emerging Markets Bond Fund 12.92% December 17, 1998
Global Balanced Fund 15.85% 11.56% December 9, 1996
European Aggressive Growth Fund 12.80% June 17, 1999
European Growth & Income Fund 8.39% 10.44% June 30, 1997
</TABLE>

* Returns for the GNMA Fund, California Municipal Income Fund, U.S. Growth
Leaders Fund, Emerging Markets Bond Fund and the European Aggressive Growth
Fund are unannualized.

The Small Cap Leaders Fund did not commence operations until December 20, 1999.

In addition to average annual total returns, a Fund may quote unaveraged or
cumulative total returns for each class of shares reflecting the simple change
in value of an investment over a stated period of time. Average annual and
cumulative total returns may be quoted as a percentage or as a dollar amount,
and may be calculated for a single investment, a series of investments, and/or a
series of redemptions, over any time period. Total returns may be broken down
into their components of income, capital (including capital gains and changes in
share price) and currency returns in order to illustrate the relationship of
these factors and their contributions to

43
<PAGE> 104

total return. Total returns, yields and other performance information maybe
quoted numerically, or in a table, graph or similar illustration.

OTHER INFORMATION

CAPITALIZATION

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

The Board of Trustees has established Class R Shares of all Funds, and Class D
Shares of the Bunker Hill Money Market Fund. Advisory and administrative fees
will generally be charged to each class of shares based upon the assets of that
class. Expenses attributable to a single class of shares will be charged to that
class.

The Board of Trustees may establish additional funds (with different investment
objectives and fundamental policies) and additional classes of shares at any
time in the future. Establishment and offering of additional portfolios will not
alter the rights of the Funds' shareholders. Shares do not have preemptive
rights or subscription rights. All shares, when issued, will be fully paid and
non-assessable by the Group. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the assets of the Fund.

Expenses incurred by the Group in connection with its organization and the
initial public offering are being reimbursed to the Adviser, subject to the
expense limitation described in the Prospectus 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 a Fund. However, the Declaration
of Trust disclaims liability of the shareholders of a Fund for acts or
obligations of the Group, which are binding only on the assets and property of
the Fund, and requires that notice of the disclaimer be given in each contract
or obligation entered into or executed by a Fund or the Trustees. The
Declaration of Trust provides for indemnification out of Fund property for all
loss and expense of any shareholder held personally liable for the obligations
of a Fund. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a Fund itself would
be unable to meet its obligations and thus should be considered remote.

The Declaration of Trust provides further that no officer or Trustee of the
Group will be personally liable for any obligations of the Group, nor will any
officer or Trustee be personally liable to the Group or its shareholders except
by reason of his own bad faith, willful misfeasance, gross negligence in the
performance of his duties or reckless disregard of his obligations and duties.
With these exceptions, the Declaration of Trust provides that a Trustee or
officer of the Group is entitled to be indemnified against all liabilities and
expenses, including reasonable accountants' and counsel fees, incurred by the
Trustee or officer in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee or officer.

VOTING

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

44
<PAGE> 105

MARKET PRICING ERRORS

The Board of Trustees has adopted Guidelines Concerning Correction of Market
Pricing Errors which set forth the procedures used in handling market pricing
errors and their impact on a Fund's net asset value ("NAV") and its
shareholders. Depending on the size of the error, corrective action may involve
a prospective correction of the NAV only, correction of any erroneous NAV and
compensation to the Fund, or correction of any erroneous NAV, compensation to
the Fund and reprocessing of individual shareholder transactions. Under the
Guidelines exceptions to the policy may be granted as facts or circumstances
warrant.

CUSTODIAN

The Boston Safe Deposit and Trust Company serves as Custodian for the assets of
the Funds. The Custodian's address is One Boston Place, Boston, Massachusetts
02109. Under its Custodian Agreement with the Group, the Custodian has agreed
among other things to maintain a separate account in the name of each Fund; hold
and disburse portfolio securities and other assets on behalf of the Funds;
collect and make disbursements of money on behalf of the Funds; and receive all
income and other payments and distributions on account of each Fund's portfolio
securities.

Pursuant to rules adopted under the 1940 Act, the Funds may maintain foreign
securities and cash in the custody of certain eligible foreign banks and
securities depositories. The Board of Trustees has delegated to the Custodian
the selection of foreign custodians and to the Adviser the selection of
securities depositories. Selection of such foreign custodial institutions and
securities depositories is made following a consideration of a number of
factors, including (but not limited to) the reliability and financial stability
of the institution; the ability of the institution to perform capably custodial
services for the Funds; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and risks of nationalization or expropriation of Fund
assets. No assurance can be given that the appraisal by the Custodian and the
Adviser of the risks in connection with foreign custodial and securities
depository arrangements will always be correct or that expropriation,
nationalization, freezes, or confiscation of assets that would impact assets of
the Portfolio will not occur, and shareholders bear the risk of losses arising
from these or other events.

INDEPENDENT AUDITORS

Deloitte & Touche LLP serves as the independent auditors for the Funds. Deloitte
& Touche provides audit and tax return preparation services to the Group. The
independent auditors' address is 2 World Financial Center, New York, New York
10281.

COUNSEL

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

LICENSE AGREEMENT

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

FINANCIAL STATEMENTS

The Funds' audited financial statements are incorporated in this Statement of
Additional Information by reference to its 1999 Annual Report to Shareholders.
The financial statements in such Annual Report have been audited by the Fund's
independent auditors, Deloitte & Touche LLP, whose report thereon also appears
in such Annual Report and is incorporated herein by reference. Such financial
statements have been incorporated herein in reliance upon such report given upon
their authority as experts in accounting and auditing.

Additional copies of the Funds' 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.

45
<PAGE> 106

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.

46
<PAGE> 107

THE PAYDEN & RYGEL INVESTMENT GROUP

F O R M N-1A

PART C: OTHER INFORMATION

Item 23. Exhibits.

<TABLE>
<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).
</TABLE>

C-1
<PAGE> 108

<TABLE>
<S> <C>
(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 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 (cc).

(a.24) Form of Amendment No. 23 to the Master Trust Agreement (cc).

(a.25) Form of Amendment No. 24 to the Master Trust Agreement (cc).

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

(d.1) Investment Management Agreement between Registrant and Payden
& Rygel (n).
</TABLE>

C-2
<PAGE> 109

<TABLE>
<S> <C>
(d.2) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated as of September 16, 1993,
adding Tax-Exempt Bond Fund to the Agreement (n).

(d.3) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated December 29, 1993, adding
Short Bond, Intermediate Bond and Investment Quality Bond
(previously Opportunity) Funds to the Agreement (n).

(d.4) Amendment to Investment Management Agreement between
Registrant and Payden & Rygel dated as of April 29, 1994,
adding Limited Maturity Fund to the Agreement (e).

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

(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
</TABLE>

C-3
<PAGE> 110

<TABLE>
<S> <C>
adding Growth & Income Fund to the Agreement (k).

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

(d.12) Form of Amendment to Investment Management Agreement between
Registrant and Payden & Rygel adding Total Return Fund,
International Equity Fund and Global Balanced Fund to the
Agreement (m).

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

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

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

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

C-4
<PAGE> 111

<TABLE>
<S> <C>
(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 (cc).

(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 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 (cc).

(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).
</TABLE>

C-5
<PAGE> 112

<TABLE>
<S> <C>
(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).

(i.6) Form of Opinion of Counsel, dated July 28, 1999 (aa).

(i.7) Form of Opinion of Counsel, dated November 18, 1999 (bb).

(i.8) Form of Opinion of Counsel, dated February 14, 2000 (cc).

(j) Consent of independent auditors.

</TABLE>

C-6
<PAGE> 113

<TABLE>
<S> <C>
(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.

(e) Filed as an exhibit to Post-Effective Amendment No. 6 to the
Registration Statement on June 30, 1994 and incorporated herein by
reference.

C-7
<PAGE> 114

(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.

C-8
<PAGE> 115

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

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

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

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

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

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

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

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

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

(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.

C-9
<PAGE> 116

(bb) Filed as an exhibit to Post-Effective Amendment No. 40 to the
Registration Statement on November 19, 1999.

(cc) Filed as an exhibit to Post-Effective Amendment No. 41 to the
Registration Statement on February 15, 2000.

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 (74.5%);
Payden & Rygel Global Balanced Fund, Class R - Lon V. Smith Foundation (46.5%);
Payden & Rygel Market Return Fund, Class R - Research to Prevent Blindness
Endowment Fund (29.4%); 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

C-10
<PAGE> 117

liabilities incurred by it in performing its obligations under the Agreement,
except with respect to matters involving its Disabling Conduct.

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

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

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
</TABLE>

C-11
<PAGE> 118

<TABLE>
<CAPTION>
<S> <C> <C>
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>

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 Chief Executive
Officer
</TABLE>

C-12
<PAGE> 119

<TABLE>
<S> <C> <C>
Gregory P. Brown President and Chief Vice President
Operating Officer and
Director

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

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained either at the offices of the Registrant (333 South
Grand Avenue, Los Angeles, California 90071), its adviser Payden & Rygel (333
South Grand Avenue, 32nd Floor, Los Angeles, California 90071), its
Administrator Treasury Plus, Inc. (333 South Grand Avenue, 32nd Floor, Los
Angeles, California 90071), its Fund Accountant and Transfer Agent Investors
Fiduciary Trust Company (127 West 10th Street, Kansas City, Missouri 64105), or
its Custodian Boston Safe Deposit and Trust Company (One Boston Place, Boston,
Massachusetts 02108).

Item 29. Management Services.

Not Applicable.

Item 30. Undertakings.

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

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

C-13
<PAGE> 120

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 27th day of February, 2000. The undersigned hereby certifies
that this Amendment meets all of the requirements for effectiveness pursuant to
Rule 485(b) under the 1933 Act.

THE PAYDEN & RYGEL INVESTMENT GROUP

By s/ Joan A. Payden
-----------------------------------
Joan A. Payden
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 28, 2000
Principal
s/Joan A. Payden Executive Officer
- -------------------------
Joan A. Payden

J. Clayburn La Force* Trustee February 28, 2000
- -------------------------
J. Clayburn La Force

Dennis C. Poulsen* Trustee February 28, 2000
- -------------------------
Dennis C. Poulsen

Thomas McKernan, Jr.* Trustee February 28, 2000
- -----------------------
Thomas McKernan, Jr.

Stender E. Sweeney* Trustee February 28, 2000
- -------------------------
Stender E. Sweeney

W.D. Hilton, Jr.* Trustee February 28, 2000
- -------------------------
W.D. Hilton, Jr.

s/John Paul Isaacson Trustee February 28, 2000
- -------------------------
John Paul Isaacson

s/Christopher N. Orndorff Trustee and February 28, 2000
- -------------------------
Christopher N. Orndorff

S/Bradley F. Hersh Principal Financial February 28, 2000
- ------------------------- and Accounting
Bradley F. Hersh Officer

*s/Joan A. Payden
- -------------------------
</TABLE>

C-14
<PAGE> 121

By: Joan A. Payden
Attorney-In-Fact

C-15
<PAGE> 122

EXHIBIT INDEX
THE PAYDEN & RYGEL INVESTMENT GROUP
FORM N-1A REGISTRATION STATEMENT
Post-Effective Amendment No. 42

<TABLE>
<CAPTION>
Exhibit No. Title of Exhibit
- ----------- ----------------
<S> <C>
(j) Consent of independent auditors.
</TABLE>

<PAGE> 1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Post-Effective Amendment
No. 42 to Registration Statement on Form N-1A under the Securities Act of 1933,
filed under Registration Statement No. 33-46973, relating to Payden & Rygel
Investment Group, including Global Short Bond Fund, Global Fixed Income Fund,
Emerging Markets Bond Fund, Global Balanced Fund, European Growth & Income Fund,
European Aggressive Growth Fund, Growth & Income Fund, Market Return Fund, U.S.
Growth Leaders Fund, Bunker Hill Money Market Fund, Limited Maturity Fund, Short
Bond Fund, U.S. Government Fund, GNMA Fund, Investment Quality Bond Fund, Total
Return Fund, High Income Fund, Short Duration Tax Exempt Fund, Tax Exempt Bond
Fund, and California Municipal Income Fund of our report dated December 10, 1999
appearing in the annual report to shareholders of Payden & Rygel Investment
Group for October 31, 1999 and to the references to us under the captions
"Financial Highlights", "Independent Auditors" and "Financial Statements" in
such Registration Statement.

DELOITTE & TOUCHE LLP

New York, New York
February 23, 2000