UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number            811-06625                

The Payden & Rygel Investment Group

(Exact name of registrant as specified in charter)

333 South Grand Avenue

Los Angeles, CA 90071

(Address of principal executive offices) (Zip code)

Edward S. Garlock, Esq.

Secretary

333 South Grand Avenue

Los Angeles, CA 90071

(Name and address of agent for service)

Registrant’s telephone number, including area code: 213-625-1900

Date of fiscal year end: October 31

Date of reporting period: October 31, 2014

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

Item 1. Reports to Stockholders.

The Report to Shareholders is attached herewith.

Dear Shareholders,

As we find ourselves at the end of 2014, we want to take a moment to focus this letter on our business. Investment management is not an exact science. Economic and geopolitical factors along with many other considerations contribute to strategy decisions and the investments we make in client portfolios. In a rapidly changing global financial market, it is not possible to predict the future. What is possible is to plan for the unexpected by focusing on liquidity, diversification and the likely outcome of global events.

At Payden & Rygel, investment management is about more than individuals, numbers and performance. Culture matters. While individuals come and go, culture persists. We just celebrated the firm‘s 31st anniversary, retaining the same governance and ownership structure, and the Payden culture remains as vibrant today as when I first sat in my living room trying to decide on a name for the firm.

We attribute our long-term success to our independence, team-oriented approach and practicality. Over the past three decades, we learned that it takes a team and a stable culture to manage money. No single individual will make or break a strategy. We manage your portfolio by questioning assumptions and challenging consensus views, and we have the flexibility to change our minds if necessary.

Having no outside ownership allows us to focus beyond one quarter. We truly have our client’s best interests at heart, as investment management is our sole source of revenue. We stand ready to assist in any way we can, providing suggestions or problem-solving in any aspect of managing your funds. Please don’t ever hesitate to pick up the phone and call the team or me directly if there are any questions.

Our very best wishes for the holiday season and New Year,

Joan A. Payden

President & CEO

Short Duration Strategies

During the fiscal year ended October 31, 2014, monetary policy by Central Banks in developed markets started to diverge. The European Central Bank and the Bank of Japan implemented unprecedented easy monetary policy tools in order to counteract deflationary pressures and flood their markets with liquidity as economic growth slowed and inflation expectations declined. In contrast, the Federal Reserve Board ended its asset purchase program in October of 2014 and, along with the Bank of England, kept interest rates unchanged as both employment and economic growth improved. The impact to markets was quickly felt as BBB-rated Spain and Italy three-year maturity government yields both traded below AAA-rated U.S. Treasury rates. German three-year and lower maturity yields traded in negative territory, meaning that investors had to pay the Bundesbank to hold their debt.

U.S. Treasury three year maturity yields ended the fiscal year at 0.92%, 35 basis points higher than where they started as investors prepared for an end to the Federal Reserve Board’s asset purchase program and expectations for a rise in the Federal Reserve Board’s Funds Rate in 2015. Short maturities of the U.S. Treasury curve steepened before flattening out past three-year duration as inflation remains below the Federal Reserve Board’s target of 2%.

Investment-grade corporate bonds performed well as demand for high quality, short-term paper outpaces supply. Spreads to U.S. Treasury securities tightened with lower quality issues outperforming higher quality bonds as investors continue to search for yield in this low interest rate environment.

The Payden Cash Reserves Money Market Fund (PBHXX) continued to provide stable daily liquidity. For the fiscal year ended October 31, 2014, the Fund returned 0.01% compared to a return of 0.01% for the Lipper Money Market Average and 0.01% for the Lipper Government Money Market Average, the Fund’s benchmarks. Money market rates remained low as the Federal Reserve Board kept its low interest rate policy unchanged.

The Payden Limited Maturity Fund (PYLMX) returned 0.78% for the twelve months ended October 31, 2014, compared to a return of 0.05% for its benchmark, the Bank of America Merrill Lynch Three Month U.S. Treasury Bill Index. U.S. investment-grade corporate debt, asset-backed securities and mortgage-backed securities were the largest contributors to outperformance as demand for high quality short-term paper remained strong.

The Payden Low Duration Fund (PYSBX) returned 1.14% for the fiscal year ended October 31, 2014, compared to a return of 0.68% for its benchmark, the Bank of America Merrill Lynch 1-3 Year Treasury Index. U.S. investment-grade corporate bonds, high yield debentures and non-agency mortgage-backed securities were the largest contributors to outperformance as yield premiums compressed due to the strong demand for higher yielding assets relative to U.S. Treasury securities.

The Payden Global Low Duration Fund (PYGSX) returned 1.43% for twelve months ended October 31, 2014, compared to 0.68% the Bank of America Merrill Lynch 1-3 Year Treasury Index and 0.92%, the Bank of America Merrill Lynch 1-3 Year US Corporate & Government Index the Fund’s benchmarks. U.S. investment-grade corporate bonds, high yield debentures and non-agency mortgage-backed securities were the largest contributors to outperformance as yield premiums compressed due to the strong demand for higher yielding assets relative to U.S. Treasury securities.

The Payden U.S. Government Fund Investor Class (PYUSX) returned 1.52% for the fiscal year ended October 31, 2014, compared to a return of 0.89% for its benchmark, the Bank of America Merrill Lynch 1-5 Year Treasury Index. The Fund’s Advisor Class (PYUWX) returned 1.27% for the same period. The Fund outperformed its benchmark with a significant overweight to shorter-term agency mortgage bonds, which were in a high demand during the year. The Fund is currently positioned for rates to stay near historical lows.

Intermediate Duration Bond Strategies

The Payden GNMA Fund Investor Class (PYGNX) returned 3.79% for the fiscal year ended October 31, 2014, compared to a return of 3.92% for its benchmark, the Bank of America Merrill Lynch GNMA Master Index. The Fund’s Advisor Class (PYGWX) returned 3.43% for the year. As the Federal Reserve Board gradually withdrew its purchase support from the U.S. Treasury and mortgage markets the Fund was tactically positioned to underweight securities that the Federal Reserve Board was purchasing in order to provide tactical buying opportunities. No such opportunity arose as supply diminished, volatility dropped and rates moved gradually lower. The Fund is currently positioned for a benign rate environment in the near term as inflation expectations and still slack labor markets keep the Federal Reserve Board on pace for a late 2015 rate increase.

The Payden Core Bond Fund Investor Class (PYCBX) returned 5.34% for the twelve months ended October 31, 2014, compared to a return of 4.14% for its benchmark, the Barclay’s Capital Aggregate Bond Index. The Fund’s Adviser Class (PYCWX) returned 5.06% for the same period. Interest rate movements along the U.S. Treasury yield curve were mixed. Ten-year and thirty-year bonds moved lower, while five-year bonds finished higher. The positive price return resulting from lower yields in longer maturities ultimately led to strong total returns for the core bond markets. Positive excess returns generated by non-Treasury sectors, such as investment grade corporate and taxable municipal bonds added to returns. The Fund’s outperformance versus the benchmark is mainly attributable to its credit overweight and security selection within investment grade corporates. Strong credit fundamentals and compelling valuations continue to support our overweight allocation to credit sectors.

The Payden Corporate Bond Fund (PYACX) generated a return of 8.31% for the fiscal year ended October 31, 2014, compared to a return of 6.29% for its benchmark, the Barclay’s Capital U.S. Corporate Investment Grade Index. The Fund used futures and U.S. Treasury securities as a means of hedging duration to be flat to the benchmark, and near the end of the fiscal year bought credit protection with the high yield credit default swap index. Over the fiscal year, bond prices rallied and added to the impressive total return. The largest boost to performance was from strong security selection, which provided close to three-quarters of the Fund’s return over the benchmark. In addition, the Fund benefited from overweight allocations to equities and high yield bonds.

The Payden Strategic Income Fund, Investor Class (PYSGX) returned 0.94% for the period May 8, 2014 through October 31, 2014, compared to a return of 1.91% for its benchmark, the Barclays Capital Aggregate Bond Index. The Fund’s Adviser Class (PYSWX) returned 0.73% and its Institutional Class (PYSIX) returned 0.93% for the same period. The Fund is an extension of a typical core bond vehicle in that it is more unconstrained, with the ability to invest in broad array of securities and rating types. In the current market environment, the Fund has higher allocations to high yield and emerging market bonds and lower allocations to U.S. Treasury and government-related securities.

Relative underperformance is attributed to the Fund’s shorter duration position and high concentration in the credit sectors. During the fiscal period, bond yields moved lower and credit spreads moved wider. The Fund’s allocation to investment grade corporate, high yield and emerging market bonds also detracted from relative performance. However, selection within investment grade corporates and agency mortgage-backed securities contributed positively. Strong credit fundamentals and compelling valuations continue to drive overweight allocation to credit sectors going forward.

High Yield Bond Strategy

The floating rate, high yield loan market generated a more muted performance for the fiscal year ended October 31, 2014. Unlike calendar 2013 when the loan market experienced over $60 billion of inflows, 2014 experienced over $15 billion in outflows, weighing negatively on the market. Offsetting these fund outflows, however, were over $100 billion in new collateralized loan obligations (CLOs) that were created in 2014. These absorbed much of the new issue loan supply.

The floating rate loan market will benefit from anticipated rising rates in shorter maturities, with the expectation that the Federal Reserve Board will begin to raise the Federal Funds rate in mid-to-late 2015. This should broadly benefit the yield on floating rate loan funds and potentially restart the inflows into loan sector.

For the fiscal period ended October 31, 2014, the Payden Floating Rate Fund, Investor Class (PYFRX) returned 2.39%, while the Fund’s Advisor Class (PYFAX) returned 2.15% and its Institutional Class (PYFIX) returned 2.59%. The Fund’s benchmark, the Credit Suisse BB Loan Index, returned 2.30% for the same period. Many of the new issue loans came at a discount to par and many traded above par until the August-October 2014 period when the capital markets uncertainty and the continuing loan fund outflows weighed on the market and resulted in many loans trading modestly below par.

The high yield bond market generated a solid performance for the twelve months ended October 31, 2014. The market benefitted from the positive interest rate environment and the continued strength in market fundamentals. After a solid first half of 2014, the market hit two bouts of volatility: first in late July/early August when the market experienced heavy outflows and then again in late September/mid-October when a confluence of geo-political and macro factors rattled the capital markets. In both periods, the market rallied quickly.

The Payden High Income, Investor Class (PYHRX) returned 5.75%, while the Fund’s Advisor Class (PYHWX) returned 5.45% for the twelve months ended October 31, 2014. The Fund’s benchmark, the Bank of America Merrill Lynch BB-B High Yield Cash

Pay Constrained Index, returned 6.26% for the year. The Fund’s overweight to the telecommunication and financial sectors added to performance. Holdings in one of the two large US direct broadcast satellite (DBS) providers, Echostar DBS, added to performance as the company’s bonds rallied on good quarterly results and on the possibly that Echostar might acquire another company or possibly be acquired itself. Holdings in the global aircraft leasing company, International Lease Finance (ILFC), also added to performance as the company was acquired by the fast-growing Dutch aircraft leasing company AerCap Holdings. The Fund’s overweight to the Energy sector for much of the review period detracted from performance as the approximately 20% decline in the price of crude oil in the September-October 2014 period negatively impacted both the bonds and stocks in the broad energy sector. An overweight in the bonds of Linn Energy LLC (LINE) detracted from performance as the securities of the company came under pressure due primarily to lower crude oil prices not just in the U.S. but globally as supply perked up globally and demand softened a bit with the economic slowdown in China and parts of Europe.

Tax Exempt Strategy

For the fiscal year ended October 31, 2014, the Payden California Municipal Income Fund (PYCRX) returned 5.27%, while the Fund’s benchmarks, the Barclays Capital 7-Year Municipal Index and the Barclays Capital California Intermediate Index, returned 5.31% and 5.59%, respectively. The primary difference in performance was the Fund’s yield curve positioning. Shorter maturities remained relatively well anchored, while longer term maturities, where the Fund is underweight, outperformed. In addition, the Fund strategically added securities in higher yielding credit sectors, which outperformed as investors sought additional yield in this historically low interest rate environment.

Global Bond Strategy

Global government bonds performed strongly during the twelve months ended October 31, 2014, supported by concerns about weak global growth and mounting deflationary pressures, dovish rhetoric from the Federal Reserve Bank and the European Central Bank, more aggressive monetary easing by the Bank of Japan and the European Central Bank (ECB) and intermittent geo-political concerns in the Middle East and Ukraine. The peripheral European markets remained the top performing developed government markets, as investors welcomed the European Central Bank’s September 2014 rate cut, and first the prospect, and then the reality, of outright bond purchases by the European Central Bank. UK Gilts also outperformed U.S. Treasury securities as the specter of slowing European growth led investors to pare back their forecasts for higher United Kingdom rates. The likelihood of persistently low rates over 2015 and beyond, coupled with strong corporate cash levels and very low default rates, encouraged investors to search for yield in the non-government bond markets. Credit spreads continued to tighten as a result, led by emerging market debt. Investment grade corporates and high yield bonds also outperformed U.S. Treasury securities despite some heavy profit-taking in the high yield sector in July and September 2014 as investors cashed in on an extended period of significant gains.

For the fiscal year ended October 31 2014, the Payden Global Fixed Income Fund (PYGFX) returned 6.20%, outperforming its benchmark, the Lehman Global Aggregate Index Hedged into USD, which returned 5.32%. This outperformance was partly due to the Fund’s active currency management, thanks to long US dollar positions against the Euro, the yen, the Canadian and Australian dollars and the Swiss franc. Sector allocation was the other significant contributor to relative performance thanks to the Fund’s overweight allocations to emerging market, high yield and investment grade corporate bonds. The focus on the financial sector, which outperformed industrial and utility sectors, enhanced relative returns. These gains were partially offset by the adverse impact of the Fund’s underweight duration positioning as government yields continued to decline and by its underweight to peripheral euro-zone bonds, which outperformed core markets.

Emerging Market Bond Strategies

For the twelve months ended October 31, 2014, emerging market dollar-pay bonds enjoyed strong performance. Both sovereign and corporate bonds benefitted from spread tightening in addition to the favorable U.S. Treasury backdrop. Local currency bonds fared worse; in several countries, currency depreciation against the U.S. dollar exceeded price and yield compensation. While credit fundamentals remained generally healthy, investors differentiated emerging markets based on monetary policy, external vulnerability and commitment to, or the lack of, structural reforms. A heavy election calendar yielded few surprises, while geopolitical risk, predominantly centered on Russia and Ukraine, had limited spillover effects.

The Payden Emerging Markets Bond Fund, Investor Class (PYEMX) returned 7.53%, the Fund’s Adviser Class (PYEWX) returned 7.32%, and the Fund’s Institutional Class (PYEIX) returned 7.64% for the fiscal year ended October 31, 2014. The Fund’s benchmark, the JP Morgan Emerging Market Bond Index Global Diversified, returned 8.55% for the same period. The Fund is overweight Latin America through Mexico, Colombia, and the Dominican Republic. It is underweight Central and Eastern Europe through Poland, Russia and Turkey. In Asia, the Fund is overweight Indonesia and Sri Lanka and underweight the Philippines. The Fund is neutral in the Middle East and Africa via an underweight to South Africa and Lebanon and an overweight in Morocco and Côte d’Ivoire. The Fund’s underperformance was due mainly to emerging market currency and local rates exposure. Long currency positions in the Brazilian real, Ghanaian cedi, Mexican peso and Costa Rican colon all detracted from performance. Long local rate positions in Brazil, Costa Rica and Ghana also detracted from performance.

The Payden Emerging Markets Local Bond Fund, Investor Class (PYELX) returned -3.84% and the Fund’s Adviser Class (PYEAX) returned -4.09% for the twelve months ended October 31, 2014. The Fund’s benchmark, the JP Morgan Global Bond Index Emerging Market Global Diversified returned -2.68% for the period. The Fund is overweight Latin America through rates in Brazil and Mexico, although underweight currency with the Brazilian real. In Emerging Europe, the Fund is overweight Polish rates, while short the Russian ruble, Turkish lira and Hungarian forint. In Asia, the Fund is overweight rates and currency in India and Indonesia, while underweight Malaysian rates. In Africa, the Fund is modestly underweight South African rates and currency. The Fund’s underperformance was due mainly to currency exposure. In particular, long currency positions in the Brazilian real, Costa Rican colon and Ghanaian cedi, as well as short positions to the Turkish lira and South African rand detracted from performance.

For the period November 11, 2013 through October 31, 2014, the Payden Emerging Market Corporate Bond Fund, Investor Class (PYCEX) returned 8.31%, the Fund’s Adviser Class (PYCAX) returned 8.17%, and the Fund’s Institutional Class (PYCIX) returned 8.52%. The Fund’s benchmark, the JP Morgan Corporate Emerging Market Bond Index Broad Diversified, returned 8.10% for the same period. The Fund is overweight Latin America through Brazil and Mexico in the industrial, consumer, and financial sectors, while underweight Chile in the metals & mining sector. In Asia, the Fund is underweight through South Korea, Hong Kong and Thailand, while overweight high yield opportunities in Indonesia and in China the consumer sector. The Fund is overweight Europe through Georgia, Polish financials and Kazakh oil and gas, while underweight Russia and Turkey. Africa is an underweight with select exposures in South Africa and Nigeria. The Middle East/North Africa region is an underweight via financials and telecoms, though the Fund is overweight Morocco. Underweight exposure to investment grade credits aided performance, as did security selection. Specifically, underweights in Qatar, South Korea, Colombia, Russia, and China were beneficial. An overweight to higher yielding corporates added to performance, as well. Selection of Indian, Mexican, Indonesian, Colombian and Brazilian credits across the curve helped performance. Out-of-benchmark allocations to quasi and sovereign obligations of Georgia, Costa Rica and Sri Lanka also outperformed. The Funds use currency forward contracts to manage risk and express fundamental views. The Funds use U.S. Treasury futures to manage interest rate risk in times of market volatility.

U.S. Equity Strategy

The U.S. equity markets posted strong positive returns for the fiscal year ended October 31, 2014, as steady growth in corporate profits, increased mergers and acquisition activity, and continued low interest rates lifted the broad US stock market to record highs. November 2013 began on a positive note as better than expected macroeconomic data lifted stock prices. The market rally continued to year-end, despite the Federal Reserve Board’s December decision to taper bond purchases starting in January 2014. The New Year brought some volatility to equity investors, as profit-taking and financial stress in emerging markets led to a selloff in prices. The selloff was temporary, however, as the broad stock market quickly recovered all losses by the end of February and equity prices continued higher for the next few months. Investor sentiment remained positive in spite of weak economic data due to the severe winter storms across the U.S. and ongoing conflicts between Russia and Ukraine. The positive momentum carried through the summer as the market rally was characterized by multi-year low volatility and low trading volumes with the S&P 500 index regularly making new all-time highs. However, market volatility began to rise in late September as fears of a global economic slowdown, falling oil prices, and the spread of Ebola led stock prices lower, ultimately leading to a near 10% decline in the S&P 500 index from its peak. But a strong start to the third quarter earnings season and the passing of the quantitative easing baton from the Federal Reserve Board to the Bank of Japan helped U.S. equities close the fiscal year at record levels.

The Payden Equity Income Fund, Investor Class (PYVLX), which is comprised of large-cap value stocks, returned 16.88% for the year ended October 31, 2014, while the Fund’s Advisor Class (PYVAX) returned 16.66%. The Fund’s SI Class (PYVSX) returned 3.94% for the period August 1, 2014 through October 31, 2014. The Fund’s benchmark, the Russell 1000 Value Index, returned 16.42% for the fiscal year ended October 31, 2014. The Fund outperformed its benchmark due to its strong security selection and allocation to other security types, such as preferred stocks, master limited partnerships, and real estate investment trusts. All security types were positive contributors to relative performance, with the strongest performance coming from master limited partnerships. The strongest areas of stock selection were in the energy and materials sectors, while the weakest area was in the health care sector. Strong individual performers were pipeline companies Williams Companies and Targa Resources.

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Investment Abbreviations

AMBAC - American Municipal Bond Assurance Co.

ARM - Adjustable Rate Mortgage

FDIC - Federal Deposit Insurance Corporation

FFCB - Federal Farm Credit Bank

FG - Freddie Mac Gold Pool

FH - Freddie Mac Non Gold Pool

FHLB - Federal Home Loan Banks

FHLMC - Federal Home Loan Mortgage Company (Freddie Mac)

FHR - Freddie Mac REMICS

FN - Fannie Mae Pool

FNMA - Federal National Mortgage Association (Fannie Mae)

FNR - Fannie Mae REMICS

FNW - Fannie Mae Whole Loan

G2 - Ginnie Mae II pool

GN - Ginnie Mae I pool

GNMA - Government National Mortgage Association (Ginnie Mae)

GNR - Ginnie Mae REMICS

NCUA - National Credit Union Administration

See notes to financial statements.

 

The Fund seeks a total return greater than a money market fund along with the preservation of capital by generally investing in investment grade debt securities with a maximum average portfolio maturity not to exceed two years.
Portfolio Composition - percent of value
Corporate			48%
Asset Backed			18%
U.S. Treasury			13%
Mortgage Backed			10%
U.S. Government Guaranteed			2%
Other			9%
This information is not part of the audited financial statements.						Past performance does not predict future returns. The graph does not reflect the impact of taxes or transaction costs a shareholder would pay.

 

 

The Fund seeks a high level of total return that is consistent with preservation of capital by generally investing in investment grade securities with a maximum average portfolio maturity not to exceed three years.
Portfolio Composition - percent of value
Corporate			61%
U.S. Treasury			11%
Asset Backed			9%
Mortgage Backed			8%
Investment Company			6%
Other			5%
This information is not part of the audited financial statements.						Past performance does not predict future returns. The graph does not reflect the impact of taxes or transaction costs a shareholder would pay.