Registration Nos. 333-20635
811-8037
As filed with the Securities and Exchange Commission on
September 26, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. 2 / X /
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Post-Effective Amendment No. / /
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and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 2 / X /
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(Check appropriate box or boxes)
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ORBITEX GROUP OF FUNDS
(Exact Name of Registrant as Specified in Charter)
660 Madison Avenue, New York, New York 10021
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
(212) 207-4000
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James L. Nelson
660 Madison Avenue
New York, New York 10021
(Name and Address of Agent for Service)
Copies to:
Cynthia Surprise Leonard B. Mackey, Jr., Esq.
Vice President & Associate Counsel Rogers & Wells
State Street Bank and Trust Company 200 Park Avenue
1776 Heritage Drive New York, New York 10166
North Quincy, Massachusetts 02171
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The Registrant elects to register an indefinite number or amount of its shares
of beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940.
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ORBITEX GROUP OF FUNDS
CROSS-REFERENCE SHEET
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<CAPTION>
Form N-1A Item No. Caption in Prospectus
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1. Cover Page Cover Page
2. Synopsis Cover Page; The Funds at a Glance
3. Condensed Financial Information Not Applicable
4. General Description of Registrant The Funds at a Glance; Investment Objectives, Strategies and
Policies; Description of Securities, Other Investment Policies and
Risk Considerations
5. Management of the Fund How the Trust is Managed
6. Capital Stock and Other Securities Organization of the Trust; Dividends, Distributions, and Taxes; How
to Purchase Shares
7. Purchase of Securities How to Purchase Shares; Shareholder Services; How Each Fund's Net
Asset Value is Determined
8. Redemption or Repurchase Shareholder Services; How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
Caption in Statement of
Form N-1A Item No. Additional Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Investment Restrictions; Description
Policies of Securities, Other Investment Policies and Risk Considerations
14. Management of the Fund Management of the Trust
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Caption in Statement of
Form N-1A Item No. Additional Information
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15. Control Persons and Principal Principal Holders of Securities
Holders of Securities
16. Investment Advisory and Other Investment Management and Other
Services Services
17. Brokerage Allocation and Other Brokerage Allocation and Other
Practices Practices
18. Capital Stock and Other Organization of the Trust
Securities
19. Purchase, Redemption and Pricing Purchase and Redemption of Securities
Being Offered; Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters Distribution of Shares
22. Calculation of Performance Data Performance Information About the Funds
23. Financial Statements Financial Statements
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ORBITEX GROUP OF FUNDS
660 Madison Avenue
New York, New York 10021
PROSPECTUS
September 26, 1997
Orbitex Group of Funds (the "Trust") is a mutual fund that currently
consists of five investment portfolios (each a "Fund" and collectively the
"Funds"). Each Fund is managed separately and has its own investment objective,
strategies and policies designed to meet different goals.
Orbitex Strategic Natural Resources Fund seeks capital growth through a
flexible policy of investing in securities of companies engaged in natural
resource industries and industries supportive to natural resource industries.
Orbitex Info-Tech & Communications Fund seeks superior long-term
capital growth through selective investment in communication, information and
related technology companies.
Orbitex Growth Fund seeks long-term growth of capital through
investment in securities of companies of all sizes that offer potential for
growth.
Orbitex Asian Select Advisers Fund seeks superior long-term capital
growth through selective investment in Asian companies.
Orbitex Asian High Yield Fund seeks high current income through
investment in securities of issuers based in Asia. The Fund will invest in
high yield, high risk debt obligations of issuers in developing Asian markets
(commonly referred to as junk bonds). Investments of this type are subject to
greater risk of loss of principal and interest.
There can be no assurance that the objective of each Fund will be
realized. For general information about the Trust, please call 1-888-ORBITEX.
This Prospectus sets forth concisely the information about each Fund
that you should know before investing. It should be retained for future
reference. A Statement of Additional Information ("SAI"), dated September 26,
1997, about the Funds has been filed with the Securities and Exchange Commission
(the "SEC") and is incorporated herein by reference. You may obtain a copy of
the SAI at no charge by calling the Trust at the number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS PAGE
The Funds at a Glance 1
The Funds' Expenses 2
Investment Objectives, Strategies and Policies 5
Description of Securities, Other Investment
Policies and Risk Considerations 11
Investment Performance 22
Portfolio Turnover 23
Dividends, Distributions and Taxes 23
How to Purchase Shares 24
How to Redeem Shares 28
How to Exchange Shares 29
Shareholder Services 30
How Each Fund's Net Asset Value is Determined 31
How the Trust is Managed 32
Portfolio Transactions and Brokerage Practices 38
Organization of the Trust 38
Appendix 40
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THE FUNDS AT A GLANCE
The Trust is a Delaware business trust registered with the SEC as an
open-end management investment company, commonly known as a "mutual fund." The
Trust currently consists of five Funds: Orbitex Strategic Natural Resources
Fund, Orbitex Info-Tech & Communications Fund, Orbitex Growth Fund, Orbitex
Asian Select Advisers Fund and Orbitex Asian High Yield Fund. Each Fund in the
Trust is a separate investment portfolio and has its own investment objective,
investment programs, policies and restrictions. Each Fund operates as a
diversified investment company except the Asian High Yield Fund which operates
as a non-diversified investment company. See "Investment Objectives, Strategies
and Policies."
Management. Each Fund is managed by Orbitex Management, Inc. (the
"Adviser"), which directs the day-to-day operations of each Fund. Certain of the
Funds, however, have one or more investment sub-advisers (each a "Sub-Adviser")
which selects the investments made by that Fund, subject to oversight and
direction by the Adviser. Funds Distributor, Inc. (the "Distributor") serves as
the distributor for the Trust. State Street Bank and Trust Company ("State
Street") serves as the administrator, custodian, accounting services agent,
transfer agent and dividend disbursing agent for the Trust. See "How the Trust
is Managed."
Purchases and Sales of Shares. Shares of each Fund are offered at net
asset value plus any applicable sales charge (maximum for the Asian High Yield
Fund is 4.75% and for each other Fund is 5.75% of public offering price) and
subject to a service and distribution fee at the rate of .30% (in the case of
the Asian High Yield Fund) and .40% (in the case of the other Funds) of the
average daily net assets of the Fund. The minimum initial investment is $2,500
($2,000 for individual retirement accounts) and the minimum for subsequent
investments is $500. See "How to Purchase Shares." Shares may be redeemed at any
time at the net asset value of a Fund next determined after receipt of the
redemption request. The redemption price may be more or less than the purchase
price. See "How to Redeem Shares."
Risk Considerations. The value of a Fund's shares will fluctuate with the
value of the underlying securities in its investment portfolio, and in the case
of debt securities, with the general level of interest rates. When interest
rates decline, the value of a portfolio invested in fixed-income securities can
be expected to rise. Conversely, when interest rates rise, the value of a
portfolio invested in fixed-income securities can be expected to decline. In the
case of foreign currency denominated securities, these trends may be offset or
amplified by fluctuations in foreign currencies.
Investing in securities of foreign issuers involves certain risks and
considerations not typically associated with investing in securities of U.S.
companies.
High yielding fixed-income securities, such as those in which the Asian
High Yield Fund may invest without limit and each of the other Funds may
invest up to 35%, respectively, of total assets, are subject to greater market
fluctuations and risk of loss of income and principal than investments in lower
yielding fixed-income securities.
The Funds intend to employ from time to time certain investment
techniques which are designed to enhance income or total return or hedge against
market or currency risks but which themselves involve additional risks. These
techniques include options on securities, futures, options on futures,
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options on indexes, options on foreign currencies, foreign currency exchange
transactions, lending of securities and when-issued securities and
delayed-delivery transactions.
Each Fund may, from time to time, leverage the assets it has by using
borrowed money to increase its portfolio positions.
Because of the focus of each of the Strategic Natural Resources Fund
and the Info-Tech & Communications Fund on its industries, an investment in
these Funds may be more volatile than an investment in an investment company
that does not concentrate its investments in such a manner.
Because the Asian High Yield Fund is non-diversified, it is permitted
greater flexibility to invest its assets in the securities of any one issuer and
therefore will be exposed to increased risk of loss if such an investment
underperforms expectations.
Finally, each Fund may invest in smaller companies. Securities of smaller
companies may be more volatile due to their limited product lines, markets or
financial resources or their susceptibility to major setbacks or downturns.
For additional risk information, see "Description of Securities, Other
Investment Policies and Risk Considerations."
THE FUNDS' EXPENSES
The Fee Table, including the Examples below, is included to assist your
understanding of the various costs and expenses to which an investment in each
Fund would be subject. Actual fees and expenses for each Fund for the current
year may be more or less than those shown below. A more complete description of
all fees and expenses is included in this Prospectus under the section "How the
Trust is Managed."
<TABLE>
<CAPTION>
Strategic Info-Tech & Asian Select
Shareholder Transaction Natural Resources Communications Growth Advisers Asian High
Expenses Fund Fund Fund Fund Yield Fund
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<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases (as a % 5.75%(1) 5.75%(1) 5.75%(1) 5.75%(1) 4.75%(1)
of offering price)
Maximum Sales Load
Imposed on Reinvested None None None None None
Dividends
Maximum Deferred Sales
Load Imposed on None(2) None(2) None(2) None(2) None(2)
Redemptions (as a % of
lower of original purchase
price or redemption
proceeds)
</TABLE>
2
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(1) Reduced for purchases over $50,000 by certain investors. See "How to
Purchase Shares - Initial Sales Charge."
(2) Purchases over $1 million by certain investors are not subject to any sales
load at the time of purchases, but a 1% contingent deferred sales charge applies
on amounts redeemed within one year of purchase. See "How to Redeem Shares -
Contingent Deferred Sales Charge."
<TABLE>
<CAPTION>
Strategic Info-Tech & Asian Select
Shareholder Transaction Natural Resources Communications Growth Advisers Asian High
Expenses Fund Fund Fund Fund Yield Fund
----------------------- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Redemption Fee(a) None None None None None
Exchange Fee None None None None None
</TABLE>
<TABLE>
<CAPTION>
Strategic Info-Tech & Asian Select
Annual Fund Operating Natural Resources Communications Growth Advisers Asian High
Expenses Fund Fund Fund Fund Yield Fund
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<S> <C> <C> <C> <C> <C>
(as a percentage of average
net assets)
Investment Advisory Fee
(after fee waivers) .53% .53% 0% .63% .26%
12b-1 Fees .40% .40% .40% .40% .25%*
Other Expenses 1.47% 1.47% 1.20% 1.47% 1.16%*
----- ----- ----- ----- ----
Total Fund Operating
Expenses (after fee waivers) 2.40% 2.40% 1.60% 2.50% 1.67%
</TABLE>
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(a) A fee of $10.00 is charged by the Trust's transfer agent for each wire
redemption.
* After fee waivers.
"Other Expenses" is based on estimated amounts for the current fiscal
year. The Adviser has agreed to waive or limit its fees and to pay certain
operating expenses to the extent necessary to limit Total Fund Operating
Expenses to 2.40%, 2.40%, 1.60% and 2.50% for the Strategic Natural Resources
Fund, the Info-Tech & Communications Fund, the Growth Fund and the Asian Select
Advisers Fund, respectively, subject to possible reimbursement by the Funds in
future years if such reimbursement can be achieved within the foregoing expense
limits. Consequently, the Investment Advisory Fees actually charged may in the
future be higher than reflected above, if consistent with the limits on the
Total Fund Operating Expenses. Absent the waiver or limitation of fees: the
Investment Advisory Fees and Total Fund Operating Expenses are anticipated to be
1.25% and 3.12%, respectively for the Strategic Natural Resources Fund, 1.25%
and 3.12%, respectively for the Info-Tech & Communications Fund and 1.50% and
3.37%, respectively for the Asian Select Advisers Fund; and Investment Advisory
Fees, Other Expenses and Total Fund Operating Expenses for the Growth Fund are
anticipated to be 0.75%, 1.40% and 2.55%, respectively. The fee waivers and
limitations are expected to be in effect during the Trust's current fiscal year.
The Adviser has agreed to waive or limit its fees and to pay all operating
expenses of the Asian High Yield Fund for the first sixty days of Fund
operations. Thereafter, the Adviser has agreed to waive or limit its fees and to
pay certain operating expenses to the extent necessary to limit Total Fund
Operating Expenses to 2.00%. All waivers and limitations of fees are subject to
possible reimbursement by the Asian High Yield Fund in future years if such
reimbursement can be achieved
3
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within the 2.00% expense limit. Absent the waiver or limitation of fees the
Investment Advisory Fee, 12b-1 Fees, Other Expenses and Total Fund Operating
Expenses are anticipated to be 1.25%, 0.30%, 1.39% and 2.94%, respectively.
These fee waivers and limitations are expected to be in effect during the
Trust's current fiscal year.
Examples: An investor in each Fund would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual return and (2) redemption at the end
of each future time period.
Fund 1 Year 3 Years
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Strategic Natural Resources $81 $130
Info-Tech & Communications $81 $130
Growth $73 $106
Asian Select Advisers $82 $132
Asian High Yield $64 $98
The Examples above assume payment of a sales charge at the time of
purchase; actual expenses may vary for purchases of shares in amounts of $50,000
or more. Purchases in an amount of $1 million or more are made at net asset
value and are subject to a contingent deferred sales charge for one year
following purchase. As a result of 12b-1 fees, a long-term shareholder may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the rules of the National Association of Securities Dealers, Inc.
These Examples should not be considered to be a representation of past
or future fees or expenses for each Fund. Actual fees and expenses may be
greater or less than those shown above. Similarly, the annual rate of return
assumed in the Example is not an estimate or guarantee of future investment
performance, but is included for illustrative purposes.
4
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The Orbitex Group of Funds
Orbitex Management Inc. offers specialized and opportunistic mutual funds with
the potential to enhance returns and diversify overall risk in an investor's
portfolio. Through its investment management team and carefully selected
subadvisers, Orbitex emphasizes well-articulated investment philosophies and
consistent management styles to ensure that investors and investment
professionals get what they expect from each Orbitex fund.
<TABLE>
<CAPTION>
Fund Objective Suitable Investors
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Orbitex Strategic Natural Resources Capital growth through a Growth-oriented individuals who
Fund flexible policy of investing in see strong economic trends as an
Managed by Orbitex Management, Inc. stock and debt obligations of indicator of natural resource
companies engaged in natural demand.
resource industries.
Orbitex Info-Tech and Communications Superior long-term capital Growth oriented investors who want
Fund growth through selective to capitalize on opportunities in
Managed by Orbitex Management, Inc. investment in communication, global telecommunications and
information, and related information industries.
technology companies.
Orbitex Growth Fund Long-term growth of capital Long-term investors interested in
Managed by Orbitex Management, Inc. through investment in growth opportunities in the U.S.
securities of companies that stock market.
offer potential for growth.
Orbitex Asian Select Advisers Fund Superior long-term capital Individuals attracted to the
Subadvised by: growth through selective growth potential of Asian stocks
BT Fund Managers International/Asia investment in Asian companies. and who can accept the risks of
Strategic Investment Management Ltd. international investing.
Orbitex Asian High-Yield Fund High current income through Individuals seeking high income
Subadvised by: investment in securities of from a portion of their bond
J.P. Morgan Investment Management, Inc. issuers based in Asia. The Fund portfolios and who can accept the
will invest in high-yield, risks of international investing.
high-risk securities.
</TABLE>
Please consult the "Description of Securities, Other Investment Policies and
Risk Considerations" section of the prospectus for information on the risks
involved in investing in any of the funds.
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<TABLE>
<CAPTION>
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
<S> <C> <C> <C> <C> <C> <C>
Lipper Science & Technology Fund Index $10,000 $11,483 $13,368 $16,012 $20,598 $22,046
MSCI Asia Ex-Japan Index $10,000 $12,110 $17,920 $18,172 $21,349 $20,791
S & P 500 Composite Index $10,000 $11,523 $11,693 $13,513 $17,851 $21,390
Lipper Natural Resources Funds Category $10,000 $11,842 $12,402 $13,177 $16,648 $19,329
Lipper Emerging Markets Debt Funds Category $10,000 $8,832 $12,458 $16,886
</TABLE>
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<TABLE>
<CAPTION>
Average Annual Returns
(for periods ended 3/31/97) 1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
Lipper Emerging Market Debt Funds Category 38.90% 19.54% n/a n/a
- ------------------------------------------------------------------------------------------------------------------
Lipper Natural Resources Funds Category 14.00% 16.24% 14.22% 6.98%
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MSCI Asia Ex-Japan Index -2.61% 5.08% 15.76% n/a
- ------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 19.83% 22.30% 16.42% 13.38%
- ------------------------------------------------------------------------------------------------------------------
Lipper Science and Technology Index 7.03% 18.15% 17.13% 12.65%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The Lipper Analytical Services Averages and Indexes, Standard & Poor's 500
Composite Index, and Morgan Stanley Capital International Asia Ex-Japan are
unmanaged indexes. The performance of these indexes does not reflect sales
charges; direct investment in the indexes is not possible. Index performance is
not intended to represent the future performance of any Orbitex Funds. Past
performance is no guarantee of future results. The investment return and
principal value of a Fund investment will fluctuate and shares, when redeemed,
may be worth more or less than their original cost.
5
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INVESTMENT OBJECTIVES, STRATEGIES AND POLICIES
Each Fund's objective is a fundamental policy and may not be changed
without a shareholder vote. Any investment involves risk and, therefore, there
can be no assurance that any Fund will achieve its objective. All investment
policies stated throughout this Prospectus, other than those identified as
fundamental, may be changed by the Board of Trustees of the Trust without
shareholder approval. A complete statement of each Fund's investment
restrictions is included in the SAI. Compliance with policies and limitations is
determined at the time of purchase of a security; a Fund is not required to sell
an investment because of a later change in circumstances.
ORBITEX STRATEGIC NATURAL RESOURCES FUND
The objective of the Orbitex Strategic Natural Resources Fund (the
"Strategic Natural Resources Fund") is capital growth. The Fund seeks to achieve
its objective through a flexible policy of investing primarily in common stock
of United States and foreign companies engaged in natural resource industries
and industries supportive to natural resource industries.
At least 65% of the Fund's total assets will normally be invested in
common stock issued by natural resource companies. The remainder of the Fund's
assets may be invested in equity and debt securities of natural resource
companies and of companies outside of the natural resource industries.
The Fund may invest in securities of foreign companies. However, the
Fund will not invest more than 10% of its net assets in securities of such
issuers (other than Canadian issuers on which there is no limit). Investments in
certain Canadian issuers may be speculative due to certain policies risks and
may be subject to substantial price fluctuations.
A "natural resource company" is an entity in which (i) at least 50% of
either the revenues or earnings was derived from natural resource activities, or
(ii) at least 50% of the assets was devoted to such activities, based upon the
company's most recent fiscal year. Natural resource companies include: (i)
those which own, explore, develop or produce: energy sources (such as oil, gas
and coal); ferrous and non-ferrous metals (such as iron, aluminum, copper,
nickel, zinc and lead); strategic metals (such as uranium and titanium) and
precious metals (such as gold, silver and platinum); chemicals; forest products
(such as timber, coated and uncoated tree sheet, pulp and newsprint); other
basic commodities (such as foodstuffs); refined products (such as chemicals and
steel); (ii) service companies that provide services to producers and refiners
of natural resources or provide other products and services, which, in the
Adviser's opinion are significant to the ownership and development of natural
resources and other basic commodities and (iii) companies that develop
energy-efficient technologies, such as systems for energy conversion,
conservation and pollution control.
Please refer to the section entitled "Description of Securities, Other
Investment Policies and Risk Considerations" below for a description of the
types of securities in which the Fund may invest and the types of practices in
which the Fund may engage.
ORBITEX INFO-TECH & COMMUNICATIONS FUND
The objective of the Orbitex Info-Tech & Communications Fund (the
"Info-Tech & Communications Fund") is superior long-term capital growth.
The Fund seeks to achieve its objective through selective investment in
companies engaged in the communications, information and related technology
industries.
It is expected that the Fund will invest in communications, information
and related technology companies in the United States and other developed
countries, and will also invest in companies that are well positioned to benefit
from the rapid growth in the telecommunications infrastructure
6
<PAGE>
in emerging economies. The Adviser's market expectations will determine the
allocation of the Fund's investments between industries.
At least 65% of the Fund's total assets normally will be invested in
equity securities issued by communications, information and related technology
companies. The remainder of the Fund's assets may be invested in debt securities
issued by communications, information and related technology companies and/or
equity and debt securities of companies outside of those industries.
A "communications" company is an entity in which (i) at least 50% of
either its revenues or earnings was derived from communications activities, or
(ii) at least 50% of its assets was devoted to communications activities, based
on the company's most recent fiscal year. An "information" company is an entity
in which (i) at least 50% of either its revenues or earnings was derived from
information activities, or (ii) at least 50% of its assets was devoted to
information activities, based on the company's most recent fiscal year. For
purposes of the Fund's policy of investing at least 65% of its total assets in
the securities of communications, information and related technology companies,
the companies in which the Fund will invest are those engaged primarily in
designing, developing or providing the following products and services:
communications equipment and services (including equipment and services for both
data and voice transmission); electronic components and equipment; broadcasting
(including television and radio, satellite, microwave and cable television and
narrowcasting); computer equipment, mobile communications and cellular
radio/paging; electronic mail; local and wide area networking and linkage of
word and data processing systems; publishing and information systems; videotext
and teletext; and emerging technologies combining telephone, television and/or
computer systems.
The Fund will attempt to find those companies which are expected to
capitalize on the emerging changes in the global telecommunications industry.
The Adviser believes that two major themes currently dominate the industry: the
Internet explosion and the global deregulation of the telecommunications
industry.
The increasing popularity of the Internet and the World Wide Web has
led to dramatic changes in the networking, computer, and software industries. It
has created sharp changes in the value of many companies. The Adviser seeks out
companies that it believes will capitalize on these changes. One of the problems
with Internet related stocks, however, is that they tend to trade at rich
valuations. Rich valuations tend to be associated with sub-par stock price
performance. One way to counteract this problem is to provide small amounts of
seed capital to Internet related companies. The Adviser believes that some of
these seeded companies will eventually become publicly traded companies and
create the potential for significant capital gains.
Countries around the globe are deregulating their computer and
telecommunications industries. Many countries are privatizing their state-owned
monopolies. This is creating a dramatic change in the global telecommunications
industry. The Adviser attempts to find companies that will capitalize on this
major trend.
Please refer to the section entitled "Description of Securities, Other
Investment Policies and Risk Considerations" below for a description of the
types of securities in which the Fund may invest and the types of practices in
which the Fund may engage.
7
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ORBITEX GROWTH FUND
The objective of the Orbitex Growth Fund (the "Growth Fund") is
long-term growth of capital. The production of income will be incidental to this
objective. The Fund seeks to achieve its objective through investment in
securities believed by the Adviser to have significant appreciation potential.
The Fund may invest in the securities of any issuer, including U.S. and
foreign companies, governments and government agencies. The Fund, however, will
tend to focus on the securities of both established and newer or smaller
capitalized companies. The Fund expects to invest a majority of its assets in
equity securities, but may also invest in debt securities of any quality.
The Fund strives to provide a high return through a unique multi-factor
selection process. In general, the Adviser looks first for stocks that are
commonly called "value stocks." These stocks tend to trade at below market
price/earnings, price/cash flow, and price/book value ratios. The Adviser seeks
to buy stocks that are at the low end of their historical range within those
same categories. In other words, the Adviser attempts to buy stocks that are
commonly considered cheap.
At the same time, the Adviser prefers to buy stocks with strong cash
flow or earnings momentum. In particular, the Adviser will seek out stocks that
are expected by analyst consensus to grow cash flow or earnings by at least 20%
per year over the next several years.
Finally, the Adviser prefers to buy stocks that show positive price
momentum. In other words, the Adviser will first seek stocks that it believes
have a strong fundamental case for purchase but will defer purchasing the stocks
until the market perceives the same positive fundamentals.
The Adviser believes that this combination of searching for strong
value, growth, and price momentum will provide superior capital gains.
Please refer to the section entitled "Description of Securities, Other
Investment Policies and Risk Considerations" below for a description of the
types of securities in which the Fund may invest and the types of practices in
which the Fund may engage.
ORBITEX ASIAN SELECT ADVISERS FUND
The objective of the Orbitex Asian Select Advisers Fund (the "Asian
Select Advisers Fund") is superior long-term capital growth. The Fund seeks to
achieve its objective by investing at least 65% of its total assets in equity
securities of Asian companies.
The Fund expects to invest in companies domiciled in Asia and on the
Asian side of the Pacific Ocean, such as Bangladesh, the People's Republic of
China, South Korea, Vietnam, Hong Kong, Singapore, the Philippines, Australia,
New Zealand, Cambodia, Laos, Thailand, India, Pakistan, Sri Lanka, Malaysia,
Indonesia and Taiwan but excluding Japan. The Fund may also invest in securities
of issuers in other Asian markets such as republics of the former Soviet Union.
In addition, companies domiciled outside of Asia but which derive over 50% of
their gross revenues from operations or sales in Asia may be included in the
Fund.
While the Fund will focus on equity securities, it may also invest in
debt securities.
The Fund is structured to try to capitalize on the profit potential
from investing in Asia while attempting to reduce the risk. Most people
recognize that diversification is a way to reduce
8
<PAGE>
risk. The Adviser believes that diversification is particularly important in the
Asian markets where quality information is more difficult to find.
The Fund is therefore structured with the use of multiple Sub-Advisers
each of which manages a portion of the assets of the Fund. The Sub-Advisers are
selected to complement each other. In other words, the Adviser seeks to find
Sub-Advisers that have differing investment styles and expertise to reduce risk
within the Fund.
The Adviser also attempts to find Sub-Advisers that have a track record
that has consistently outperformed common benchmarks or that have a style which
should outperform those benchmarks. In addition, the Adviser prefers to employ
Sub-Advisers that have shown a high degree of profit for the amount of risk they
take.
The Adviser has researched potential Sub-Advisers from all the major
investment centers of the world in an effort to find these types of
Sub-Advisers. The Adviser constantly monitors the current Sub-Advisers as well
as potential Sub-Advisers in an effort to maintain a high level of return to the
shareholders in the Fund.
Although the Fund is permitted to do so, it is not expected that the
Fund will employ leveraging, invest in real estate or commodities, engage in
underwritings or make loans. Please refer to the section entitled "Description
of Securities, Other Investment Policies and Risk Considerations" below for a
description of the types of securities in which the Fund may invest and the
types of practices in which the Fund may engage.
ORBITEX ASIAN HIGH YIELD FUND
The objective of the Orbitex Asian High Yield Fund (the "Asian High
Yield Fund") is high current income. The Fund seeks to achieve this objective by
investing primarily in lower rated and unrated debt securities of companies,
financial institutions and governments based in Asia. Capital appreciation is a
secondary objective.
Under normal circumstances, at least 65% of the Fund's total assets
will be invested in debt securities of issuers based in Asia, the credit quality
of which is generally considered the equivalent of U.S. corporate debt
securities commonly known as "junk bonds." See Appendix for description of bond
ratings.
The Fund expects to focus on issuers based in developing Asian
countries including Bangladesh, Cambodia, China, Hong Kong, India, Indonesia,
Korea, Laos, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka,
Thailand, Taiwan and Vietnam. The Fund may also invest in securities of issuers
in other Asian markets such as republics of the former Soviet Union and Middle
Eastern countries as well as issuers in other developing and developed
countries. An issuer is based in Asia if it is domiciled in Asia, including
republics of the former Soviet Union and countries in the Middle East, or it
derives more than half of its assets, revenues or profits from that region.
The Fund will normally invest in at least three different countries,
although it may invest all of its assets in a single country. The geographical
diversification of the Fund's investments will vary from time to time according
to the Sub-Adviser's assessment of the instruments available for investment, the
rates of return available from them and the risks associated with investing in
each market. The instruments in which the Fund will invest may be denominated in
a number of different currencies.
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It is anticipated that on a regular basis the Fund will leverage its
investments by borrowing. For a description of the limitations on and the risks
of borrowing, see "Description of Securities, Other Investment Policies and Risk
Considerations - Borrowing."
The debt securities in which the Fund may invest include: fixed and
floating rate bonds, notes and debentures of corporate issuers, including
convertible bonds; notes; commercial paper; certificates of deposit; time
deposits; obligations issued or guaranteed by foreign governments, their
agencies, instrumentalities , political subdivisions and authorities,
including obligations of central banks and Brady bonds; loans, including loan
participations; asset-backed securities; Eurobonds, Yankee Bonds and Global
Bonds. Although the Fund is permitted to invest in common stock, it has no
present intention of doing so.
Under normal market conditions, the Fund's duration will generally
be approximately three to six years. The maturities of the securities in the
Fund may vary widely. In addition to securities selection, the Sub-Adviser may
use futures contracts to adjust the Fund's duration. Generally, the longer the
duration of the Fund the more sensitive it will be to changes in interest rates.
Increases and decreases in the market value of the debt securities in
which the Fund invests may arise as a result of favorable changes in relative
foreign exchange rates, in relative interest rate levels and/or in the
creditworthiness of issuers.
Current yields tend to be higher in Asia than in the United States.
This is due to such factors as poorly developed capital markets and political
risk. However, the Sub-Adviser believes it is possible that creditworthiness
will improve with economic growth.
The Adviser believes that investing in Asian high yield securities
requires a high degree of knowledge of local market conditions. As a result, the
assets of the Fund will be managed by one or more Sub-Advisers, selected by the
Adviser, who have demonstrated expertise in the Asian fixed income markets.
The Fund is classified as a non-diversified investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"). A
non-diversified investment company may invest more than 25% of its assets in
securities of individual issuers representing greater than 5% each of the
investment company's total assets, whereas diversified investment companies may
only invest up to 25% of assets in positions of greater than 5%. Both
diversified and non-diversified investment companies are subject to
diversification specifications under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code") which require that, as of the close of
each fiscal quarter, (i) no more than 25% of the investment company's total
assets may be invested in the securities of a single issuer (except for 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
(except for U.S. Government securities) or invested in more than 10% of the
outstanding voting securities of a single issuer. Because of its non-diversified
status, the Fund may be subject to greater credit and other risks than a
diversified investment company. The Fund reserves the right to operate as a
diversified investment company if such course appears desirable in the opinion
of the Board of Trustees.
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Please refer to the section entitled "Description of Securities, Other
Investment Policies and Risk Considerations" below for a description of the
types of securities in which the Fund may invest and the types of practices in
which the Fund may engage.
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DESCRIPTION OF SECURITIES, OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
In attempting to achieve its investment objective , each Fund employs
a variety of instruments, strategies and techniques which are described below
and in greater detail in the SAI. Risks and restrictions associated with these
practices are also described. A Fund might not buy all of the securities or use
all of the techniques described below to the full extent permitted unless the
Adviser or Sub-Adviser believes that doing so will help the Fund achieve its
goal.
Asset-Backed Securities. Each Fund may invest in asset-backed
securities. The Asian High Yield Fund is more likely to do so than the other
Funds. Asset-backed securities represent fractional interests in pools of
leases, retail installment loans, revolving credit receivables and other payment
obligations, both secured and unsecured. These assets are generally held by a
trust and payments of principal and interest or interest only are passed through
monthly or quarterly to certificate holders and may be guaranteed up to certain
amounts by letters of credit issued by a financial institution affiliated or
unaffiliated with the trustee or originator of the trust. The payment
obligations that may underlie certain asset-backed securities are subject to
prepayment, which may reduce the overall return to certificate holders.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying sales contracts or receivables are not
realized by the trust because of unanticipated legal or administrative costs of
enforcing the contracts or because of depreciation or damage to the collateral
securing certain contracts, or other factors.
Bank Obligations. Each Fund may invest in bank obligations, which
include certificates of deposit, time deposits and bankers' acceptances of U.S.
commercial banks or savings and loan institutions. The Asian Select Advisers
Fund and the Asian High Yield Fund may also invest in foreign
currency-denominated bank obligations, including Eurocurrency instruments and
securities of U.S. and foreign banks and thrifts.
Below-Investment-Grade Securities. Each Fund other than the Asian High
Yield Fund may invest up to 35% of its net assets in debt securities that are
rated below "investment grade" by Standard and Poor's Rating Group ("S&P") or
Moody's Investors Services, Inc. ("Moody's") or, if unrated, are deemed by the
Adviser or Sub-Adviser to be of comparable quality. The Asian High Yield Fund
may invest without limit in such securities. Securities rated less than Baa by
Moody's or BBB by S&P are classified as below investment grade securities and
are commonly referred to as "junk bonds" or high yield, high risk securities.
Debt rated BB, B, CCC, CC and C and debt rated Ba, B, Caa, Ca, C is
regarded by S&P and Moody's, respectively, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. For S&P, BB indicates
the lowest degree of speculation and C the highest degree of speculation. For
Moody's, Ba indicates the lowest degree of speculation and C the highest degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Similarly, debt rated Ba or BB and below is
regarded by the relevant rating agency as speculative. Debt rated C by Moody's
or S&P is the lowest rated debt that is not in default as to principal or
interest, and such issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Such securities are
also generally considered to be subject to greater risk than securities with
higher ratings with regard to a deterioration of general economic conditions.
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Ratings of debt securities represent the rating agency's opinion
regarding their quality and are not a guarantee of quality. Rating agencies
attempt to evaluate the safety of principal and interest payments and do not
evaluate the risks of fluctuations in market value. Also, since rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, the Adviser and Sub-Advisers continuously monitor the issuers of high
yield bonds in the portfolios of the Funds to determine if the issuers will have
sufficient cash flows and profits to meet required principal and interest
payments. The achievement of a Fund's investment objective may be more dependent
on the Adviser's or Sub-Adviser's own credit analysis than might be the case for
a fund which invests in higher quality bonds. A Fund may retain a security whose
rating has been changed. The market values of lower quality debt securities tend
to reflect individual developments of the issuer to a greater extent than do
higher quality securities, which react primarily to fluctuations in the general
level of interest rates. In addition, lower quality debt securities tend to be
more sensitive to economic conditions and generally have more volatile prices
than higher quality securities. Issuers of lower quality securities are often
highly leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service debt obligations may also be adversely affected by specific
developments affecting the issuer, such as the issuer's inability to meet
specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supranational organizations such as the World Bank and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because such securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Lower quality debt securities frequently have call or buy-back features
which would permit an issuer to call or repurchase the security from a Fund. In
addition, a Fund may have difficulty disposing of lower quality securities
because they may have a thin trading market. There may be no established retail
secondary market for many of these securities, and each Fund anticipates that
such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing the Fund's portfolios. A Fund may also acquire lower quality debt
securities during an initial underwriting or which are sold without registration
under applicable securities laws. Such securities involve special considerations
and risks.
In addition to the foregoing, factors that could have an adverse effect
on the market value of lower quality debt securities in which the Funds may
invest, include: (i) potential adverse publicity, (ii) heightened sensitivity
to general economic or political conditions and (iii) the likely adverse
impact of a major economic recession.
A Fund may also incur additional expenses to the extent the Fund is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and the Fund may have limited legal recourse in the
event of a default. Debt securities issued by governments in emerging markets
can differ from debt obligations issued by private entities in that remedies for
defaults generally must be pursued in the courts of the defaulting government,
and legal recourse is therefore somewhat diminished. Political conditions, in
terms of a government's willingness to meet the terms of
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its debt obligations, also are of considerable significance. There can be no
assurance that the holders of commercial bank debt may not contest payments to
the holders of debt securities issued by governments in emerging markets in the
event of default by the governments under commercial bank loan agreements.
The Adviser and Sub-Advisers attempt to minimize the speculative risks
associated with investments in lower quality securities through credit analysis
and by carefully monitoring current trends in interest rates, political
developments and other factors. Nonetheless, investors should carefully review
the investment objective and policies of the Fund and consider their ability to
assume the investment risks involved before making an investment.
Each Fund may also invest in unrated debt securities. Unrated debt
securities, while not necessarily of lower quality than rated securities, may
not have as broad a market. Because of the size and perceived demand for an
issue, among other factors, certain issuers may decide not to pay the cost of
obtaining a rating for their bonds. The Adviser or Sub-Adviser will analyze the
creditworthiness of the issuer of an unrated security, as well as any financial
institution or other party responsible for payments on the security.
Borrowing. Each Fund may from time to time borrow money for investment
purposes (i.e., "leverage" to increase its portfolio of securities). Each Fund
may borrow only from banks and as a fundamental investment policy may not borrow
in excess of one-third of the market value of its assets, less liabilities other
than such borrowing. The Asian Select Advisers Fund has also adopted a
non-fundamental investment policy that limits borrowing for investment purposes
to 25% of its net asset value. Each Fund may borrow an additional 5% of its
total assets without regard to the foregoing limitation for temporary or
emergency purposes, such as the meeting of redemption requests or the clearance
of portfolio transactions. This limitation may be changed only by a vote of the
shareholders of the Fund. Current asset value coverage of three times any amount
borrowed is required at all times. Borrowed money creates an opportunity for
greater capital appreciation, but at the same time increases exposure to capital
risk. The net cost of any money borrowed would be an expense that otherwise
would not be incurred, and this expense could limit the Fund's net investment
income in any given period.
Concentration. Because of the focus of each of the Strategic Natural
Resources Fund and the Info-Tech & Communications Fund on its industries, an
investment in each Fund may be more volatile than that of other investment
companies that do not concentrate their investments in such a manner. Moreover,
the value of the shares of each Fund will be especially susceptible to factors
affecting the industries on which it focuses. Neither Fund should be considered
as a complete investment program.
Special Risks Associated with the Strategic Natural Resources Fund.
In the United States and foreign countries, natural resource industries may be
subject to greater political, environmental and other governmental regulation
than many other industries. The nature of such regulation continues to evolve in
both the United States and foreign countries, and changes in governmental
policies and the need for regulatory approvals may have a material effect on the
products and services of natural resource companies. For example, the
exploration, development and distribution of coal, oil and gas in the United
States are subject to significant federal and state regulation, which may affect
rates of return on such investments and the kinds of services that may be
offered.
In addition, many natural resource companies historically have been
subject to significant costs associated with compliance with environmental and
other safety regulations and changes in the
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regulatory climate. Such governmental regulations may also hamper the
development of new technologies, and it is impossible to predict the direction,
type or effect of any future regulation.
Further, competition is intense for many natural resource companies. As
a result, many of these companies may be adversely affected in the future and
the value of the securities issued by such companies may be subject to increased
share price volatility.
The value of the Strategic Natural Resources Fund's securities will
fluctuate in response to stock market developments, as well as market conditions
for the particular natural resources with which the issuer is involved. The Fund
may invest in companies whose financial success is dependent on price changes of
a particular commodity. The price of the commodity will fluctuate due to changes
in the worldwide levels of inventory, and changes, perceived or actual, in
production and consumption. The values of natural resources may fluctuate
directly with respect to various stages of the inflationary cycle and perceived
inflationary trends and are subject to numerous factors, including national and
international politics. The Strategic Natural Resources Fund's investments in
precious metals are subject to many risks, including substantial price
fluctuations over short periods of time. Further, the Strategic Natural
Resources Fund's investments in companies are expected to be subject to
irregular fluctuations in earnings, because these companies are affected by
changes in the availability of money, the level of interest rates, and other
factors.
Special Risks Associated with the Info-Tech & Communications Fund. The
communications, information and related technology industries may be subject to
greater governmental regulation than many other industries and changes in
governmental policies and the need for regulatory approvals may have a material
effect on the products and services of these industries. Telephone operating
companies in the United States, for example, are subject to both federal and
state regulation affecting permitted rates of return and the kinds of services
that may be offered. Certain types of companies represented in the Fund are
engaged in fierce competition for market share. In recent years, these have been
companies providing goods and services such as private and local area networks
and telephone set equipment. In addition, the products of the companies
represented in the Fund may become obsolete quickly.
Convertible Securities. Each Fund may invest in convertible securities.
A convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, a Fund seeks the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while earning a higher fixed rate of return than is available in common stocks.
Debt Securities. Each Fund may invest in debt securities. The debt
securities in which the Funds may invest consist of corporate bonds, debentures,
notes and other similar corporate debt instruments, including convertible
securities, obligations of foreign governments and their agencies and political
instrumentalities. The market value of debt securities held by the Funds and,
consequently, the net asset value per share of the Funds, to the extent they
hold debt securities, can be expected to vary inversely to changes in prevailing
interest rates. Investors should also recognize that, in periods of declining
interest rates, the yields of the Funds with significant holdings of debt
securities will tend to be somewhat higher than prevailing market rates and, in
periods of rising interest rates, the opposite can be expected to occur. Prices
of longer-term debt securities generally increase or decrease more sharply than
those of shorter-term debt securities in response to interest rate changes.
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Defensive Strategies. Each Fund retains the flexibility to respond
promptly to changes in market and economic conditions. Accordingly, in the
interest of preserving shareholders' capital and consistent with each Fund's
investment objective, the Adviser or Sub-Adviser may employ a temporary
defensive investment strategy if it determines such a strategy to be warranted
due to market, economic or political conditions. Under a defensive strategy,
each Fund may invest up to 100% of its total assets in cash (U.S. dollars,
foreign currencies or multinational currency units) and/or high quality debt
securities or money market instruments issued by corporations or the U.S. or a
foreign government. In addition, for temporary defensive purposes, such as
during times of international political or economic uncertainty, most or all of
the investments of the Asian Select Advisers Fund or the Asian High Yield
Fund may be made in the United States and denominated in U.S. dollars. To the
extent any Fund adopts a temporary defensive posture, it will not be invested so
as to achieve directly its investment objective.
In addition, pending investment of proceeds from new sales of the
Funds' shares or to meet its ordinary daily cash needs, up to 25% of each Fund's
assets may be held in cash (in U.S. dollars, foreign currencies or multinational
currency units) or may be invested in foreign or domestic high quality money
market instruments. Money market instruments in which each Fund may invest
include, but are not limited to: U.S. or foreign government securities,
high-grade commercial paper, bank certificates of deposit, bankers'
acceptances and repurchase agreements related to any of the foregoing.
High-grade commercial paper refers to commercial paper rated A-1 by S&P or P-1
by Moody's or, if not rated, determined by the Adviser or Sub-Adviser to be of
comparable quality.
Depositary Receipts and Securities of Supranational Entities. Each Fund
may invest in securities of foreign issuers directly or in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or Global
Depositary Receipts ("GDRs") representing securities of foreign issuers. ADRs
are depositary receipts typically issued by a U.S. bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies and
evidence ownership of underlying securities issued by either a foreign or a U.S.
company. Depositary receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored depositary receipts are not
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the depositary receipts. Generally, depositary receipts in registered form are
designed for use in the U.S. securities markets, and depositary receipts in
bearer form are designed for use in foreign securities markets.
Each Fund may invest in equity and debt securities issued or guaranteed
by supranational entities. A supranational entity is an entity designated or
supported by the national government of one or more countries to promote
economic reconstruction or development. Examples of supranational entities
include, among others, the World Bank, the Asian Development Bank and the
European Investment Bank.
Derivatives. Each Fund may buy and write covered call and put options
on securities, securities indices and foreign currencies, and may enter into
futures contracts and use options on futures contracts. Each Fund may also enter
into currency exchange contracts and swap agreements relating to interest rates,
foreign currencies and securities indices. All of these may be referred to as
"derivatives" transactions. The Funds may use these techniques to hedge against
changes in interest rates, foreign currency exchange rates, changes in
securities prices or other factors affecting the value of their investments. The
Funds may also use these techniques to change the duration of fixed
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income holdings or as a substitute for the purchase or sale of securities or
currency. Each Fund will maintain accounts consisting of liquid assets such as
cash, U.S. Government securities, or other securities (or, as permitted by
applicable regulations, enter into certain offsetting positions to cover its
obligations under futures, options and certain foreign currency transactions) to
avoid "leveraging" the Fund through these transactions.
To attempt to hedge against adverse movement in exchange rates between
currencies, each Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. The Funds may enter into forward currency
contracts either with respect to specific transactions or with respect to that
Fund's portfolio positions or to manage that Fund's exposure to a foreign
currency. For example, when a Fund anticipates making a purchase or sale of a
security, that Fund may enter into a forward currency contract in order to set
the rate (either relative to the U.S. dollar or another currency) at which a
currency exchange transaction related to the purchase or sale will be made.
Further, when the Adviser or Sub-Adviser believes that a particular currency may
decline compared to the U.S. dollar or another currency, a Fund may enter into a
forward contract to sell the currency the Adviser or Sub-Adviser expects to
decline in an amount approximating the value of some or all of that Fund's
portfolio securities denominated in that foreign currency.
Each Fund also may purchase and sell put and call options on
currencies, futures contracts on currencies and options on futures contracts
or currencies to hedge against movements in exchange rates.
In addition, a Fund may purchase and sell put and call options on
equity and debt securities to hedge against the risk of fluctuations in the
prices of securities held by that Fund or that the Adviser or Sub-Adviser
intends to include in the Fund's portfolio. A Fund also may purchase and sell
put and call options on stock indexes. Such stock index options serve to hedge
against overall fluctuations in the securities markets generally or in a
specific market sector rather than anticipated increases or decreases in the
value of a particular security.
Further, a Fund may sell stock index futures contracts and may purchase
put options or write call options on such futures contracts to protect against a
general stock market decline or a decline in a specific market sector that could
affect adversely a Fund's holdings. A Fund also may buy stock index futures
contracts and purchase call options or write put options on such contracts to
hedge against a general stock market or market sector advance and thereby
attempt to lessen the cost of future securities acquisitions. A Fund may use
interest rate futures contracts and options thereon to hedge the debt portion of
its portfolio against changes in the general level of interest rates, to change
the duration of fixed income holdings or as a substitute for the purchase or
sale of securities.
In addition, each Fund may purchase and sell put and call options on
securities, currencies and indices that are traded on recognized securities
exchanges and over-the-counter markets.
Each of the Funds may enter into interest rate, index and currency
exchange rate swap agreements in attempts to obtain a particular desired return
at a lower cost to the Fund than if the Fund has invested directly in an
instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of returns)
earned or realized on particular predetermined investments or
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instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. The "notional amount" of the swap agreement is
only a fictive basis on which to calculate the obligations the parties to a swap
agreement have agreed to exchange. A Fund's obligations (or rights) under a swap
agreement will generally be equal only to the amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). A Fund's obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the Fund)
and any accrued but unpaid net amounts owed to a swap counterparty will be
covered by the maintenance of a segregated account consisting of cash, U.S.
Government securities, or other liquid securities, to avoid leveraging of the
Fund's portfolio. A Fund will not enter into a swap agreement with any single
party if the net amount owed or to be received under existing contracts with
that party would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements enhance the Fund's total return
will depend on the Adviser's or Sub-Adviser's ability correctly to predict
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and may have terms of
greater than seven days, swap agreements may be considered to be illiquid.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Adviser or Sub-Adviser will cause a Fund to enter
into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Funds' repurchase
agreement guidelines. Certain restrictions imposed on the Funds by the Internal
Revenue Code may limit the Funds' ability to use swap agreements. The swap
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect a Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
Gains and losses on "derivatives" transactions depend on the Adviser's
or Sub-Adviser's ability to predict correctly the direction of interest rates,
securities prices, currency exchange rates, or other factors. Risks in the use
of these derivatives include: a) the risk that interest rates, securities
prices, or currency exchange rates or other factors affecting the value of the
Fund's investments do not move in the directions being hedged against, in which
case the Fund will have incurred the cost of the derivative (either its purchase
price or, by writing an option, losing the opportunity to profit from increases
in the value of the securities covered) with no tangible benefit; b) imperfect
correlation between the prices of derivatives and the movements of the
securities prices, interest rates or currency exchange rates being hedged; c)
the possible absence of a liquid secondary market for any particular derivative
at any time; d) the potential loss if the counterparty to the transaction does
not perform as promised; and e) the possible need to defer closing out certain
positions to avoid adverse tax consequences. In particular, the risk of loss
from certain types of futures transactions is potentially unlimited. More
information on derivatives is contained in the SAI.
Direct Debt. The Asian High Yield Fund may invest in loans and other
direct debt instruments. Loans and other direct debt instruments are interests
in amounts owed to another party by a company, government, or other borrower.
They have additional risks beyond conventional debt securities because they may
entail less legal protection for the Fund, or there may be a requirement that
the Fund supply additional cash to a borrower on demand.
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Equity Securities. Each Fund may invest in equity securities. The
equity securities in which the Funds may invest consist of common stock,
preferred stock, convertible securities, rights and warrants. Common stock
represents an ownership interest in a corporation.
Foreign Securities. Each Fund may invest in securities of foreign
issuers. Securities of foreign issuers involve different, and sometimes greater,
risks than securities of U.S. issuers. These include an increased risk of
adverse political and economic developments, and, as to certain countries, the
possibility of expropriation, nationalization or confiscatory taxation or
limitations on the removal of the funds or other assets of a Fund.
There may be less publicly available information about foreign
securities and issuers than is available about domestic securities and issuers.
Foreign companies generally are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic companies. Securities of some foreign companies are less
liquid and their prices may be more volatile than securities of comparable
domestic companies. The Funds' interest and dividends from foreign issuers may
be subject to non-U.S. withholding taxes, thereby reducing the Funds' net
investment income.
Currency exchange rates may fluctuate significantly over short periods
and can be subject to unpredictable change based on such factors as political
developments and currency controls by foreign governments. Because the Funds may
invest in securities denominated in foreign currencies, they may seek to hedge
foreign currency risks by engaging in foreign currency exchange transactions.
These may include buying or selling foreign currencies on a spot basis, entering
into foreign currency forward contracts, and buying and selling foreign currency
options, foreign currency futures, and options on foreign currency futures. Many
of these activities constitute "derivatives" transactions. See "Derivatives",
above.
Each Fund may invest in issuers domiciled in "emerging markets," those
countries determined by the Adviser or Sub-Adviser to have developing or
emerging economies and markets. Emerging market investing involves risks in
addition to those risks involved in foreign investing. For example, many
emerging market countries have experienced substantial, and in some periods
extremely high, rates of inflation for many years. In addition, economies in
emerging markets generally are dependent heavily upon international trade and,
accordingly, have been and continue to be affected adversely by trade barriers,
exchange controls, managed adjustments in relative currency values and other
protectionist measures imposed or negotiated by the countries with which they
trade. The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Brokerage commissions,
custodial services and other costs relating to investment in foreign markets
generally are more expensive than in the United States, particularly with
respect to emerging markets. In addition, some emerging market countries impose
transfer taxes or fees as a tax or fee on a capital market transaction.
Illiquid Securities. Each Fund may invest up to 15% of its net assets
in illiquid securities -- securities that may not be sold within seven days at
approximately the price used in determining the Fund's net asset value.
Securities may be illiquid when they are held subject to legal or contractual
restrictions on resale, usually because they have not been registered for sale
to the general public ("restricted securities"), or when there is limited market
for them. Repurchase agreements that mature in more than seven days are
considered illiquid securities.
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Certain restricted securities may be resold to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933. The Adviser or
Sub-Adviser, under guidelines approved by the Board of Trustees of the Trust,
may determine that some Rule 144A securities are liquid. Institutional trading
markets for Rule 144A securities are relatively new. Liquidity of the Fund's
investments could be impaired if trading markets for these securities do not
develop further or decline. If, through a change in values, net assets or other
circumstances, a Fund were in a position where more than 15% of its net assets
was invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed
securities, which represent an interest in a pool of mortgage loans. The primary
government issuers or guarantors of mortgage-backed securities are the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
Interest and principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
securities. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.
Prepayments occur when the mortgagor on a mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. Because the prepayment
characteristics of the underlying mortgages vary, it is impossible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the mortgage-backed securities. During periods of
declining interest rates, prepayments can be expected to accelerate and a Fund
investing in such securities would be required to reinvest the proceeds at the
lower interest rates then available. In addition, prepayments of mortgages
underlying securities purchased at a premium could result in capital losses.
Other Investment Companies. Each Fund may invest up to 10% of its total
assets in other investment companies, but only up to 5% of its assets in any one
other investment company. In addition, a Fund may not purchase more than 3% of
the securities of any one investment company. As a shareholder in an investment
company, that Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. At the same time, the
Fund would continue to pay its own management fees and other expenses.
Notwithstanding these limitations, each Fund reserves the right to
convert to a "master/feeder" structure at a future date. Under such a structure,
one or more "feeder" funds, such as the Funds, invest all of their assets in a
"master" fund, which, in turn, invests directly in a portfolio of securities. If
required by applicable law, the Funds will seek shareholder approval before
converting to a master/feeder structure. If the requisite regulatory authorities
determine that such approval is not required, shareholders will be deemed, by
purchasing shares, to have consented to such a conversion and no further
shareholder approval will be sought. Such a conversion is expressly permitted
under the investment objective and fundamental policies of each Fund.
Repurchase Agreements. Each Fund may enter into repurchase agreements.
In a repurchase agreement, a Fund buys a security and the seller simultaneously
agrees to repurchase the security on a specified future date at an agreed-upon
price. The repurchase price reflects an agreed-upon interest rate during the
time the Fund's money is invested in the security. Because the security
constitutes collateral for the repurchase obligation, a repurchase agreement can
be considered a collateralized loan. The Fund's risk is the ability of the
seller to pay the agreed-upon price on the delivery date. If the seller is
unable to make a timely repurchase, the Fund could experience delays in the
receipt of
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<PAGE>
expected proceeds, suffer a loss in principal or current interest, or incur
costs in liquidating the collateral. The Board of Trustees of the Trust has
established criteria to evaluate the creditworthiness of parties with which the
Funds may enter into repurchase agreements.
Rights and Warrants. Each Fund may invest in rights and warrants. A
Fund will invest in rights or warrants only if the underlying equity securities
themselves are deemed appropriate by the Adviser or Sub-Adviser for inclusion in
the Fund's portfolio. Rights and warrants entitle the holder to buy equity
securities at a specific price for a specific period of time. Rights are similar
to warrants except that they have a substantially shorter duration. Rights and
warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities nor do they represent any rights in
the assets of the issuing company. The value of a right or warrant does not
necessarily change with the value of the underlying security, although the value
of a right or warrant may decline because of a decrease in the value of the
underlying security, the passage of time or a change in perception as to the
potential of the underlying security, or any combination thereof. If the market
price of the underlying security is below the exercise price set forth in the
warrant on the expiration date, the warrant will expire worthless. Moreover, a
right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Securities Lending. Each Fund may lend its portfolio securities to
broker/dealers or to other institutional investors. The borrower must maintain
with the Fund's custodian collateral consisting of cash, U.S. Government
securities or other liquid securities equal to at least the value of the
borrowed securities, plus any accrued interest. The Fund will receive any
interest paid on the loaned securities and a fee and/or a portion of the
interest earned on the collateral. Income received in connection with securities
lending may be used to offset a Fund's custody fees. Each Fund limits its loans
of portfolio securities to an aggregate of 33 1/3% of the value of its total
assets, measured at the time any such loan is made. The risks in lending
portfolio securities, as with other extensions of secured credit, consist of
possible delays in receiving additional collateral or in recovery of the
securities and possible loss of rights in the collateral should the borrower
fail financially.
Short Sales. Each Fund may sell securities that it does not own or have
the right to acquire. When a Fund does so, it will maintain with its custodian
in a segregated account cash or liquid securities in an amount at least equal to
the difference between the current market value of the securities sold short and
any amounts required to be deposited as collateral with the selling broker in
connection with the short sale (not including the proceeds of the short sale).
It is currently expected that a Fund will not sell securities short if, as a
result, the total amount of all "open" short positions would exceed 10% of the
value of its total assets. This limitation may be changed at any time. Each Fund
may also sell securities that it owns or has the right to acquire at no
additional cost but does not intend to deliver to the buyer, a practice known as
selling short "against the box." These transactions allow a Fund to hedge
against price fluctuations by locking in a sale price for securities the Fund
does not wish to sell immediately, for example, to postpone recognition of a
gain or loss for federal income tax purposes or satisfy certain tests applicable
to regulated investment companies under the Internal Revenue Code.
Small Companies. While each Fund's portfolio normally will include
securities of established suppliers of traditional products and services, each
Fund may invest in smaller companies which can benefit from the development of
new products and services. These smaller companies may present greater
opportunities for capital appreciation, but may also involve greater risks than
large, established issuers. Such smaller companies may have limited product
lines, markets or financial resources, and
21
<PAGE>
their securities may trade less frequently and in more limited volume than the
securities of larger, more established companies. As a result, the prices of the
securities of such smaller companies may fluctuate to a greater degree than the
prices of the securities of other issuers.
Structured Notes. Each Fund may invest up to 25% of its total assets in
debt securities, preferred stock, or convertible securities, the principal
amount, redemption terms, or conversion terms of which are related to a
specified securities or other index, the market prices of specified securities,
commodities, or other assets, or specified foreign currency exchange rates.
These securities are sometimes referred to as "structured notes" or "structured
securities." The prices of structured securities have historically been subject
to high volatility and their interest or dividend rates may at times be
substantially below prevailing market rates.
U.S. Government Securities. All of the Funds may invest in U.S.
Government Securities, which include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes and bonds) and obligations directly issued
or guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA bonds),
others are backed only by the right of the issuer to borrow from the U.S.
Treasury (such as securities of Federal Home Loan Banks) and still others are
backed only by the credit of the instrumentality (such as FNMA and FHLMC bonds).
Variable Rate, Floating Rate, or Variable Amount Securities. Each Fund
may invest in variable rate, floating rate, or variable amount securities. These
are generally short-term unsecured obligations of private issuers. They are
generally interest-bearing notes on which the interest rate fluctuates on a
scheduled basis.
When-Issued or Forward Commitment Securities. Each Fund may purchase
securities on a "when-issued" basis and may purchase or sell such securities on
a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but a Fund will purchase
or sell when-issued securities or enter into forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be. No income accrues on securities which have been purchased on a forward
commitment or when-issued basis prior to delivery to the Fund. If the Fund
disposes of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may incur a gain or loss. At the time a Fund enters into a transaction on a
when-issued or forward commitment basis, a segregated account consisting of cash
or liquid securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked to market daily. There is a risk that the securities may not be delivered
and that the Fund may incur loss.
Zero-Coupon and Payment-in-Kind Bonds. Each Fund may invest in
zero-coupon and payment-in-kind bonds. The Asian High Yield Fund is more likely
to do so than the other Funds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest periodically.
Payment-in-kind bonds allow the issuer, at its option, to make current interest
payments on the bonds either in cash or in additional bonds. Because zero-coupon
bonds do not pay current interest, their value is generally subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
interest currently. Both zero-coupon and payment-in-kind bonds
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<PAGE>
allow an issuer to avoid the need to generate cash to meet current interest
payments. Accordingly, such bonds may involve greater credit risks than bonds
paying interest currently. Even though such bonds do not pay current interest in
cash, a Fund is nonetheless required to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, a Fund could be required at times to liquidate other investments in order
to satisfy its dividend requirements.
Fundamental Investment Policies and Restrictions. Some of the policies
and restrictions discussed throughout this Prospectus are fundamental, this is,
subject to change only by shareholder approval. The following paragraph restates
all those that are fundamental.
For each Fund other than the Asian High Yield Fund, with respect to 75%
of its total assets, a Fund may not purchase a security if, as a result, more
than 5% would be invested in the securities of any one issuer and may not
purchase more than 10% of the outstanding voting securities of a single issuer.
Except for the Strategic Natural Resources Fund and the Info-Tech &
Communications Fund, a Fund will not invest 25% or more of the value of the
Fund's total assets in the securities of issuers in any one industry. These
limitations do not apply to U.S. Government securities. As a fundamental
policy, the Strategic Natural Resources Fund will invest at least 25% of its
total assets in securities of companies in natural resource industries and
industries supportive to natural resource industries. As a fundamental
policy, the Info-Tech & Communications Fund will invest at least 25% of its
total assets in securities of companies in the communications, information and
related technology industries. A Fund may borrow money for investment purposes,
but not in an amount exceeding 33 1/3% of its total assets, and may borrow up to
an additional 5% of its total assets for temporary or emergency purposes. Loans
by a Fund, in the aggregate, may not exceed 33 1/3% of a Fund's total assets.
INVESTMENT PERFORMANCE
Each Fund may illustrate in advertisements its average annual total
return, which is the rate of growth of the Fund that would be necessary to
achieve the ending value of an investment kept in the Fund for the period
specified and is based on the following assumptions: (1) all dividends and
distributions by the Fund are reinvested in shares of the Fund at net asset
value, and (2) all recurring fees are included for applicable periods.
Each Fund may also illustrate in advertisements its cumulative total
return for several time periods throughout the Fund's life based on an assumed
initial investment of $1,000. Any such cumulative total return for each Fund
will assume the reinvestment of all income dividends and capital gains
distributions for the indicated periods and will include all recurring fees.
The Asian High Yield Fund may further illustrate in advertisements its
yield based on a recent thirty (30) day period, which reflects the income per
share earned by the Fund's portfolio investments. The yield is calculated by
dividing the Fund's net investment income per share during that period by the
net asset value on the last day of that period and annualizing the result.
Further information on each Fund's performance calculations is described
in the SAI.
PORTFOLIO TURNOVER
The rate of portfolio turnover generally will not be important in
investment decision making for any of the Funds. Decisions to buy and sell
securities will be based on the anticipated contribution of a
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<PAGE>
security to achievement of a Fund's investment objectives. Sales can result
from, for example, securities reaching a price objective, anticipated changes in
interest rates, changes in the creditworthiness of issuers, or general financial
or market developments. The Funds may sell one security and simultaneously buy
another of comparable quality and may simultaneously buy and sell the same
security to take advantage of short-term differences in bond yields. The Funds
may buy individual securities in anticipation of relatively short-term price
gains. A Fund's liquidity needs may also necessitate sales. Because these
factors generally are not tied to the length of time a security has been held, a
significant number of short-term transactions may result.
Although the Funds cannot accurately predict their annual turnover
rates, it is estimated that annual turnover rates will generally be 90% for the
Strategic Natural Resources Fund, 100% for the Info-Tech & Communications
Fund, 100% for the Growth Fund, 50% - 75% for the Asian Select Advisers Fund
and 40% - 50% for the Asian High Yield Fund. A 100% annual turnover rate would
occur if all of a Fund's securities were replaced one time during a one year
period.
While portfolio transactions will be necessary to achieve a Fund's
investment objective, a high level of turnover (100% or more) entails certain
costs. The higher the turnover, the higher the overall brokerage commissions,
dealer mark-ups and mark-downs, and other direct transaction costs incurred.
High turnover can also result in acceleration of the realization of gains, which
may be short-term in nature and thus taxable to shareholders at ordinary rates.
Certain tax considerations can restrict a Fund's ability to sell
securities in some circumstances when those securities have been held for less
than three months. See the SAI.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to elect to be treated and to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, and, if it
so qualifies, it will not be subject to federal income tax on any income and net
capital gain distributed to its shareholders.
As a result, it is the policy of each Fund to declare and distribute to
its shareholders as income dividends or capital gain dividends, at least
annually, substantially all of its net investment income and net capital gain
realized from the sale of its portfolio securities, if any.
Income dividends will normally be distributed quarterly for the Asian
High Yield Fund and annually for each of the other Funds. Income dividends are
derived from each Fund's net investment income, including any net short-term
capital gain and dividends received by a Fund, and are taxable to shareholders
as ordinary income. The excess of net long-term capital gain over the net
short-term capital losses realized and distributed by a Fund as net capital gain
dividends are taxable to shareholders as long-term capital gain, regardless of
how long the shareholder has held the shares. Income dividends and net capital
gain dividends declared in October, November or December of one year to
shareholders of record as of a specified date in such a month and paid in
January of the following year are taxable in the year they are declared. The
Trust will mail to its shareholders a Form 1099 by the end of January of each
year indicating the federal tax status of each Fund's income dividends and net
capital gain dividends.
Both income dividends and net capital gain dividends are paid by the
Funds on a per share basis to the shareholders of record as of the distribution
date of that Fund, regardless of how long the shares have been held. That means
that if shareholders buy shares just before or on the record date, they will pay
the full price for the shares and then may receive a portion of the price back
as a taxable distribution. If a
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<PAGE>
shareholder held shares for six months or less and during that period received a
distribution taxable to such shareholder as a long-term capital gain, any loss
realized on the sale of such shares during such six-month period would be a
long-term loss to the extent of such distribution.
Each Fund is required by federal law to withhold 31% of reportable
payments (which may include income dividends, net capital gain dividends, and
share redemption proceeds) paid to shareholders who have not complied with IRS
regulations. In order to avoid this back-up withholding requirement, a
shareholder must certify on the shareholder's purchase application form
("Application"), or on a separate W-9 Form supplied by the Trust's transfer
agent, that the shareholder's Social Security or Taxpayer Identification Number
is correct (or that the shareholder has applied for such a number and is waiting
for it to be issued) and that the shareholder is not currently subject to backup
withholding, or the shareholder is exempt from backup withholding.
Unless the shareholder elects otherwise, as permitted on the Application,
income dividends and net capital gain dividends with respect to a particular
Fund will be reinvested in additional shares of that Fund and will be credited
to the shareholder's account with that Fund at the net asset value per share
next determined as of the ex-dividend date.
Under existing provisions of the Internal Revenue Code, individuals,
corporations and other shareholders that are not "U.S. Persons" under such
Code may be subject to federal income tax withholding at the applicable rate on
income dividends and net capital gain dividends. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
Payments from a Fund to shareholders of income dividends and net capital
gain dividends are taxable to shareholders of a Fund when such dividends are
paid, regardless of whether they are taken in cash or reinvested in shares of
the Fund.
Each Fund may invest in the stock of foreign investment companies that
may be treated as "passive foreign investment companies" ("PFICs") under the
Internal Revenue Code. Certain other foreign corporations, not operated as
investment companies, may nevertheless satisfy the PFIC definition. A portion of
the income and gains that a Fund derives may be subject to a non-deductible
federal income tax at the Fund level. A Fund may be able to avoid this tax by
making a mark-to-market election. Because it is not always possible to identify
a foreign issuer as a PFIC in advance of making the investment, a Fund may incur
the PFIC tax in some instances.
Shareholders are urged to consult their tax advisers concerning the
effect of Federal income taxes in their individual circumstances.
HOW TO PURCHASE SHARES
The initial minimum investment is $2,500 ($2,000 for individual
retirement accounts) per Fund. Such minimum investment amount may, in certain
cases, be waived or lowered by the Trust.
Opening an Account. You may make an initial purchase of shares of each
Fund through the Distributor or its Selling Group Members. Shares of the Funds
may be purchased on any day the Funds are open for business. A COMPLETED AND
SIGNED APPLICATION IS REQUIRED FOR EACH NEW ACCOUNT YOU OPEN WITH EACH FUND.
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Purchases Through Selling Group Members. Securities dealers, banks, or
other financial service firms having Selected Dealer Agreements with the
Distributor (collectively, "Selling Group Members") are authorized to sell you
shares of the Funds. If you purchase shares through a Selling Group Member, such
member must receive your order before the close of regular trading on the New
York Stock Exchange ("NYSE"), which normally is 4:00 p.m. Eastern time, and
transmit it to the Trust by 5:00 p.m., Eastern time, to receive that day's share
price. (See "Share Price" below.) Selling Group Members are responsible for
promptly transmitting purchase orders to the Distributor.
Purchases By Mail. You may purchase shares of the Funds by mailing the
completed Application, with your check made payable to Orbitex Group of Funds -
(Name of Fund), to: Orbitex Group of Funds, P.O. Box 8069, Boston, MA
02269-8069.
Purchases By Wire. Shares of each Fund may be purchased by wiring funds
to the wire bank account for each Fund. Your bank may charge you a fee for the
wire. Wire transactions are not available for retirement accounts.
To make an initial purchase by wire, please telephone the Trust at
1-888-ORBITEX for instructions and to receive an account number. You should
instruct a Federal Reserve System member bank to wire funds to: State Street
Bank & Trust Company, ABA No. 01100028, Attn: Custody & Shareholder Services,
Credit: Name of Fund, DDA No. 9905-295-3, FBO: Shareholder Name, Name of Fund,
Shareholder Account Number. Please complete and mail an Application to the
address shown above under purchases by mail.
You may make subsequent purchases in an existing account by wiring
funds to: State Street Bank & Trust Company, ABA No. 01100028, Attn: Custody &
Shareholder Services, Credit: Name of Fund, DDA No. 9905-295-3, FBO: Shareholder
Name, Name of Fund, Shareholder Account Number.
Subsequent Purchases. Minimum $500 per Fund, except for reinvestment of
dividends and distributions. Subsequent purchases in an existing account may
be made (i) through the Distributor by mail (see instructions above) or by wire
(see instructions above), (ii) through Selling Group Members or (iii) through
use of certain services available to shareholders of the Funds, such as the
Telephone Investment Privilege and the Exchange Privilege described below under
"How to Exchange Shares."
Telephone Investment Privilege. If you are eligible to use the
Telephone Investment Privilege, you may make additional purchases in your
account of $500 or more by telephoning the Trust at 1-888-ORBITEX between 8:30
a.m. and 4:00 p.m. Eastern time on any day the Trust is open. Telephone
investment requests made after 4:00 p.m. Eastern time will be processed as of
the close of business on the next business day. In accordance with your
instructions, we will electronically transfer monies from your bank account
designated on the Application to your account with the Trust. Please see
"Shareholder Services - Telephone Privileges" below.
Share Price. To make an initial purchase of shares of the Funds, a
completed and signed Application must first be received and accepted. Purchases
in each Fund will be effected at the public offering price of that Fund next
determined after your purchase order has been received and accepted by the
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Trust. The public offering price of a Fund is the per share net asset value of
that Fund next determined after receipt of the purchase order, plus any
applicable initial sales charge.
Share Certificates. In the interest of economy and convenience, share
certificates will not be issued.
Conditions of Your Purchase. The Trust and the Distributor each reserve
the right to reject any purchase for any reason and to cancel any purchase due
to nonpayment. Purchases are not binding on the Trust or the Distributor or
considered received until such purchase orders are received and accepted by the
Trust. All purchases must be made in United States dollars and, to avoid fees
and delays, all checks must be drawn only on United States banks. No cash will
be accepted. As a condition of this offering, if your purchase is canceled due
to nonpayment or because your check does not clear, you will be responsible for
any loss the Funds incur. Due to the high risk of fraud, the Trust will not
accept third-party checks to purchase shares of the Funds. (A third-party check
is a check that has been endorsed by the payee and signed over to the Fund.)
Initial Sales Charge. The public offering price of shares is the next
determined net asset value of a Fund, plus any applicable sales charge, which,
for investors who are residents of the United States, will vary with the size of
the purchase as shown in the following tables:
For all Funds other than the Asian High Yield Fund, the sales charge is
5.75% of the offering price; however, for investors who are residents of the
United States, the sales charge will be reduced for purchases of $50,000 or more
as follows::
<TABLE>
<CAPTION>
Sales Charge as a Percentage of
------------------------------- Broker Reallowance as a
Offering Net Investment Percentage of Offering
Amount of Purchase Price (Net Asset Value) Price
- ------------------ ----- ----------------- -----
<S> <C> <C> <C>
Less than $50,000 5.75% 6.10 5.00%
$50,000 but less than $100,000 4.50% 4.71 3.75%
$100,000 but less than $250,000 3.50% 3.63 2.75%
$250,000 but less than $500,000 2.50% 2.56 2.00%
$500,000 but less than $1,000,000 2.00% 2.04 1.75%
$1,000,000 but less than $3,000,000 None* None* (see below)**
$3,000,000 but less than $50,000,000 None* None* (see below)**
$50,000,000 or more None* None* (see below)**
</TABLE>
For the Asian High Yield Fund, the sales charge is 4.75% of the
offering price; however, for investors who are residents of the United States,
the sales charge will be reduced for purchases of $50,000 or more as follows:
<TABLE>
<CAPTION>
Sales Charge as a Percentage of
------------------------------- Broker Reallowance as a
Offering Net Investment Percentage of Offering
Amount of Purchase Price (Net Asset Value) Price
- ------------------ ----- ----------------- -----
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99 4.00%
$50,000 but less than $100,000 3.50% 3.63 2.75%
$100,000 but less than $250,000 2.50% 2.56 1.75%
$250,000 but less than $500,000 1.50% 1.52 1.00%
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<PAGE>
$500,000 but less than $1,000,000 1.00% 1.01 .75%
$1,000,000 but less than $3,000,000 None* None* (see below)**
$3,000,000 but less than $50,000,000 None* None* (see below)**
$50,000,000 or more None* None* (see below)**
</TABLE>
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- -------------------
* No initial sales charge applies on investments by residents of the United
States of $1 million or more, but a contingent deferred sales charge of 1% is
imposed on certain redemptions within one year of the purchase. See "How to
Redeem Shares - Contingent Deferred Sales Charge."
** The following commissions will be paid by the Distributor to Selling Group
Members who initiate and are responsible for purchases of any single purchaser
who is a resident of the United States of $1 million or more: 1% on purchase
amounts up to $3 million, plus 0.50% on the excess up to $50 million, plus 0.25%
on the excess over $50 million.
Shares issued pursuant to the automatic reinvestment of income
dividends and capital gains distributions are not subject to any sales charges.
The Distributor's commission is the sales charge shown above less any applicable
discount "reallowed" to Selling Group Members. Normally, the Distributor will
reallow discounts to Selling Group Members in the amounts indicated above. The
Distributor may, however, from time to time elect to re-allow up to the entire
initial sales charge to Selling Group Members . Selling Group Members to whom
substantially the entire sales charge is re-allowed may be deemed to be
"underwriters" as that term is defined under the Securities Act of 1933.
Reduced Sales Charges. A reduction of sales charge rates for purchasers
who are residents of the United States in the tables above may be obtained as
follows:
[bullet] Letter of Intent. Investors may qualify for reduced sales
charges on all investments by completing the Letter of Intent section in the
Application, expressing an intention to invest an amount within a 13-month
period in a Fund which, if made at one time, would qualify for a reduced sales
charge. The minimum initial investment under a Letter of Intent is 5% of the
total Letter of Intent amount. Shares purchased with the first 5% of such amount
will be held in escrow to secure payment of the higher sales charge applicable
to the shares actually purchased if the full amount indicated is not purchased,
and such escrowed shares will be involuntarily redeemed to pay the additional
sales charge, if necessary. A purchase not originally made pursuant to a Letter
of Intent may be included under a subsequent Letter of Intent executed within 90
days of the purchase. For a further description of the Letter of Intent, see
"Purchase and Redemption of Securities Being Offered - Letter of Intent" in the
SAI.
[bullet] Right of Accumulation. Under the Right of Accumulation, a
"single purchaser" may combine a current purchase of shares of a Fund with prior
purchases of shares of any Fund to qualify for a reduced sales charge. The term
"single purchaser" refers to: (i) an individual; (ii) an individual and spouse
purchasing shares of the Fund for their own account or for trust or custodial
accounts for their minor children; or (iii) a fiduciary purchasing for any one
trust, estate or fiduciary account, including employee benefit plans created
under Sections 401 or 457 of the Internal Revenue Code, including related plans
of the same employer. To be entitled to a reduced sales charge based upon shares
already owned, the investor must ask the Distributor for such entitlement at the
time of purchase and provide the account number(s) of the investor, the investor
and spouse, and their minor children, and the age of any such child.
[bullet] Other Circumstances. The initial sales charge will be waived
on the following types of purchases: (1) purchases by investors who have
invested $1 million or more in one Fund alone or in any combination of Funds;
(2) purchases by the officers, directors/trustees, and employees of the Trust,
the Adviser or the Distributor; the immediate family members of any such person;
any trust or
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individual retirement account or self-employed retirement plan for the benefit
of any such person or family members; or the estate of any such person or family
members; (3) purchases by Selling Group Members, for their own accounts, or for
retirement plans for their employees or sold to registered representatives or
full time employees (and their immediate families) that certify to the
Distributor at the time of purchase that such purchase is for their own account
(or for the benefit of their immediate families); (4) purchases by a charitable
organization (as defined in Section 501(c)(3) of the Internal Revenue Code)
investing $100,000 or more; (5) purchases by a charitable remainder trust or
life income pool established for the benefit of a charitable organization (as
defined in Section 501(c)(3) of the Internal Revenue Code); (6) purchases with
trust assets; (7) purchases in accounts as to which a Selling Group Member
charges an account management fee; (8) purchases by any state, county, or city,
or any governmental instrumentality, department, authority or agency; (9)
purchases with redemption proceeds from another mutual fund (which is not a
series of the Trust) on which the investor has paid a front-end sales charge
only; and (10) purchases by such other persons as are determined by the Board of
Trustees of the Trust (or by the Adviser pursuant to guidelines established by
such Board) to have acquired shares under circumstances not involving any sales
expenses to the Fund or the Distributor.
HOW TO REDEEM SHARES
Shareholders have the right to redeem (subject to the restrictions
outlined below) all or any part of their shares in the Funds at a price equal to
the net asset value of such shares next computed following receipt in proper
form of the redemption request by the Trust. Unless you have selected the
Telephone Redemption Privilege and provided the required information, in order
to redeem shares in the Funds, a written request in "proper form" (as explained
below) must be sent directly to Orbitex Group of Funds, P.O. Box 8069,
Boston, MA 02269-8069. You cannot redeem shares by telephone unless you are
eligible to use the Telephone Redemption Privilege. In addition, the Trust
cannot accept requests which specify a particular date for redemption or which
specify any other special conditions. All requests to redeem shares from a
retirement account must be made in writing. Please call 1-888-ORBITEX for
further information.
Proper Form for All Redemption Requests. Your redemption request must
be in proper form. To be in proper form, your redemption request must include:
(1) for written redemption requests, a "letter of instruction," which is a
letter specifying the name of the Fund, the number of shares to be sold, the
name(s) in which the account is registered, and your account number. The letter
of instruction must be signed by all registered shareholders for the account
using the exact names in which the account is registered; (2) other supporting
legal documents, as may be necessary, for redemption requests by corporations,
trusts, and partnerships; and (3) any signature guarantees that are required by
the Trust where the value of the shares being redeemed is $50,000 or greater, or
where the redemption proceeds are to be sent to an address other than the
address of record or to a person other than the registered shareholder(s) for
the account. Signature guarantees are required if the amount being redeemed is
$50,000 or more but are not required for redemptions made using the Telephone
Redemption Privilege, unless redemption proceeds are to be sent to a person
other than the registered shareholders or for the account or to an address or
account other than that of record.
Signature Guarantees. Signature guarantees, when required, can be
obtained from any one of the following institutions: (i) a bank; (ii) a
securities broker or dealer, including a Government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national
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securities exchange, a registered securities exchange or a clearing agency.
Notary publics are not acceptable guarantors.
Your request for redemption will not be processed if it is not in
proper form and will be held until it is in proper form, as described above. The
Trust will notify you if your redemption request is not in proper form.
Receiving Your Redemption Payment. Except under certain emergency
conditions, your redemption payment will be sent to you within seven days after
receipt of your telephone or written redemption request, in proper form, by the
Trust.
If your redemption request is with respect to shares purchased by a
personal, corporate, or government check within ten days of the purchase date,
the redemption payment will be held until the purchase check has cleared (which
may take up to fifteen days from the purchase date), although the shares
redeemed will be priced for redemption upon receipt of your redemption request.
You can avoid the inconvenience of this check clearing period by purchasing
shares with a certified, treasurer's or cashier's check, or with a federal funds
or bank wire.
Wire Redemption. You may request that your redemption proceeds be wired
directly to your bank account. The Trust's transfer agent imposes a $10.00 fee
for each wire redemption and deducts the fee directly from your account. Your
bank may also impose a fee for the incoming wire. The redemption proceeds must
be paid to the same bank and account as designated on the Application or in
written instructions in proper form subsequently received by the Trust.
Minimum Account Size. Due to the relatively high cost of maintaining
accounts, the Trust reserves the right to redeem shares in any account if, as
the result of investor redemptions, the value of that account drops below
$1,000. You will be allowed at least sixty (60) days, after written notice by
the Trust, to make an additional investment to bring your account value up to at
least $1,000 before the redemption is processed.
Contingent Deferred Sales Charge. In order to recover commissions paid
to Selling Group Members, a contingent deferred sales charge of 1% applies to
certain redemptions made within the first year after investing with respect to
shares purchased at net asset value without a sales charge at time of purchase
due to purchases of $1 million or more.
No charge is imposed to the extent that the net asset value of the
shares redeemed does not exceed (a) the current net asset value of shares
purchased through reinvestment of dividends or capital gain distributions plus
(b) the current net asset value of shares purchased more than one year prior to
the redemption, plus (c) increases in the net asset value of the shareholder's
shares above the purchase payments made during the preceding one year.
The contingent deferred sales charge will be waived on (1) involuntary
redemptions effected pursuant to the Trust's right to liquidate shareholder
accounts having an aggregate net asset value of less than $1,000; and (2)
redemptions the proceeds of which are reinvested in the Trust within 90 days of
the redemption.
Telephone Redemption Privilege. If you are eligible to use the
Telephone Redemption Privilege, you may authorize the redemption of some ($1,500
minimum) or all shares in your account with the Trust by telephoning the Trust
at 1-888-ORBITEX between 8:30 a.m. and 4:00 p.m. Eastern time on any day the
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Trust is open. In accordance with your telephone instructions, we will redeem
your shares at their net asset value next determined after your telephone
redemption request is received. Telephone redemption requests received after
4:00 p.m. Eastern time will be processed as of the close of business on the next
business day. Redemption proceeds will, in accordance with your prior election,
be mailed to you at your current address or electronically transmitted to your
designated bank account. Please see "Shareholder Services - Telephone
Privileges" below.
HOW TO EXCHANGE SHARES
Exchange Privilege. The exchange privilege is a convenient way to buy
shares in each Fund in order to respond to changes in your investment goals or
in market conditions. In addition to the Telephone Exchange Privilege described
below, shareholders in each Fund may exchange their shares for shares in the
other Fund by a written request, in proper form, sent to the Trust, as described
under "Purchase By Mail" above. Such shares exchanged will be valued at their
respective net asset values next determined after the receipt of the written
exchange request. When making a written exchange request, please provide your
current Fund's name, your account name(s) and number(s), the name of the Fund
into which you wish to exchange your investment, the amount you wish to
exchange, and specify all current shareholder service privileges you wish to
continue in your new account (e.g., Telephone Privileges). For written exchange
requests, the signatures of all registered owners are required. Exchanges are
accepted only if the ownership registrations of both accounts are identical. No
initial sales charge, redemption fee or penalty is imposed on exchanges. In
establishing a new account by exchange, the shares being exchanged must have a
value of at least $2,500. All subsequent amounts exchanged must be $500 or more
per Fund. Please note that, for tax purposes, depending on your tax status, an
exchange may involve a taxable transaction. The exchange privilege may be
modified or terminated upon 60 days' written notice to shareholders.
Telephone Exchange Privilege. The Telephone Exchange Privilege permits
you to exchange shares from your account in one Fund for shares in another Fund
(if the accounts in each Fund are identically registered) by telephoning the
Trust at 1-888-ORBITEX between 8:30 a.m. and 4:00 p.m. Eastern time on any day
the Trust is open. Shares exchanged will be valued at their respective net
asset value next determined after a telephone exchange request is received.
Telephone exchange requests made after 4:00 p.m. Eastern time will be processed
as of the close of business on the next business day. Please notify the Trust in
writing of all shareholder service privileges you wish to continue in any new
account opened by a telephone exchange request.
SHAREHOLDER SERVICES
Shareholder Inquiries and Services Offered. If you have any questions
about the Trust or the following services, please call 1-888-ORBITEX and ask
about the Trust or write Orbitex Group of Funds, P.O. Box 8069, Boston, MA
02269-8069. The Trust reserves the right to change the shareholder services
described below or to amend their terms or conditions upon sixty (60) days
notice to shareholders.
Shareholder Statements and Reports. Each time you buy or sell shares or
reinvest a dividend or distribution in any Fund, you will receive an account
statement with respect to that Fund confirming such transaction and listing your
current share balance with that Fund. You will also receive account statements
quarterly. The Trust also will send you annual and semi-annual shareholder
reports that contain certain financial information concerning the Funds. In
addition, you will receive year-end tax information about your accounts with
each Fund.
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Telephone Privileges. For your convenience, the Trust provides
telephone privileges that allow you by telephone authorization to (i) purchase
shares in each Fund; (ii) exchange shares from your account in one Fund for
shares in another Fund; and (iii) redeem shares in each Fund. If you do not
want the ability to redeem and exchange by telephone, call 1-888-ORBITEX for
instructions. Procedures have been established by the Trust and its transfer
agent that are considered to be reasonable and are designed to confirm personal
identification information prior to acting on telephone instructions, including
tape recording telephone communications and providing written confirmation of
instructions communicated by telephone. If the Trust or the transfer agent does
not employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, the Trust may be liable for any losses arising out of any
action on its part or any failure or omission to act as a result of its own
negligence, lack of good faith, or willful misconduct. In light of the
procedures established, neither the Trust nor the transfer agent will be liable
for following telephone instructions that it believes to be genuine. During
periods of extreme economic conditions or market changes, requests by telephone
may be difficult to make due to heavy volume. During such times, please consider
placing your order by mail.
The telephone privileges are not available with respect to redemptions
for accounts requiring supporting legal documents.
Systematic Investment Program. You may arrange for automatic monthly or
quarterly investing whereby the transfer agent will be authorized to initiate
a debit to your bank account for a specific amount ($50 minimum) each month or
quarter which will be used to purchase shares. For institutions that are members
of the Automated Clearing House System (ACH), such purchases can be processed
electronically on any day of the month between the 3rd and 28th. The Application
contains the requirements applicable to this program. To establish the
Systematic Investment Program for a new account, complete the appropriate
section of the Application. To establish the Systematic Investment Program for
an existing account call the Trust at 1-888-ORBITEX.
Systematic Withdrawal Program. If you own shares with a total value of
not less than $10,000, you may participate in a systematic withdrawal program
providing for fixed payments to you (or to a third party) at regular monthly,
quarterly or annual intervals. You may realize a capital gain or loss on each
fixed-amount payment. Additional information concerning the Systematic
Withdrawal Program is set forth in the SAI. If you desire to participate in the
Systematic Withdrawal Program, you may do so by completing and submitting the
appropriate application to the transfer agent. The Systematic Withdrawal Program
is voluntary and may be terminated at any time by the shareholder.
Systematic Exchange Program. Under a Systematic Exchange Program a
shareholder may set up periodic exchanges to an identically registered
account in another Orbitex Fund. The account from which the exchanges are being
processed must have a minimum balance of $10,000. The account into which the
exchange is being processed must have a minimum of $1,000. An exchange
transaction is a sale and purchase of shares for federal income tax purposes and
may result in a gain or loss. To establish a Systematic Exchange Program call
the Trust at 1-888-ORBITEX after both accounts are established. For further
details concerning this program, see the SAI.
Retirement Accounts. The Trust makes available individual retirement
account plans ("IRAs"), including IRA "Rollover Accounts". There is an annual
fee of $10 per Fund in which you own shares up to a maximum fee of $30 for
administering your retirement account. Detailed information about these plans
and a retirement account application package are available from the Trust by
calling 1-888-ORBITEX. Investors should consult with their own tax advisors
before establishing a retirement plan.
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HOW EACH FUND'S NET ASSET VALUE IS DETERMINED
Each Fund calculates its net asset value as of the close of regular
trading on the NYSE (currently 4:00 p.m. Eastern time, unless weather, equipment
failure or other factors contribute to an earlier closing time), each day the
Fund is open for business. Each Fund's net asset value per share is computed by
determining the value of its total assets, subtracting all of its liabilities,
and dividing the result by the total number of shares outstanding at such time.
Equity securities are valued at the last sale price on the exchange or
in the over-the-counter market in which such securities are primarily traded, as
of the close of business on the day the securities are being valued, or, lacking
any sales, at the last available bid price. Long-term debt obligations are
valued at the mean of representative quoted bid and asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type; however, when the Adviser or Sub-Adviser
deems it appropriate, prices obtained from a bond pricing service will be used.
Short-term debt investments are amortized to maturity, provided such valuations
represent fair value. When market quotations for futures and options positions
held by a Fund are readily available, those positions are valued based upon such
quotations.
Foreign securities are valued on the basis of market quotations from
the primary market in which they are traded, and are translated from the local
currency into U.S. dollars using current exchange rates.
If market quotations are not readily available or if the values have
been materially affected by events occurring after the closing of a foreign
market, securities and other assets are valued as determined in good faith by or
under the direction of the Board of Trustees of the Trust.
Certain securities from time to time may be listed primarily on foreign
exchanges which trade on days when the NYSE is closed (such as a Saturday). As a
result, the net asset value of a Fund's shares may be significantly affected by
such trading on days when shareholders have no access to that Fund.
HOW THE TRUST IS MANAGED
Board of Trustees. The management of the Trust's business and affairs
is the responsibility of its Board of Trustees. Although the Board of Trustees
is not involved in the day-to-day operations of the Funds, it has the
responsibility for establishing broad operating policies and supervising the
overall performance of the Funds.
Adviser. The Trust is managed by Orbitex Management, Inc. (the
"Adviser"), 660 Madison Avenue, New York, New York 10021. The Adviser was
founded in 1995 and is registered with the SEC as an investment adviser. The
Adviser has no prior experience in managing registered investment companies. The
Adviser, however, is affiliated with Orbitex Management Ltd., an investment
adviser which provides investment services to individuals and institutions
including Canadian unit trusts. As of December 31, 1996 Orbitex Management Ltd.
managed approximately $1.2 billion of assets. The Adviser is a wholly-owned
subsidiary of Orbitex, Inc., a business development company which is a
wholly-owned subsidiary of Capital Management Ltd., an investment management
firm. Mr. Thomas Bachmann is a controlling person of Capital Management Ltd.
Under the terms of an investment advisory agreement (the "Advisory
Agreement") with the Trust on behalf of each Fund, the Adviser is responsible
for formulating the Funds' investment programs, allocating assets among
Sub-Advisers, and monitoring and evaluating the investment programs and
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performance of the Sub-Advisers. In addition, the Adviser is responsible for
making day-to-day investment decisions and engaging in portfolio transactions on
behalf of the Strategic Natural Resources Fund, the Info-Tech &
Communications Fund and the Growth Fund. The Adviser also furnishes corporate
officers, provides office space, services and equipment and supervises all
matters relating to the Trust's operations. The Advisory Agreement also provides
that the Adviser may retain Sub-Advisers at the Adviser's own cost and expense,
for the purpose of managing the investment of the assets of one or more Fund's
of the Trust.
Courtney D. Smith, Chief Investment Officer of Orbitex Management,
Inc., is responsible for allocating assets among the Sub-Advisers of Funds
with multiple Sub-Advisers and, if the Adviser is to use a Sub-Adviser in
managing a Fund, for selecting the Sub-Adviser. Please refer to "Portfolio
Managers" below.
The Trust intends to apply to the SEC for an exemptive order which, if
granted, will permit the Adviser subject to approval by the Board of Trustees of
the Trust to engage and terminate Sub-Advisers without shareholder approval.
There is no assurance that the SEC will grant such exemptive order.
As compensation for its services under the Advisory Agreement, each of
the Funds will pay the Adviser a fee, computed daily and paid monthly, at the
annualized rate (expressed as a percentage of average daily net assets) of 1.25%
for the Strategic Natural Resources Fund, 1.25% for the Info-Tech &
Communications Fund, .75% for the Growth Fund, 1.50% for the Asian Select
Advisers Fund and 1.25% for the Asian High Yield Fund .
In the interest of limiting the expenses of the Funds, the Adviser has
voluntarily agreed to waive its advisory fees and reimburse certain expenses to
the extent necessary to keep total operating expenses (expressed as a percentage
of average net assets on an annual basis) of: the Strategic Natural Resources
Fund to 2.40%, the Info-Tech & Communications Fund to 2.40%, the Growth Fund to
1.60% and the Asian Select Advisers Fund to 2.50%. This waiver is expected
to be in effect during the Trust's current fiscal year. The Adviser has
voluntarily agreed to waive its entire advisory fee and reimburse all expenses
of the Asian High Yield Fund for the first sixty days of Fund operations and
thereafter to waive its fees and reimburse certain expenses to the extent
necessary to keep total operating expenses to 2.00% of average net assets on an
annual basis.
Reimbursement by a Fund of the fees waived or other expenses paid by
the Adviser may be made at a later date when the Fund has reached a sufficient
asset size to permit reimbursement to be made without causing the annual expense
ratio of a Fund to exceed the amount of the relevant expense limitation.
Consequently, no reimbursement by a Fund would be made unless a Fund's actual
annual operating expense ratio were less than 2.40%, 2.40%, 1.60%, 2.50% and
2.00% in the case of the Strategic Natural Resources Fund, the Info-Tech &
Communications Fund, the Growth Fund, the Asian Select Advisers Fund and the
Asian High Yield Fund , respectively, and payment of such reimbursement was
approved by the Board of Trustees of the Trust on a quarterly basis. The total
amount of reimbursement to which the Adviser may be entitled in any year will be
equal to the sum of all fees waived and/or assumed by the Adviser during any of
the previous two fiscal years, less any reimbursement amount previously paid to
it.
Sub-Advisers. Pursuant to separate Sub-Advisory Agreements among each
Sub-Adviser, the Adviser and the Trust, each Sub-Adviser is responsible for the
selection and management of portfolio investments for a Fund or for its segment
of a particular Fund in accordance with the Fund's investment objective and
policies and under the supervision of the Adviser. The following organizations
act as Sub-Advisers to the Funds:
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Bankers Trust Company ("Bankers Trust"), One Bankers Trust Plaza, New
York, New York 10006 is a Sub-Adviser for the Asian Select Advisers Fund.
Bankers Trust has delegated its duties for providing subadvisory services to the
Fund to BT Fund Managers (International) Limited ("BT International"). Through
its office in New York and its global affiliates, including BT International,
Bankers Trust provides a full range of investment advisory services for
individual and institutional clients worldwide. As of December 31, 1996 ,
Bankers Trust and its affiliates managed over $200 billion of assets. Bankers
Trust is a wholly owned subsidiary of Bankers Trust New York Corporation. BT
International is a wholly owned subsidiary of Bankers Trust Australia Limited, a
wholly owned subsidiary of Bankers Trust.
Asia Strategic Investment Management Limited ("ASIM"), Chekiang First
Bank Center, 1 Duddell Street, Hong Kong, is a Sub-Adviser for the Asian
Select Advisers Fund. Incorporated in Hong Kong in July 1995, ASIM is an
investment management company specializing in Asian equities. As of January
1997, ASIM had $59 million in assets under management. ASIM is an investment
adviser to two non-U.S. registered investment funds. ASIM is a wholly-owned
subsidiary of Asia Strategic Capital Limited, a holding company, which is owned
by KHWC Partners Limited, a holding company, and the Bank of East Asia Limited.
The partners of KHWC Partners are Michael Tze Hau Lee, Patrick Wai Cheong Shum,
James Kuang Kuo Cheng and Peter Kung Wah Woo.
J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522
Fifth Avenue, New York, New York 10036 is a Sub-Adviser for the Asian High Yield
Fund. J.P. Morgan Investment provides investment management services to employee
benefit funds, foundations, endowments, insurance companies, governments and
other mutual funds. As of December 31, 1996, J.P. Morgan Investment managed over
$208 billion of assets. Incorporated in 1984, J.P. Morgan Investment is a wholly
owned subsidiary of J.P. Morgan & Co. Incorporated, a publicly held bank holding
company.
On a monthly basis, each Sub-Adviser receives a sub-advisory fee, paid
by the Adviser, based on the applicable Fund's average daily net assets at the
annualized rate of: .70% of the average daily net assets of the portion of the
Asian Select Advisers Fund advised by Bankers Trust; and .50% of the average
daily net assets of the portion of the Asian Select Advisers Fund advised by
ASIM; .50% on the first $50 million of average daily net assets of the Asian
High Yield Fund, .45% on next $50 million of net assets, and .40% of net assets
over $100 million for J.P. Morgan Investment.
Portfolio Managers. The investment professionals who are primarily
responsible for the day-to-day management of the Funds' portfolios are as
follows:
Strategic Natural Resources Fund. Konrad Krill is the portfolio manager
for the Strategic Natural Resources Fund. Mr. Krill joined Orbitex Management,
Inc. in 1997. From 1986 to 1997, he was Vice President and portfolio manager at
Dean Witter Intercapital, Inc.
Prior Performance of Portfolio Manager of Strategic Natural Resources
Fund. Set forth below is certain information regarding the performance, for
certain periods through May 31, 1997, of a fund (the "Prior Fund") previously
managed by Mr. Krill, the current portfolio manager for the Strategic Natural
Resources Fund. Mr. Krill was primarily responsible for making the investment
decisions of the Prior Fund. The Prior Fund is a registered investment company
and has investment objectives, policies and strategies that are substantially
the same as those of the Strategic Natural Resources Fund, as well as investment
restrictions that do not differ significantly.
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The prior performance information of the Prior Fund below is presented
net of the payment of fees and expenses, which were approximately 1.90% of the
average daily net assets. On the other hand, it is anticipated that the
Strategic Natural Resources Fund will, during its initial period of operation,
incur expenses at an annualized rate of 2.97% of its average daily net assets
(of which the Adviser has undertaken to reduce to 2.40% through fee waivers and
expense reimbursements). Accordingly, had the Prior Fund been subject to fees
and expenses similar to those expected to be incurred by the Strategic Natural
Resources Fund, the performance shown below would be reduced by an amount equal
to the difference of those anticipated expenses and the expenses of the Prior
Fund.
The performance below of the Prior Fund is compared to the Lipper
Natural Resource Average which reflects the average performance of all U.S.
registered investment companies that are categorized as natural resources funds
by Lipper Analytical Services, Inc., and reflects the average fees and expenses
incurred by those funds.
The prior performance information shown below should not be considered
a representation of future performance of the Strategic Natural Resources Fund.
Average Annual Total Return
For the period
June 1, 1996 - May 31, 1997 April 1, 1995 - May 31, 1997
Prior Fund 22.64 23.33
Lipper Average 13.48 21.38
Info-Tech & Communications Fund and Growth Fund. Courtney D. Smith is
the portfolio manager for the Info-Tech & Communications Fund and the Growth
Fund. Mr. Smith joined Orbitex Management, Inc. in 1996. Formerly, he was
President and Chief Investment Officer of Pinnacle Capital Management, Inc.
Asian Select Advisers Fund. Paul Durham is responsible for managing
that portion of the assets of the Fund managed by Bankers Trust. James Cheng,
Michael Lee, Patrick Shum and Peter Woo are responsible for managing that
portion of the assets of the Fund managed by ASIM.
Mr. Durham joined Bankers Trust's Australian Equity Group in 1988 and
was a member of the U.S. Equities Group based in New York from December 1992 to
March 1994. In April 1994, Mr. Durham returned to Australia and is currently
Head of the Asian Equity Group.
Mr. Cheng has been Director of ASIM since 1996. From 1988 to 1996, he
was Executive Director/Senior Fund Manager of Morgan Stanley Asset Management
(Singapore) Ltd.
Mr. Lee has been Managing director of ASIM since 1995. From 1992 to
1995, he was a director and partner of Lloyd George Management (Hong Kong) Ltd.
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Mr. Shum has been Chief Investment Officer of ASIM since 1995. From
1990 to 1995, he was Director/Senior Fund Manager of Barclays de Zoete Wedd
Investment Management (Hong Kong) Limited.
Mr. Woo has been Director of ASIM since 1995. From 1993 to 1995, he was
Director of Kim Eng Securities (Hong Kong) Ltd.
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Prior Performance of Sub-Advisers of the Asian Select Advisers Fund.
Set forth below is certain information regarding the performance, for certain
periods through March 31, 1997, of funds or accounts managed by the Sub-Advisers
of the Asian Select Advisers Fund. Although the investment objectives, policies
and strategies of these funds and accounts are substantially the same as those
of the Asian Select Advisers Fund, it should be noted that only one of these
funds is registered as an investment company under the 1940 Act and none of the
rest of these funds or accounts are registered as investment companies under the
1940 Act nor are any of them subject to investment restrictions that are
identical to those that apply to the Fund. Therefore, the performance of the
funds and accounts set forth below may be better or worse than it would have
been had all of the funds or accounts been subject to requirements applicable to
a registered investment company and the investment restrictions applicable to
the Fund. For BT International, the funds and accounts include a U.S. registered
investment company, two offshore investment funds, a group trust for investment
by trust accounts and a separately managed account and include funds and
accounts managed by an affiliated entity employing the same personnel as that
employed by BT International. Performance information for the BT International
funds and accounts is provided below on a composite basis, showing the combined
performance of the funds and accounts over various periods of time up to five
years. Not all of the funds and accounts that comprise the composite have been
operational for the full five year period indicated below. The prior performance
for ASIM reflects the performance of an offshore investment company.
The prior performance information below for each of the Sub-Advisers is
presented net of (or after payment of) fees and expenses by the relevant funds
and accounts. For the funds and accounts included in the composite for BT
International, these fees and expenses averaged on a weighted basis
approximately 0.92% per year of the average assets under management. For the
offshore investment company managed by ASIM, the fees and expenses averaged
approximately 1.92% per year of the average assets under management. On the
other hand, it is anticipated that the Asian Select Advisers Fund will, during
its initial period of operation, incur expenses at an annualized rate of 3.37%
of its average daily net assets (which the Adviser has undertaken to reduce to
2.50% through fee waivers and expense reimbursements). Accordingly, had the
funds and accounts reflected in the performance information set forth below been
subject to fees and expenses at the higher level expected to be incurred by the
Asian Select Advisers Fund, the performance shown below would be reduced by an
amount approximately equal to the difference between those anticipated expenses
and the approximate expenses incurred by the funds and accounts included in the
performance information below.
The prior performance of the BT International funds and accounts is
included as a comparison for the portion of Asian Select Advisers Fund that is
managed by BT International. In addition, the prior performance of the offshore
investment company managed by ASIM is included as a comparison for the portion
of the Asian Select Advisers Fund that is managed by ASIM.
The performance below of both BT International and ASIM is compared to
the Morgan Stanley Capital International AC Asia (excluding Japan) Free Index
which is an index of securities traded in various markets in Asia, excluding
Japan and reflects the reinvestment of dividends. Since the Index represents the
performance of unmanaged portfolios of securities, the performance of the Index
is not subject to any fees or expenses, nor is it subject to any brokerage fees
or other transaction costs.
The prior performance information shown below should not be considered
a representation of future performance of the Asian Select Advisers Fund.
Average Annual Total Return
(after fees and expenses) for
periods through March 31, 1997
------------------------------
One Two Three Four Five
Year Years Years Years Years
---- ----- ----- ----- ------
BT International Composite 1.73 12.59 9.39 18.24 23.58
MSCI Index -2.61 6.96 5.08 14.47 15.76
39
<PAGE>
Average Annual Total Return (after fees and expenses)
for periods from Inception
(October 5, 1995) to:
---------------------
September 30, 1996 March 31, 1997
------------------ --------------
ASIM 18.50 13.91
MSCI Index 8.34 5.09
Average annual total return for the BT International composite was
computed as follows. The total returns of each of the funds were weighted by
their respective previous month's market values to obtain the total return for
the composite. The average annual total return for the composite was calculated
using the formula prescribed by the SEC which is described in the SAI. Average
annual total return for the ASIM offshore investment company was computed using
the formula prescribed by the SEC.
Asian High Yield Fund. Joseph Bohrer, Eduardo L. Cortes and Jennifer A.
Lloyd are the portfolio managers of the Asian High Yield Fund.
Mr. Bohrer joined J.P. Morgan Investment in New York in 1985 and became
a portfolio manager in the Equity and Balanced Group in 1988. He transferred to
J.P. Morgan Investment London in 1992, where he was a portfolio manager
responsible for U.S. and global equity portfolios. In September 1996, he moved
to Singapore to become head of investments for that office.
Mr. Cortes is the portfolio manager responsible for J.P. Morgan
Investment's emerging markets debt product. He is a member of the Fixed Income
Asset Allocation Committee and the Global Extended Markets Strategy Team. He
joined the Fixed Income Group in 1991 after spending six years in other
capacities at J.P. Morgan Investment.
Ms. Lloyd is responsible for the fixed income component of the J.P.
Morgan Investment Global Balanced Group. In 1997, Ms. Lloyd returned from the
J.P. Morgan Investment Paris office where she was responsible for the Fixed
Income Group. Prior to that, Ms. Lloyd was a multiple currency fixed income and
currency manager in the London Fixed Income Group. She joined J.P. Morgan
Investment in 1987 as a trader, dealing in multiple currency fixed income
securities, after working as a foreign exchange trader at Sumitomo Corporation
for three years.
Administrator. State Street Bank and Trust Company ("State Street")
serves as the administrator of the Trust. State Street's principal business
address is 225 Franklin Street, Boston, Massachusetts 02110.
State Street provides each Fund with administrative services pursuant
to an Administration Agreement. The services under this Agreement are subject to
the supervision of the Board of Trustees and the officers of the Trust, and
include the day-to-day administration of matters necessary to each Fund's
operations, maintenance of its records and the books of the Trust, preparation
of reports, and compliance monitoring of its activities. For providing
administrative services to the Funds, State Street will receive from each Fund a
monthly fee at an annual rate of .10% of the first $100 million of each Fund's
average daily net assets, plus .08% of the next $100 million of each Fund's
average daily net assets, plus .06% of each Fund's average daily net assets in
excess of $200 million (with a minimum annual fee of $75,000 for each Fund, a
portion of which will be waived for the first year of operation).
Custodian, Transfer and Dividend Disbursing Agent. State Street serves
as the Trust's custodian and holds all portfolio securities and cash assets of
the Trust. State Street is authorized to deposit securities in securities
depositories or to use the services of subcustodians. State Street also provides
accounting services including daily valuation of the shares of each Fund. State
Street also serves as the Trust's transfer agent and dividend disbursing agent
and maintains the Trust's shareholder records.
40
<PAGE>
Distributor. Funds Distributor, Inc. (the "Distributor") serves as the
distributor of the shares of each Fund pursuant to a Distribution Agreement
between the Distributor and the Trust. The Distributor's principal business
address is 60 State Street, Boston, Massachusetts 02109. The Distributor is a
broker-dealer registered with the SEC and is a member of the National
Association of Securities Dealers, Inc. Pursuant to a Distribution Plan and
Agreement Pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Rule 12b-1 Plan and Agreement"), the Funds are authorized to use a portion of
their assets to finance certain activities relating to distribution services
provided to investors in their shares. The Rule 12b-1 Plan and Agreement permits
payments to be made by each Fund to the Distributor to compensate the
Distributor for its activities in providing these services to investors.
The Rule 12b-1 Plan and Agreement permits payments to be made by each
Fund to the Distributor to compensate the Distributor for providing
distribution services to investors in the Fund, including arranging for Selling
Group Members to provide these services and paying compensation for these
services. The Rule 12b-1 Plan and Agreement provides for payment of a fee to the
Distributor at an annualized rate of 0.30% of the average daily net assets
of the Asian High Yield Fund and 0.40% of the average daily net assets of each
of the other Funds. The Rule 12b-1 Plan and Agreement will continue in effect,
if not sooner terminated in accordance with its terms, for successive one-year
periods, provided that its continuance is specifically approved by the vote of
the Board of Trustees of the Trust, including a majority of the Trustees who are
not interested persons of the Trust and do not have a direct or indirect
financial interest in the Rule 12b-1 Plan and Agreement. For further information
regarding the Rule 12b-1 Plan and Agreement, see the SAI.
Expenses. Each Fund pays all its expenses not assumed by the Adviser,
Distributor or other agents. In addition to the investment advisory and other
fees described previously, each Fund pays other expenses, such as brokerage,
legal, audit, transfer agency and custodial fees; proxy solicitation costs;
compensation of Trustees who are not affiliated with the Adviser; fidelity
bond and other insurance premiums; organizational expenses; taxes; expenses of
reports and prospectuses sent to existing investors; and extraordinary expenses.
All general expenses of the Trust and joint expenses of the Funds are allocated
among the Funds on a basis deemed fair and equitable.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Allocations of portfolio transactions for the Funds, including their
frequency, to various brokers is determined by the Adviser or Sub-Adviser in
their best judgment and in a manner deemed fair and reasonable to shareholders.
The primary consideration is prompt and efficient execution of orders in an
effective manner at the most favorable price. The Adviser and Sub-Advisers may
also consider sales of the Funds' shares as a factor in the selection of
broker-dealers, subject to the policy of obtaining best price and execution. For
further information regarding the allocation of portfolio transactions and
brokerage, see the SAI.
41
<PAGE>
ORGANIZATION OF THE TRUST
The Trust is a Delaware business trust organized in December 1996 and
registered with the SEC under the 1940 Act as an open-end management investment
company. The Trust currently consists of five portfolios (i.e. the Funds),
each of which represents a separate series of beneficial interests in the Trust
having different investment objectives, investment programs, policies and
restrictions. Each share of each Fund represents an equal proportionate interest
in that Fund with each other share, and each share is entitled to such dividends
and distributions of income belonging to that Fund as are declared by the Board
of Trustees of the Trust. In the event of the liquidation of a Fund, each share
of that Fund is entitled to a pro rata share of the net assets of that Fund.
Shareholders having at least two-thirds of the outstanding shares of
the Trust may remove a Trustee from office by a vote cast in person or by proxy
at a meeting of shareholders called for that purpose at the request of holders
of 10% or more of the outstanding shares of the Trust. The Trust has an
obligation to assist in such shareholder communications. The Trust does not
routinely hold annual meetings of shareholders. Each share of the Trust is
entitled to one vote on all matters submitted to a vote of all shareholders of
the Trust. Fractional shares, when issued, have the same rights,
proportionately, as full shares. Shares of a particular Fund will be voted
separately from shares of the other Funds on matters affecting only that Fund,
including approval of the Investment Advisory Agreement, Rule 12b-1 Plan and
Agreement for that Fund and changes in the fundamental objective, policies or
restrictions of that Fund. All shares are fully paid and nonassessable when
issued and have no preemptive, conversion or cumulative voting rights. The
Trustees in their discretion, may authorize the division of shares of the Funds
into different classes permitting shares of different classes to be distributed
by different methods although shareholders of different classes would have an
interest in the same portfolio of assets. Shareholders of different classes
may bear different expenses in connection with different methods of
distribution.
As of the date of this Prospectus, Orbitex Management, Inc. provided
the initial seed capital for the Trust and owned 100% of the outstanding voting
shares of each Fund. Furthermore, as ownership of more than 25% of the
outstanding voting securities of a Fund may result in a person being deemed a
controlling entity of that Fund, Orbitex Management, Inc. may be deemed a
control person of each Fund. Such control by Orbitex Management, Inc. will
dilute the effect of the votes of other shareholders.
42
<PAGE>
APPENDIX
Description of Bond Ratings
Excerpts from Moody's Investors Services, Inc. Corporate Bond Ratings:
Aaa: judged to be the best quality; carry the smallest degree of
investment risk; Aa: judged to be of high quality by all standards; A: possess
many favorable investment attributes and are to be considered as higher medium
grade obligations; Baa: considered as lower medium grade obligations, i.e. they
are neither highly protected nor poorly secured; Ba: B: protection of interest
and principal payments is questionable.
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 shortcomings. C: Bonds which are rated C are lowest rated class of bonds
and issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate 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
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Excerpts from Standard & Poor's Corporation Bond Ratings:
AAA: highest grade obligations; possess the ultimate degree of
protection as to principal and interest; AA: also qualify as high grade
obligations, and in the majority of instances differs from AAA issues only in
small degree; A: regarded as upper medium grade; have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe; BBB: regarded
as borderline between definitely sound obligations and those where the
speculative element begins to predominate; this group is the lowest which
qualifies for commercial bank investments.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions. CI: The rating CI is reserved for income bonds on which no
interest is being paid. D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired, unless S&P
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 if debt service
payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
categories.
43
<PAGE>
The Orbitex Group of Funds
Orbitex Management Inc. offers specialized and opportunistic mutual funds with
the potential to enhance returns and diversify overall risk in an investor's
portfolio. Through its investment management team and carefully selected
subadvisers, Orbitex emphasizes well-articulated investment philosophies and
consistent management styles to ensure that investors and investment
professionals get what they expect from each Orbitex fund.
<TABLE>
<CAPTION>
Fund Objective Suitable Investors
- ---- --------- ------------------
<S> <C> <C>
Orbitex Strategic Natural Resources Capital growth through a flexible policy Growth-oriented individuals who see
Fund of investing in stock and debt strong economic trends as an indicator of
Managed by Orbitex Management, Inc. obligations of companies engaged in natural resource demand.
natural resource industries.
Orbitex Info-Tech and Communications Superior long-term capital growth Growth oriented investors who want to
Fund through selective investment in capitalize on opportunities in global
Managed by Orbitex Management, Inc. communication, information, and related telecommunications and information
technology companies. industries.
Orbitex Growth Fund Long-term growth of capital through Long-term investors interested in growth
Managed by Orbitex Management, Inc. investment in securities of companies opportunities in the U.S. stock market.
that offer potential for growth.
Orbitex Asian Select Advisers Fund Superior long-term capital growth Individuals attracted to the growth
Subadvised by: through selective investment in Asian potential of Asian stocks and who can
BT Fund Managers International/Asia companies. accept the risks of international
Strategic Investment Management Ltd. investing.
Orbitex Asian High-Yield Fund High current income through investment Individuals seeking high income from a
Subadvised by: in securities of issuers based in Asia. portion of their bond portfolios and who
J.P. Morgan Investment Management, Inc. The Fund will invest in high-yield, can accept the risks of international
high-risk securities. investing.
</TABLE>
Please consult the "Description of Securities, Other Investment Policies and
Risk Considerations" section of the prospectus for information on the risks
involved in investing in any of the funds.
*************************[line chart]******************************************
<TABLE>
<CAPTION>
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
<S> <C> <C> <C> <C> <C> <C>
Lipper Science & Technology Fund Index $10,000 $11,483 $13,368 $16,012 $20,598 $22,046
MSCI Asia Ex-Japan Index $10,000 $12,110 $17,920 $18,172 $21,349 $20,791
S & P 500 Composite Index $10,000 $11,523 $11,693 $13,513 $17,851 $21,390
Lipper Natural Resources Funds Category $10,000 $11,842 $12,402 $13,177 $16,648 $19,329
Lipper Emerging Markets Debt Funds Category $10,000 $8,832 $12,458 $16,886
</TABLE>
*******************************************************************************
<TABLE>
<CAPTION>
Average Annual Returns
- ---------------------------------------
(for periods ended 3/31/97) 1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lipper Emerging Market Debt Funds Category 38.90% 19.54% n/a n/a
- -----------------------------------------------------------------------------------------------------------------
Lipper Natural Resources Funds Category 14.00% 16.24% 14.22% 6.98%
- -----------------------------------------------------------------------------------------------------------------
MSCI Asia Ex-Japan Index -2.61% 5.08% 15.76% n/a
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index 19.83% 22.30% 16.42% 13.38%
- -----------------------------------------------------------------------------------------------------------------
Lipper Science and Technology Index 7.03% 18.15% 17.13% 12.65%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Lipper Analytical Services Averages and Indexes, Standard & Poor's 500
Composite Index, and Morgan Stanley Capital International Asia Ex-Japan are
unmanaged indexes. The performance of these indexes does not reflect sales
charges; direct investment in the indexes is not possible. Index performance is
not intended to represent the future performance of any Orbitex Funds. Past
performance is no guarantee of future results. The investment return and
principal value of a Fund investment will fluctuate and shares, when redeemed,
may be worth more or less than their original cost.
44
<PAGE>
PART B
ORBITEX GROUP OF FUNDS
660 Madison Avenue
New York, New York 10021
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus, but
should be read in conjunction with the Prospectus of the Orbitex Group of Funds
(the "Trust") dated September 26, 1997, which may be obtained by telephoning
1-888-ORBITEX and asking about the Trust.
The date of this Statement of Additional Information is September 26, 1997.
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
General Information and History 2
Investment Restrictions 2
Description of Securities, Other Investment Policies and Risk Considerations 4
Management of the Trust 24
Principal Holders of Securities 25
Investment Management and Other Services 25
Administrator 26
Custodian 27
Transfer Agent Services 27
Distribution of Shares 27
Brokerage Allocation and Other Practices 28
Purchase and Redemption of Securities Being Offered 30
Shareholder Services 32
Determination of Net Asset Value 32
Taxes 33
Organization of the Trust 35
Performance Information About the Funds 35
Independent Accountants 37
Legal Matters 37
Financial Statements 37
<PAGE>
GENERAL INFORMATION AND HISTORY
The Trust is a Delaware business trust registered with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940 (the
"1940 Act") as an open-end management investment company, commonly known as a
"mutual fund."
The Trust currently consists of five portfolios, the Orbitex
Strategic Natural Resources Fund ("Strategic Natural Resources Fund"), Orbitex
Info-Tech & Communications Fund ("Info-Tech & Communications Fund"), Orbitex
Growth Fund ("Growth Fund"), Orbitex Asian Select Advisers Fund ("Asian Select
Advisers Fund") and Orbitex Asian High Yield Fund ("Asian High Yield Fund")
(individually a "Fund" and collectively the "Funds"), each of which represents a
separate series of beneficial interest in the Trust having different investment
objectives, investment programs, policies and restrictions.
Each Fund is managed by Orbitex Management, Inc. (the "Adviser"), which
directs the day-to-day operations of each Fund and directs the investment of
assets of the Strategic Natural Resources Fund, the Info-Tech &
Communications Fund and the Growth Fund. The investments of the Asian Select
Advisers Fund and the Asian High Yield Fund are directed by one or more
sub-advisers (each a "Sub-Adviser"). State Street Bank and Trust Company ("State
Street") is the administrator, custodian, accounting agent, transfer agent and
dividend disbursing agent for the Trust. Funds Distributor, Inc. (the
"Distributor") is the distributor for the Trust.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following fundamental investment policies
which may be changed only with the consent of a "majority of the outstanding
voting securities" of the particular Fund. As used in the Prospectus and in this
Statement of Additional Information, the term "majority of the outstanding
voting shares" means the lesser of (1) 67% of the shares of a Fund present at a
meeting where the holders of more than 50% of the outstanding shares of a Fund
are present in person or by proxy, or (2) more than 50% of the outstanding
shares of a Fund. Shares of each Fund will be voted separately on matters
affecting only that Fund, including approval of changes in the fundamental
objectives, policies, or restrictions of that Fund.
A Fund will not:
(1) Margin: Purchase securities on margin, except a Fund may make
margin deposits in connection with permissible options and futures transactions
subject to (5) below and may obtain short-term credits as may be necessary for
clearance of transactions.
(2) Senior Securities: Issue any class of securities senior to any
other class of securities except in compliance with the 1940 Act.
(3) Borrowing: Borrow money for investment purpose in excess of
33-1/3% of the value of its total assets, including any amount borrowed less
its liabilities not including any such borrowings. Any borrowings which come to
exceed this amount will be reduced in accordance with applicable law.
Additionally, each Fund may borrow up to 5% of its total assets (not including
the amount borrowed) for temporary or emergency purposes.
(4) Real Estate: Purchase or sell real estate, or invest in real estate
limited partnerships, except each Fund may, as appropriate and consistent with
its respective investment objective, policies and other investment restrictions,
buy securities of issuers that engage in real estate operations and securities
that are secured by interests in real estate (including shares of real estate
mortgage investment conduits, mortgage pass-through securities, mortgage-backed
securities and collateralized mortgage obligations) and may hold and sell real
estate acquired as a result of ownership of such securities.
(5) Commodities: Purchase or sell physical commodities or contracts
thereon, except that each Fund may enter into financial futures contracts and
options thereon.
2
<PAGE>
(6) 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 of securities
directly from an issuer in accordance with each Fund's investment objective,
policies and restrictions.
(7) Loans: Make loans, except that each Fund in accordance with that
Fund's investment objective, policies and restrictions may: (i) invest in all or
a portion of an issue of publicly issued or privately placed bonds, debentures,
notes, other debt securities and loan participation interests for investment
purposes; (ii) purchase money market securities and enter into repurchase
agreements; and (iii) lend its portfolio securities in an amount not exceeding
one-third of the value of that Fund's total assets.
(8) Diversification: Except for the Asian High Yield Fund, make an
investment unless 75% of the value of that Fund's total assets is represented by
cash, cash items, U.S. Government securities, securities of other investment
companies and "other securities." For purposes of this restriction, the term
"other securities" means securities as to which the Fund invests no more than 5%
of the value of its total assets in any one issuer or purchases no more than 10%
of the outstanding voting securities of any one issuer. As a matter of operating
policy, each Fund will not consider repurchase agreements to be subject to the
above-stated 5% limitation if all of the collateral underlying the repurchase
agreements are U.S. Government securities and such repurchase agreements are
fully collateralized.
(9) Concentration: Invest 25% or more of the value of its total assets
in any one industry, except that: (i) the Strategic Natural Resources Fund
will invest at least 25% of its total assets in securities of companies in
natural resource industries and industries supportive to natural resource
industries; and (ii) the Info-Tech & Communications Fund will invest at least
25% of its total assets in the securities of companies in the communications,
information and related technology industries. This limitation (9) does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or repurchase agreements secured by U.S. Government
securities.
The following restrictions are designated as non-fundamental and may be
changed by the Board of Trustees of the Trust without the approval of
shareholders.
A Fund may not:
(1) Control of Portfolio Companies: Invest in portfolio companies for
the purpose of acquiring or exercising control of such companies.
(2) Investment Companies: Invest in the securities of other investment
companies except in compliance with the 1940 Act.
(3) Options, Straddles and Spreads: Invest in puts, calls, straddles,
spreads or any combination thereof, except to the extent permitted by the
Prospectus and Statement of Additional Information.
(4) Restricted Securities, Illiquid Securities and Securities Not
Readily Marketable: Purchase or otherwise acquire any security or invest in a
repurchase agreement if, as a result, more than 15% of the net assets of the
Fund would be invested in securities that are illiquid or not readily
marketable, including repurchase agreements maturing in more than seven days and
non-negotiable fixed time deposits with maturities over seven days. Each Fund
may invest without limitation in restricted securities provided such securities
are considered to be liquid. If, through a change in values, net assets or other
circumstances, a Fund were in a position where more than 15% of its net assets
was invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.
(5) Mortgaging: Mortgage, pledge, or hypothecate in any other manner,
or transfer as security for indebtedness any security owned by a Fund, except as
may be necessary in connection with permissible borrowings and then only if such
mortgaging, pledging or hypothecating does not exceed 33 1/3% of such Fund's
total assets. Collateral arrangements with respect to margin, option and other
risk management and when-issued and forward commitment transactions are not
deemed to be pledges or other encumbrances for purposes of this restriction.
3
<PAGE>
The Asian Select Advisers Fund may not borrow for investment purposes
in excess of 25% of its net asset value.
If a percentage limitation is adhered to at the time of investment, a
later increase or decrease in that percentage amount resulting from any change
in value of the portfolio securities or a Fund's net assets will not result in a
violation of the above fundamental and non-fundamental investment restrictions.
DESCRIPTION OF SECURITIES, OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
United States Government Obligations. These consist of various types
of marketable securities issued by the United States Treasury, i.e., bills,
notes and bonds. Such securities are direct obligations of the United States
Government and differ mainly in the length of their maturity. Treasury bills,
the most frequently issued marketable Government security, have a maturity of up
to one year and are issued on a discount basis.
United States Government Agency Securities. These consist of debt
securities issued by agencies and instrumentalities of the United States
Government, including the various types of instruments currently outstanding or
which may be offered in the future. Agencies include, among others, the Federal
Housing Administration, Government National Mortgage Association ("GNMA"),
Farmer's Home Administration, Export-Import Bank of the United States, Maritime
Administration, and General Services Administration. Instrumentalities include,
for example, each of the Federal Home Loan Banks, the National Bank for
Cooperatives, the Federal Home Loan Mortgage Corporation ("FHLMC"), the Farm
Credit Banks, the Federal National Mortgage Association ("FNMA"), and the United
States Postal Service. These securities are either: (i) backed by the full faith
and credit of the United States Government (e.g., United States Treasury Bills);
(ii) guaranteed by the United States Treasury (e.g., GNMA mortgage-backed
securities); (iii) supported by the issuing agency's or instrumentality's right
to borrow from the United States Treasury (e.g., FNMA Discount Notes); or (iv)
supported only by the issuing agency's or instrumentality's own credit (e.g.,
Tennessee Valley Association).
Certificates of Deposit and Bankers' Acceptances. Each Fund may
invest in certificates of deposit and bankers' acceptances which are considered
to be short-term money market instruments. Certificates of deposit are receipts
issued by a depository institution in exchange for the deposit of funds. The
issuer agrees to pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The certificate usually can be
traded in the secondary market prior to maturity. Bankers' acceptances typically
arise from short-term credit arrangements designed to enable business to obtain
funds to finance commercial transactions. Generally, an acceptance is a time
draft drawn on a bank by an exporter or an importer to obtain a stated amount of
funds to pay for specific merchandise. The draft is then "accepted" by a bank
that, in effect, unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held by the
accepting bank as an earning asset or it may be sold in the secondary market at
the going rate of discount for a specific maturity. Although maturities for
acceptances can be as long as 270 days, most acceptances have maturities of six
months or less.
Commercial Paper. Each Fund may purchase commercial paper.
Commercial paper consists of short-term (usually from 1 to 270 days) unsecured
promissory notes issued by corporations in order to finance their current
operations.
Repurchase Agreements. The Funds may invest in repurchase agreements.
A repurchase agreement is an instrument under which the investor (such as the
Fund) acquires ownership of a security (known as the "underlying security") and
the seller (i.e., a bank or primary dealer) agrees, at the time of the sale, to
repurchase the underlying security at a mutually agreed upon time and price,
thereby determining the yield during the term of the agreement. This results in
a fixed rate of return insulated from market fluctuations during such period,
unless the seller defaults on its repurchase obligations. A Fund will only enter
into repurchase agreements where (i) the underlying securities are of the type
(excluding maturity limitations) which the Fund's investment guidelines would
allow it to purchase directly, (ii) the market value of the underlying security,
including interest accrued, will be at all times at least equal to the value of
the repurchase agreement, and (iii) payment for the underlying security is made
only upon physical delivery or evidence of book-entry transfer to the account of
the Fund's custodian. Repurchase agreements usually are for short periods, often
under one week, and will not be entered into by a Fund for a duration of more
than seven days if, as a result, more than 15% of the net asset value of the
Fund would be invested in such agreements or other securities which are not
readily marketable.
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The Funds will assure that the amount of collateral with respect to any
repurchase agreement is adequate. As with a true extension of credit, however,
there is risk of delay in recovery or the possibility of inadequacy of the
collateral should the seller of the repurchase agreement fail financially. In
addition, a Fund could incur costs in connection with the disposition of the
collateral if the seller were to default. The Funds will enter into repurchase
agreements only with sellers deemed to be creditworthy by, or pursuant to
guidelines established by, the Board of Trustees of the Trust and only when the
economic benefit to the Funds is believed to justify the attendant risks. The
Funds have adopted standards for the sellers with whom they will enter into
repurchase agreements. The Board of Trustees of the Trust believe these
standards are designed to reasonably assure that such sellers present no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase agreement. The Funds may enter into repurchase
agreements only with well-established securities dealers or with member banks of
the Federal Reserve System.
Adjustable Rate Securities. Adjustable rate securities (i.e.,
variable rate and floating rate instruments) are securities that have interest
rates that are adjusted periodically, according to a set formula. The maturity
of some adjustable rate securities may be shortened under certain special
conditions described more fully below.
Variable rate instruments are obligations that provide for the
adjustment of their interest rates on predetermined dates or whenever a specific
interest rate changes. A variable rate instrument whose principal amount is
scheduled to be paid in 397 days or less is considered to have a maturity equal
to the period remaining until the next readjustment of the interest rate. Many
variable rate instruments are subject to demand features which entitle the
purchaser to resell such securities to the issuer or another designated party,
either (1) at any time upon notice of usually 397 days or less, or (2) at
specified intervals, not exceeding 397 days, and upon 30 days notice. A variable
rate instrument subject to a demand feature is considered to have a maturity
equal to the longer of the period remaining until the next readjustment of the
interest rate or the period remaining until the principal amount can be
recovered through demand, if final maturity exceeds 397 days or the shorter of
the period remaining until the next readjustment of the interest rate or the
period remaining until the principal amount can be recovered through demand if
final maturity is within 397 days.
Floating rate instruments have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The interest rate is adjusted,
periodically (e.g., daily, monthly, semi-annually), to the prevailing interest
rate in the marketplace. The interest rate on floating rate securities is
ordinarily determined by reference to the 90-day U.S. Treasury bill rate, the
rate of return on commercial paper or bank certificates of deposit or an index
of short-term interest rates. The maturity of a floating rate instrument is
considered to be the period remaining until the principal amount can be
recovered through demand.
Mortgage Pass-Through Securities. Interests in pools of mortgage
pass-through securities differ from other forms of debt securities (which
normally provide periodic payments of interest in fixed amounts and the payment
of principal in a lump sum at maturity or on specified call dates). Instead,
mortgage pass-through securities provide monthly payments consisting of both
interest and principal payments. In effect, these payments are a "pass-through"
of the monthly payments made by the individual borrowers on the underlying
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Unscheduled payments of principal may be made if the underlying
mortgage loans are repaid or refinanced or the underlying properties are
foreclosed, thereby shortening the securities' weighted average life. Some
mortgage pass-through securities (such as securities guaranteed by GNMA) are
described as "modified pass-through securities." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, on the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage pass-through
securities is GNMA. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. Treasury, the timely payment of principal and interest on
securities issued by lending institutions approved by GNMA (such as savings and
loan institutions, commercial banks and mortgage bankers) and backed by pools of
mortgage loans. These mortgage loans are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgage loans is assembled and after being approved by GNMA, is offered
to investors through securities dealers.
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Government-related guarantors of mortgage pass-through securities
(i.e., not backed by the full faith and credit of the U.S. Treasury) include
FNMA and FHLMC. FNMA is a Government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any Government agency) residential mortgages from a list of
approved sellers/servicers which include state and federally chartered
savings and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Mortgage pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not
backed by the full faith and credit of the U.S. Treasury.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a U.S.
Government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Treasury.
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 and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage pass-through
securities. The Funds do not purchase interests in pools created by such
non-governmental issuers.
Resets. The interest rates paid on the Adjustable Rate Mortgage
Securities ("ARMs") in which a Fund may invest generally are readjusted or reset
at intervals of one year or less to an increment over some predetermined
interest rate index. There are two main categories of indices: those based on
U.S. Treasury securities and those derived from a calculated measure, such as a
cost of funds index or a moving average of mortgage rates. Commonly utilized
indices include the one-year and five-year constant maturity Treasury Note
rates, the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates
on longer-term Treasury securities, the National Median Cost of Funds, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime rate
of a specific bank, or commercial paper rates. Some indices, such as the
one-year constant maturity Treasury Note rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market rate levels and tend
to be somewhat less volatile.
Caps and Floors. The underlying mortgages which collateralize the ARMs
in which a Fund invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down: (1) per reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which a Fund invests may be
affected if market interest rates rise or fall faster and farther than the
allowable caps or floors on the underlying residential mortgage loans.
Additionally, even though the interest rates on the underlying residential
mortgages are adjustable, amortization and prepayments may occur, thereby
causing the effective maturities of the mortgage securities in which the Fund
invests to be shorter than the maturities stated in the underlying mortgages.
Maturity of Debt Securities.The maturity of debt securities may be
considered long (10 or more years), intermediate (3 to 10 years), or short-term
(1 to 3 years). In general, the principal values of longer-term securities
fluctuate more widely in response to changes in interest rates than those of
shorter-term securities, providing greater opportunity for capital gain or risk
of capital loss. A decline in interest rates usually produces an increase in the
value of debt securities, while an increase in interest rates generally reduces
their value.
When-Issued Securities.Each Fund may, from time to time, purchase
securities on a "when-issued" or delayed delivery basis. The price for such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement date occurs
within one month of the purchase, but may take up to three months. During the
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period between purchases and settlement, no payment is made by a Fund to the
issuer and no interest accrues to a Fund. At the time a Fund makes the
commitment to purchase a security on a when-issued basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. Each Fund will maintain, in a segregated account with the custodian, cash
or appropriate liquid securities equal in value to commitments for when-issued
securities.
Illiquid or Restricted Securities.Restricted securities may be sold
only in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act of 1933
(the "1933 Act"). Where registration is required, a Fund may be obligated to pay
all or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair value as determined in accordance with procedures
prescribed by the Board of Trustees of the Trust. If through the appreciation of
illiquid securities or the depreciation of liquid securities, the Fund should be
in a position where more than 15% of the value of its net assets are invested in
illiquid assets, including restricted securities, the Fund will take appropriate
steps to protect liquidity.
Notwithstanding the above, each Fund may purchase securities which,
while privately placed, are eligible for purchase and sale under Rule 144A under
the 1933 Act. This rule permits certain qualified institutional buyers to trade
in privately placed securities even though such securities are not registered
under the 1933 Act. The Adviser or Sub-Adviser under the supervision of the
Board of Trustees of the Trust, will consider whether securities purchased under
Rule 144A are illiquid and thus subject to the Fund's restriction of investing
no more than 15% of its net assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination, the Adviser or Sub-Adviser will consider the trading markets
for the specific security taking into account the unregistered nature of a Rule
144A security. In addition, the Adviser or Sub-Adviser could consider (1) the
frequency of trades and quotes, (2) the number of dealers and potential
purchases, (3) any dealer undertakings to make a market, and (4) the nature of
the security and of marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored, and if as a result of
changed conditions it is determined that a Rule 144A security is no longer
liquid, the Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its net assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
Warrants.Each Fund may invest in warrants. Warrants are pure
speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the corporation issuing them. Warrants
basically are options to purchase equity securities at a specific price valid
for a specific period of time. They do not represent ownership of the
securities, but only the right to buy them. Warrants differ from call options in
that warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities.
Special Considerations Affecting Canada. Canada occupies the
northern part of North America and is the second largest country in the world
(3.97 million square miles in area) extending from the Atlantic Ocean to the
Pacific Ocean. The companies in which a fund may invest include those involved
in the energy industry, industrial materials (chemicals, base metals, timber and
paper) and agricultural materials (grain cereals). The securities of companies
in the energy industry are subject to changes in value and dividend yield which
depend, to a large extent, on the price and supply of energy fuels. Rapid price
and supply fluctuations may be caused by events relating to international
politics, energy conservation and the success of exploration products. Canada is
one of the world's leading industrial countries and is rich in natural resources
such as zinc, uranium, nickel, gold, silver, aluminum, iron and copper. Forest
covers over 44% of land area, making Canada a leading world producer of
newsprint. Canada is also a major exporter of agricultural products. The economy
of Canada is strongly influenced by the activities of companies and industries
involved in the production and processing of natural resources. Canada is a
major producer of hydroelectricity, oil and gas. The business activities of
companies in the energy field may include the production, generation,
transmission, marketing, control or
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measurement of energy or energy fuels. Economic prospects are changing due to
recent government attempts to reduce restrictions against foreign investments.
Securities of Canadian companies are not considered by the Adviser to
have the same level of risk as those of other non-U.S. companies. Canadian and
U.S. companies are generally subject to similar auditing and accounting
procedures, and similar government supervision and regulation. Canadian markets
are more liquid than many other foreign markets and share similar
characteristics with U.S. markets. A fund may elect to participate in new equity
issues or initial public offerings of Canadian companies.
Many factors affect and could have an adviser impact on the financial
condition of Canada, including social, environmental and economic conditions,
factors which are not within the control of Canada. Although the Canadian
political system is generally more stable than that of many other foreign
countries, continued tension with respect to greater independence for, or
possible separation of, Quebec causes political uncertainty. Moreover, while the
Canadian dollar is generally less volatile relative to the U.S. dollar than
other foreign currencies, the value of the Canadian dollar has decreased
significantly in recent years. Continued efforts to reduce the structural
Canadian budget deficit will be required. The Adviser is unable to predict what
effect, if any, such factors would have on instruments held in a fund's
portfolio
The United States-Canada Free Trade Agreement, which became effective
in January 1989, will be phased in over a period of ten years. This agreement
will remove tariffs on U.S. technology and Canadian agricultural products in
addition to removing trade barriers affecting other important sectors of each
country's economy. Canada, the United States, and Mexico have implemented the
North American Free Trade Agreement (NAFTA), which was entered into in 1994.
This cooperation is expected to lead to increased trade and reduced trade
barriers.
Special Considerations Affecting The Pacific Basin and Southeast Asia.
Many Asian countries may be subject to a greater degree of social, political and
economic instability than is the case in the United States and western European
countries. Such instability may result from (i) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious, and racial disaffection.
The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, China and the European Community. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of the Asian countries.
The success of market reforms and a surge in infrastructure spending
have fueled rapid growth in many developing countries in Asia. Rapidly rising
household incomes have fostered large middle classes and new waves of consumer
spending. The increases in infrastructure and consumer spending have made
domestic demand the growth engine for these countries. Thus, their growth now
depends less upon exports to Organization for Economic Cooperation and
Development (OECD) countries. While exports may no longer be the sole source of
growth for developing economies, improved competitiveness in export markets has
contributed to growth in many of these nations. The increased productivity in
many Asian countries has enabled them to achieve, or maintain, their status as
top exporters while improving their national living standards.
Thailand has one of the fastest growing stockmarkets in the world. The
manufacturing sector is becoming increasingly sophisticated and is benefiting
from export-oriented investing. The manufacturing and service sectors continue
to account for the bulk of Thailand's economic growth. The agricultural sector
continues to become less important. The government has followed fairly sound
fiscal and monetary policies, aided by increased tax receipts from a fast moving
economy. The government also continues to move ahead with new projects
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. The country
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enjoys an able bureaucracy that has maintained economic policy during the
country's many coups. In recent years, the risk of a coup has diminished, but
corruption remains widespread.
Hong Kong's impending return to Chinese dominion in 1997 has not
initially had a positive effect on its economic growth, which was vigorous in
the 1980s. Although China has committed by treaty to preserve the economic and
social freedoms enjoyed in Hong Kong for 50 years after regaining control of
Hong Kong, the continuation of the current form of the economic system in Hong
Kong after the reversion will depend on the actions of the government of China.
Business confidence in Hong Kong, therefore, can be significantly affected by
developments, which in turn can affect markets and business performance. In
preparation for 1997, Hong Kong has continued to develop trade with China, where
it is the largest foreign investor, while also maintaining its long-standing
export relationship with the United States. Spending on infrastructure
improvements is a significant priority of the colonial government while the
private sector continues to diversify abroad based on its position as an
established international trade center in the Far East.
In terms of GDP, industrial standards and level of education, South
Korea is second only to Japan in Asia. It enjoys the benefits of a diversified
economy with well developed sectors in electronics, automobiles, textiles and
shoe manufacturing, steel and shipbuilding among others. The driving force
behind the economy's dynamic growth has been the planned development of an
export-oriented economy in a vigorously entrepreneurial society. Real GDP grew
about 8.3% in 1994. Both South Korea and North Korea joined the United Nations
separately in late 1991, creating another forum for negotiation and joint
cooperation. The reunification of North and South Korea could have a detrimental
effect on the economy of South Korea.
Indonesia is a mixed economy with many socialist institutions and
central planning but with a recent emphasis on deregulation and private
enterprise. Like Thailand, Indonesia has extensive natural wealth, yet with a
large and rapidly increasingly population, it remains a poor country. Dependent
on oil prices during the 1980s, its manufactured products now predominate,
contributing 21% of GDP. Indonesia's development is progressing smoothly, and it
has become the world's twelfth largest economy.
Malaysia has one of the fastest growing economies in the Asian-Pacific
region. Malaysia has become the world's third-largest producer of semiconductor
devices (after the United States and Japan) and the world's largest exporter of
semiconductor devices. More remarkable is the country's ability to achieve rapid
economic growth with relative price stability as the government followed prudent
fiscal and monetary policies. Malaysia's high export dependence level leaves it
vulnerable to recession in the OECD countries or to a fall in world commodity
prices.
India is one of the world's top fifteen industrial nations and has
considerable natural resources. The government exercises significant influence
over many aspects of the economy. Accordingly, future government actions could
have a significant effect on private sector companies, market conditions, and
prices and yields of securities of Indian issuers held by a fund. Policymakers
in India actively encourage foreign direct investment, particularly in labor
intensive industries. In addition, Indian stock exchanges rely entirely on
delivery of physical share certificates and have experienced operational
difficulties. These problems have included the existence of fraudulent shares in
the market, failed trades, and delays in the settlement and registration of
securities transactions. Indian stock exchanges have in the past been forced to
close for political reasons; for example, a brokers' strike closed the exchange
for ten days in December 1993, and there is no assurance that the exchanges will
not be forced to close again.
Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
history. During the 1970s and the early 1980s, the economy expanded rapidly,
achieving an average annual growth rate of 9%. Per capita GDP is among the
highest in Asia. Singapore holds a position as a major oil refining and services
center.
Australia has a prosperous Western-style capitalist economy, with a per
capita GDP comparable to levels in industrialized West European countries. It is
rich in natural resources and is the world's largest exporter of beef and wool,
second-largest exporter of mutton, and among the top wheat exporters. Australia
is also a major exporter of minerals, metals and fossil fuels. Due to the nature
of its exports, a downturn in world commodity prices could have a significant
negative impact on its economy.
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Exposure to Foreign Markets.Foreign securities, foreign currencies,
and securities issued by U.S. entities with substantial foreign operations may
involve significant risks in addition to the risks inherent in U.S. investments.
The value of securities denominated in foreign currencies, and of dividends and
interest paid with respect to such securities will fluctuate based on the
relative strength of the U.S. dollar.
Foreign investments involve a risk of local political, economic, or
social instability, military action or unrest, or adverse diplomatic
developments, and may be affected by actions of foreign governments adverse to
the interests of U.S. investors. Such actions may include the possibility of
expropriation or nationalization of assets, confiscatory taxation, restrictions
on U.S. investment or on the ability to repatriate assets or convert currency
into U.S. dollars, or other government intervention. There is no assurance that
the Adviser or a Sub-Adviser will be able to anticipate these potential events
or counter their effects. These risks are magnified for investments in
developing countries, which may have relatively unstable governments, economies
based on only a few industries, and securities markets that trade a small number
of securities.
Economies of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Foreign markets
may offer less protection to investors than U.S. markets. It is anticipated that
in most cases the best available market for foreign securities will be on an
exchange or in over-the-counter markets located outside the United States.
Foreign stock markets, while growing in volume and sophistication, are generally
not as developed as those in the United States, and securities of some foreign
issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. issuers. Foreign security
trading practices, including those involving securities settlement where fund
assets may be released prior to receipt of payment, may result in increased risk
in the event of a failed trade or the insolvency of a foreign broker-dealer, and
may involve substantial delays. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investors. In general, there is less overall
governmental supervision and regulation of securities exchanges, brokers, and
listed companies than in the United States. It may also be difficult to enforce
legal rights in foreign countries. Foreign issuers are generally not bound by
uniform accounting, auditing, and financial reporting requirements and standards
of practice comparable to those applicable to U.S.
issuers.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions. American
Depository Receipts (ADRs), as well as other "hybrid" forms of ADRs, including
European Depository Receipts (EDRs) and Global Depository Receipts (GDRs), are
certificates evidencing ownership of shares of a foreign issuer. These
certificates are issued by depository banks and generally trade on an
established market in the United States or elsewhere. The underlying shares are
held in trust by a custodian bank or similar financial institution in the
issuer's home country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, ADRs continue to be subject to many of
the risks associated with investing directly in foreign securities. These risks
include foreign exchange risk as well as the political and economic risks of the
underlying issuer's country.
Investments in emerging markets can be subject to a number of types of
taxes which vary by country, change frequently, and are sometime defined by
custom rather than written regulation. Emerging countries can tax interest,
dividends, and capital gains through the application of a withholding tax. The
local custodian normally withholds the tax upon receipt of a payment and
forwards such tax payment to the foreign government on behalf of the fund.
Certain foreign governments can also require a foreign investor to file an
income tax return and pay the local tax through estimated tax payments, or pay
with the tax return. Although not frequently used, some emerging markets have
attempted to slow conversion of their currency by imposing a repatriation tax.
Generally, this tax is applied to amounts which are converted from the foreign
currency to the investor's currency and withdrawn from the local bank account.
Transfer taxes or fees, such as stamp duties, security transfer taxes, and
registration and script fees, are generally imposed by emerging markets as a tax
or fee on a capital market transaction. Each emerging country may impose a tax
or fee at a different point in time as the foreign investor perfects his
interest in the securities acquired in the local
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market. A stamp duty is generally a tax on the official recording of a capital
market transaction. Payment of such duty is generally a condition of the
transfer of assets and failure to pay such duty can result in a loss of title to
such asset as well as loss of benefit from any corporate actions. A stamp duty
is generally determined based on a percentage of the value of the transaction
conducted and can be charged against the buyer (e.g., Cyprus, India, Israel,
Jordan, Malaysia, Pakistan, and the Philippines), against the seller (e.g.,
Argentina, Australia, China, Egypt, Indonesia, Kenya, Portugal, South Korea,
Trinidad , Tobago, and Zimbabwe). Although such a fee does not generally
exceeded 100 basis points, certain emerging markets have assessed a stamp duty
as high as 750 basis points (e.g., Pakistan). A security transfer tax is similar
to a stamp duty and is generally applied to the purchase, sale or exchange of
securities which occur in a particular foreign market. These taxes are based on
the value of the trade and similar to stamp taxes, can be assessed against the
buyer, seller or both. Although the securities transfer tax may be assessed in
lieu of a stamp duty, such tax can be assessed in addition to a stamp duty in
certain foreign markets (e.g., Switzerland, South Korea, Indonesia). Upon
purchasing a security in an emerging market, such security must often be
submitted to a registration process in order to record the purchase as a legal
owner of such security interest. Often foreign countries will charge a
registration or script fee to record the change in ownership and, where physical
securities are issued, issue a new security certificate. In addition to
assessing this fee upon the acquisition of a security, some markets also assess
registration charges upon the registration of local shares to foreign shares.
Short Sales. The Funds may sell securities short as part of their
overall portfolio management strategies involving the use of derivative
instruments and to offset potential declines in long positions in similar
securities. A short sale is a transaction in which a Fund sells a security it
does not own or have the right to acquire (or that it owns but does not wish to
deliver) in anticipation that the market price of that security will decline.
When a Fund makes a short sale, the broker-dealer through which the
short sale is made must borrow the security sold short and deliver it to the
party purchasing the security. The Fund is required to make a margin deposit in
connection with such short sales; the Fund may have to pay a fee to borrow
particular securities and will often be obligated to pay over any dividends and
accrued interest on borrowed securities.
If the price of the security sold short increases between the time of
the short sale and the time the Fund covers its short position, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain will be decreased, and any loss increased, by the transaction
costs described above. The successful use of short selling may be adversely
affected by imperfect correlation between movements in the price of the security
sold short and the securities being hedged.
To the extent a Fund sells securities short, it will provide collateral
to the broker-dealer and (except in the case of short sales "against the box")
will maintain additional asset coverage in the form of cash, U.S. Government
securities or other liquid securities with its custodian in a segregated account
in an amount at least equal to the difference between the current market value
of the securities sold short and any amounts required to be deposited as
collateral with the selling broker (not including the proceeds of the short
sale). The Funds do not intend to enter into short sales (other than short sales
"against the box") if immediately after such sales the aggregate of the value of
all collateral plus the amount in such segregated account exceeds 10% of the
value of the Fund's net assets. This percentage may be varied by action of the
Board of Trustees. A short sale is "against the box" to the extent the Fund
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short.
Options. Writing Covered Call Options. Each Fund may write (sell)
American or European style "covered" call options and purchase options to close
out options previously written by the Fund. In writing covered call options, the
Fund expects to generate additional premium income which should serve to enhance
the Fund's total return and reduce the effect of any price decline of the
security or currency involved in the option. Covered call options will generally
be written on securities or currencies which, in the Adviser's or a
Sub-Adviser's opinion, are not expected to have any major price increases or
moves in the near future but which, over the long term, are deemed to be
attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security or currency at a specified price (the exercise price) at expiration of
the option (European style) or at any time until a certain date (the expiration
date) (American style). So long as the obligation of the writer of a call option
continues, he may be assigned an exercise
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notice by the broker-dealer through whom such option was sold, requiring him to
deliver the underlying security or currency against payment of the exercise
price. This obligation terminates upon the expiration of the call option, or
such earlier time at which the writer effects a closing purchase transaction by
repurchasing an option identical to that previously sold. To secure his
obligation to deliver the underlying security or currency in the case of a call
option, a writer is required to deposit in escrow the underlying security or
currency or other assets in accordance with the rules of a clearing corporation.
Each Fund will write only covered call options. This means that the
Fund will own the security or currency subject to the option or an option to
purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an account
consisting of cash, U.S. government securities or other liquid securities having
a value equal to the fluctuating market value of the optioned securities or
currencies.
Portfolio securities or currencies on which call options may be written
will be purchased solely on the basis of investment considerations consistent
with the Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, a Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Fund has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligation as a
writer. If a call option which the Fund has written expires, the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Fund will realize a gain or
loss from the sale of the underlying security or currency. The Fund does not
consider a security or currency covered by a call to be "pledged" as that term
is used in the Fund's policy which limits the pledging or mortgaging of its
assets.
The premium received is the market value of an option. The premium the
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Adviser or a
Sub-Adviser, in determining whether a particular call option should be written
on a particular security or currency, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by the Fund for writing covered call
options will be recorded as a liability of the Fund. This liability will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security or currency from
being called, or, to permit the sale of the underlying security or currency.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, or purchased a put option, it will seek to effect a closing
transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Fund will be able to effect
such closing transactions at favorable prices. If the Fund cannot enter into
such a transaction, it may be required to hold a security or currency that it
might otherwise have sold. When the Fund writes a covered call option, it runs
the risk of not being able to participate in the appreciation of the underlying
securities or currencies above the exercise price, as well as the risk of being
required to hold on to securities or currencies that are depreciating in value.
This could result in higher transaction costs. The Fund will pay transaction
costs in connection with the writing of options to close out previously written
options. Such transaction costs are normally higher than those applicable to
purchases and sales of portfolio securities.
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Call options written by a Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
a Fund may purchase an underlying security or currency for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Fund.
Writing Covered Put Options. Each Fund may write American or European
style covered put options and purchase options to close out options previously
written by the Fund. A put option gives the purchaser of the option the right to
sell and the writer (seller) has the obligation to buy, the underlying security
or currency at the exercise price during the option period (American style) or
at the expiration of the option (European style). So long as the obligation of
the writer continues, he may be assigned an exercise notice by the broker-dealer
through whom such option was sold, requiring him to make payment of the exercise
price against delivery of the underlying security or currency. The operation of
put options in other respects, including their related risks and rewards, is
substantially identical to that of call options.
A Fund would write put options only on a covered basis, which means
that the Fund would maintain in a segregated account cash, U.S. government
securities or other liquid appropriate securities in an amount not less than the
exercise price or the Fund will own an option to sell the underlying security or
currency subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all times while the put option is
outstanding. (The rules of a clearing corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.) The Fund
would generally write covered put options in circumstances where the Adviser or
a Sub-Adviser wishes to purchase the underlying security or currency for the
Fund's portfolio at a price lower than the current market price of the security
or currency. In such event the Fund would write a put option at an exercise
price which, reduced by the premium received on the option, reflects the lower
price it is willing to pay. Since the Fund would also receive interest on debt
securities or currencies maintained to cover the exercise price of the option,
this technique could be used to enhance current return during periods of market
uncertainty. The risk in such a transaction would be that the market price of
the underlying security or currency would decline below the exercise price less
the premiums received. Such a decline could be substantial and result in a
significant loss to the Fund. In addition, the Fund, because it does not own the
specific securities or currencies which it may be required to purchase in
exercise of the put, cannot benefit from appreciation, if any, with respect to
such specific securities or currencies.
Purchasing Put Options. Each Fund may purchase American or European
style put options. As the holder of a put option, the Fund has the right to sell
the underlying security or currency at the exercise price at any time during the
option period (American style) or at the expiration of the option (European
style). The Fund may enter into closing sale transactions with respect to such
options, exercise them or permit them to expire. The Fund may purchase put
options for defensive purposes in order to protect against an anticipated
decline in the value of its securities or currencies. An example of such use of
put options is provided below.
Each Fund may purchase a put option on an underlying security or
currency (a "protective put") owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security or
currency. Such hedge protection is provided only during the life of the put
option when the Fund, as the holder of the put option, is able to sell the
underlying security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's exchange value.
For example, a put option may be purchased in order to protect unrealized
appreciation of a security or currency where the Adviser or a Sub-Adviser deems
it desirable to continue to hold the security or currency because of tax
considerations. The premium paid for the put
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option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is eventually sold.
Each Fund may also purchase put options at a time when the Fund does
not own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a decline
in the market price of the underlying security or currency. If the put option is
not sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Fund will lose its entire investment in the put
option. In order for the purchase of a put option to be profitable, the market
price of the underlying security or currency must decline sufficiently below the
exercise price to cover the premium and transaction costs, unless the put option
is sold in a closing sale transaction.
Purchasing Call Options. Each Fund may purchase American or European
style call options. As the holder of a call option, the Fund has the right to
purchase the underlying security or currency at the exercise price at any time
during the option period (American style) or at the expiration of the option
(European style). The Fund may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire. The Fund may purchase
call options for the purpose of increasing its current return or avoiding tax
consequences which could reduce its current return. The Fund may also purchase
call options in order to acquire the underlying securities or currencies.
Examples of such uses of call options are provided below.
Call options may be purchased by the Fund for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Fund to acquire the securities
or currencies at the exercise price of the call option plus the premium paid. At
times the net cost of acquiring securities or currencies in this manner may be
less than the cost of acquiring the securities or currencies directly. This
technique may also be useful to the Fund in purchasing a large block of
securities or currencies that would be more difficult to acquire by direct
market purchases. So long as it holds such a call option rather than the
underlying security or currency itself, the Fund is partially protected from any
unexpected decline in the market price of the underlying security or currency
and in such event could allow the call option to expire, incurring a loss only
to the extent of the premium paid for the option.
Dealer (Over-the-Counter) Options. Each Fund may engage in transactions
involving dealer options. Certain risks are specific to dealer options. While
the Fund would look to a clearing corporation to exercise exchange-traded
options, if the Fund were to purchase a dealer option, it would rely on the
dealer from whom it purchased the option to perform if the option were
exercised. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options have none. Consequently, the Fund will generally be able to
realize the value of a dealer option it has purchased only by exercising it or
reselling it to the dealer who issued it. Similarly, when the Fund writes a
dealer option, it generally will be able to close out the option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the option. While the Fund will seek to enter
into dealer options only with dealers who will agree to and which are expected
to be capable of entering into closing transactions with the Fund, there can be
no assurance that the Fund will be able to liquidate a dealer option at a
favorable price at any time prior to expiration. Until the Fund, as a covered
dealer call option writer, is able to effect a closing purchase transaction, it
will not be able to liquidate securities (or other assets) or currencies used as
cover until the option expires or is exercised. In the event of insolvency of
the contra party, the Fund may be unable to liquidate a dealer option. With
respect to options written by the Fund, the inability to enter into a closing
transaction may result in material losses to the Fund. For example, since the
Fund must maintain a secured position with respect to any call option on a
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 a Fund's ability to sell portfolio securities or currencies at a time
when such sale might be advantageous.
The Staff of the SEC has taken the position that purchased dealer
options and the assets used to secure the written dealer options are illiquid
securities. A Fund may treat the cover used for written OTC options as liquid if
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the dealer agrees that the Fund may repurchase the OTC option it has written for
a maximum price to be calculated by a predetermined formula. In such cases, the
OTC option would be considered illiquid only to the extent the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Accordingly, the Fund will treat dealer options as subject to the Fund's
limitation on unmarketable securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instrument accordingly.
Futures Contracts. Transactions in Futures. Each Fund may enter into
futures contracts, including stock index, interest rate and currency futures
("futures or futures contracts").
Stock index futures contracts may be used to provide a hedge for a
portion of the Fund's portfolio, as a cash management tool, or as an efficient
way for the Adviser or Sub-Adviser to implement either an increase or decrease
in portfolio market exposure in response to changing market conditions. A Fund
may, purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell
futures contacts with respect to indices or subindices whose movements will have
a significant correlation with movements in the prices of the Fund's portfolio
securities.
Interest rate or currency futures contracts may be used to manage a
Fund's exposure to changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Fund. In this
regard, the Fund could sell interest rate or currency futures as an offset
against the effect of expected increases in interest rates or currency exchange
rates and purchase such futures as an offset against the effect of expected
declines in interest rates or currency exchange rates.
A Fund will enter into futures contracts which are traded on national
or foreign futures exchanges, and are standardized as to maturity date and
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Futures are traded in London at the London
International Financial Futures Exchange in Paris at the MATIF and in Tokyo at
the Tokyo Stock Exchange. Although techniques other than the sale and purchase
of futures contracts could be used for the above-referenced purposes, futures
contracts offer an effective and relatively low cost means of implementing the
Fund's objectives in these areas.
Regulatory Limitations. A Fund will engage in futures contracts and
options thereon only for bona fide hedging, yield enhancement, and risk
management purposes, in each case in accordance with rules and regulations of
the CFTC.
A Fund may not purchase or sell futures contracts or related options
if, with respect to positions which do not qualify as bona fide hedging under
applicable CFTC rules, the sum of the amounts of initial margin deposits and
premiums paid on those portions would exceed 5% of the net asset value of the
Fund after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into; provided, however, that in the case of an
option that is in-the money at the time of purchase, the in-the-money amount may
be excluded in calculating the 5% limitation. For purposes of this policy
options on futures contracts and foreign currency options traded on a
commodities exchange will be considered "related options". This policy may be
modified by the Board of Trustees without a shareholder vote and does not limit
the percentage of the Fund's assets at risk to 5%.
A Fund's use of futures contracts may result in leverage. Therefore, to
the extent necessary, in instances involving the purchase of futures contracts
or the writing of call or put options thereon by the Fund, an amount of cash,
U.S. Government securities or other appropriate liquid securities, equal to the
market value of the futures contracts and options thereon (less any related
margin deposits), will be identified in an account with the Fund's custodian to
cover (such as owning an offsetting position) the position, or alternative cover
will be employed. Assets used as cover or held in an identified account cannot
be sold while the position in the corresponding option or future is open, unless
they are replaced with similar assets. As a result, the commitment of a large
portion of a Fund's assets to cover or identified accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
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If the CFTC or other regulatory authorities adopt different (including
less stringent) or additional restrictions, each Fund would comply with such new
restrictions.
Trading in Futures Contracts. A futures contract provides for the
future sale by one party and purchase by another party of a specified amount of
a specific financial instrument (e.g., units of a stock index) for a specified
price, date, time and place designated at the time the contract is made.
Brokerage fees are incurred when a futures contract is bought or sold and margin
deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
Unlike when a Fund purchases or sells a security, no price would be
paid or received by the Fund upon the purchase or sale of a futures contract.
Upon entering into a futures contract, and to maintain the Fund's open positions
in futures contracts, the Fund would be required to deposit with its custodian
or futures broker in a segregated account in the name of the futures broker an
amount of cash, U.S. government securities, suitable money market instruments,
or other liquid securities, known as "initial margin." The margin required for a
particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margins that may range upward from less than 5% of the value of the
contract being traded.
If the price of an open futures contract changes (by increase in
underlying instrument or index in the case of a sale or by decrease in the case
of a purchase) so that the loss on the futures contract reaches a point at which
the margin on deposit does not satisfy margin requirements, the broker will
require an increase in the margin. However, if the value of a position increases
because of favorable price changes in the futures contract so that the margin
deposit exceeds the required margin, the broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." Each Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual
future delivery of and payment for the underlying instruments, in practice most
futures contracts are usually closed out before the delivery date. Closing out
an open futures contract purchase or sale is effected by entering into an
offsetting futures contract sale or purchase, respectively, for the same
aggregate amount of the identical underlying instrument or index and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs must also be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures contract.
For example, one contract in the Financial Times Stock Exchange 100
Index future is a contract to buy 25 pounds sterling multiplied by the level of
the UK Financial Times 100 Share Index on a given future date. Settlement of a
stock index futures contract may or may not be in the underlying instrument or
index. If not in the underlying instrument or index, then settlement will be
made in cash, equivalent over time to the difference between the contract price
and the actual price of the underlying asset at the time the stock index futures
contract expires.
Special Risks of Transactions in Futures Contracts. Volatility and
Leverage. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract
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may vary either up or down from the previous day's settlement price at the end
of a trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves
an extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the contract were closed out. Thus, a
purchase or sale of a futures contract may result in losses in excess of the
amount of margin deposited to maintain the futures contract. However, a Fund
would presumably have sustained comparable losses if, instead of the futures
contract, it had invested in the underlying financial instrument and sold it
after the decline. Furthermore, in the case of a futures contract purchase, in
order to be certain that the Fund has sufficient assets to satisfy its
obligations under a futures contract, the Fund earmarks to the futures contract
money market instruments or other liquid securities equal in value to the
current value of the underlying instrument less the margin deposit.
Liquidity. A Fund may elect to close some or all of its futures
positions at any time prior to their expiration. The Fund would do so to reduce
exposure represented by long futures positions or short futures positions. The
Fund may close its positions by taking opposite positions which would operate to
terminate the Fund's position in the futures contracts. Final determinations of
variation margin would then be made, additional cash would be required to be
paid by or released to the Fund, and the Fund would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of
trade where the contracts were initially traded. Although each Fund intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. The reasons for the absence of a liquid secondary market on an
exchange are substantially the same as those discussed under "Special Risks of
Transactions in Options on Futures Contracts." In the event that a liquid market
does not exist, it might not be possible to close out a futures contract, and in
the event of adverse price movements, the Fund would continue to be required to
make daily cash payments of variation margin. However, in the event futures
contracts have been used to hedge the underlying instruments, the Fund would
continue to hold the underlying instruments subject to the hedge until the
futures contracts could be terminated. In such circumstances, an increase in the
price of underlying instruments, if any, might partially or completely offset
losses on the futures contract. However, as described below, there is no
guarantee that the price of the underlying instruments will, in fact, correlate
with the price movements in the futures contract and thus provide an offset to
losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or market or interest rate trends.
There are several risks in connection with the use by a Fund of futures
contracts as a hedging device. One risk arises because of the possible imperfect
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject of
the hedge. The Adviser or Sub-Adviser will, however, attempt to reduce this risk
by entering into futures contracts whose movements, in its judgment, will have a
significant correlation with movements in the prices of the Fund's underlying
instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the Adviser's or Sub-Adviser's ability to correctly predict
movements in the direction of the market. It is possible that, when the Fund has
sold futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might decline. If this were
to occur, the Fund would lose money on the futures and also would experience a
decline in
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value in its underlying instruments. However, while this might occur to a
certain degree, the Adviser and each Sub-Adviser believe that over time the
value of the Fund's portfolio will tend to move in the same direction as the
market indices used to hedge the portfolio. It is also possible that if a Fund
were to hedge against the possibility of a decline in the market (adversely
affecting the underlying instruments held in its portfolio) and prices instead
increased, the Fund would lose part or all of the benefit of increased value of
those underlying instruments that it has hedged, because it would have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund had insufficient cash, it might have to sell underlying instruments to
meet daily variation margin requirements. Such sales of underlying instruments
might be, but would not necessarily be, at increased prices (which would reflect
the rising market). The Fund might have to sell underlying instruments at a time
when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions, which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Adviser or
Sub-Adviser might not result in a successful hedging transaction over a very
short time period.
Options on Futures Contracts. Each Fund may purchase and sell options
on the same types of futures in which it may invest.
Options on futures are similar to options on underlying instruments
except that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put), rather than to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the futures position by the writer of the option to the holder of the option
will be accompanied by the delivery of the accumulated balance in the writer's
futures margin account which represents the amount by which the market price of
the futures contract, at exercise, exceeds (in the case of a call) or is less
than (in the case of a put) the exercise price of the option on the futures
contract. Purchasers of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
As an alternative to writing or purchasing call and put options on
stock index futures, each Fund may write or purchase call and put options on
stock indices. Such options would be used in a manner similar to the use of
options on futures contracts.
Special Risks of Transactions in Options on Futures Contracts. The
risks described under "Special Risks of Transactions on Futures Contracts" are
substantially the same as the risks of using options on futures. In addition,
where a Fund seeks to close out an option position by writing or buying an
offsetting option covering the same underlying instrument, index or contract and
having the same exercise price and expiration date, its ability to establish and
close out positions on such options will be subject to the maintenance of a
liquid secondary market. Reasons for the absence of a liquid secondary market on
an exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class
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or series of options), in which event the secondary market on that exchange (or
in the class or series of options) would cease to exist, although outstanding
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in accordance
with their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result in
the institution by an exchange of special procedures which may interfere with
the timely execution of customers' orders.
Additional Futures and Options Contracts. Although the Funds have no
current intention of engaging in futures or options transactions other than
those described above, they reserve the right to do so. Such futures and options
trading might involve risks which differ from those involved in the futures and
options described above.
Foreign Futures and Options. Participation in foreign futures and
foreign options transactions involves the execution and clearing of trades on or
subject to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from a Fund for foreign futures or foreign options
transactions may not be provided the same protections as funds received in
respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time the Fund's order is placed and the time it is
liquidated, offset or exercised.
Foreign Currency Transactions. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
Each Fund may enter into forward contracts for a variety of purposes in
connection with the management of the foreign currency exposure of its
portfolio. The Fund's use of such contracts would include, but not be limited
to, the following: First, when the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars of the amount
of foreign currency involved in the underlying security transactions, the Fund
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when the Adviser or Sub-Adviser believes that one currency may
experience a substantial movement against another currency, including the U.S.
dollar, or it wishes to alter the Fund's exposure to the currencies of the
countries in its investment universe, it may enter into a forward contract to
sell or buy foreign currency in exchange for the U.S. dollar or another
foreign currency. Alternatively, where appropriate, a Fund may manage all or
part of its foreign currency exposure through the use of a basket of currencies
or a proxy currency where such currency or currencies act as an effective proxy
for other currencies. In such a case, the Fund may enter into a forward contract
where the amount of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into separate
forward contracts for each currency held in the Fund. The precise matching of
the forward contract amounts and the value of the securities involved will not
generally be possible since the
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<PAGE>
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. The
projection of short-term currency market movement is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.
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, each of the Adviser and
Sub-Advisers believe 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.
Each Fund may enter into forward contacts for any other purpose
consistent with the Fund's investment objective and program. However, the Fund
will not enter into a forward contract, or maintain exposure to any such
contract(s), if the amount of foreign currency required to be delivered
thereunder would exceed the Fund's holdings of liquid securities and currency
available for cover of the forward contract(s). In determining the amount to be
delivered under a contract, the Fund may net offsetting positions.
At the maturity of a forward contract, the Fund may sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and either extend the maturity of the forward contract (by "rolling"
that contract forward) or may initiate a new forward contract.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) 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 Fund's entering 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 of the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
Each Fund's dealing 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. Of course, the Fund is not
required to enter into forward contracts with regard to its foreign currency
denominated securities and will not do so unless deemed appropriate by the
Adviser or a Sub-Adviser. It also should be realized that this method of hedging
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time, they 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. It will do so from time to time, and investors should be aware
of the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
Federal Tax Treatment of Options, Futures Contracts and Forward Foreign
Exchange Contracts. Each Fund may enter into certain option, futures, and
forward foreign exchange contracts, including options and futures on currencies,
which are Section 1256 contracts and may result in the Fund entering into
straddles.
Open Section 1256 contracts at fiscal year end will be considered to
have been closed at the end of the Fund's fiscal year and any gains or losses
will be recognized for tax purposes at that time. Such gains or losses from the
normal closing or settlement of such transactions will be characterized as 60%
long-term capital gain or loss and 40% short-term capital gain or loss
regardless of the holding period of the instrument. The Fund will be required to
distribute net gains on such transactions to shareholders even though it may not
have closed the transaction and received cash to pay such distributions.
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<PAGE>
Options, futures and forward foreign exchange contracts, including
options and futures on currencies, which offset a security or currency position
may be considered straddles for tax purposes, in which case a loss on any
position in a straddle will be subject to deferral to the extent of unrealized
gain in an offsetting position. The holding period of the securities or
currencies comprising the straddle may be deemed not to begin until the straddle
is terminated. For securities offsetting a purchased put, this adjustment of the
holding period may increase the gain from sales of securities held less than
three months. The holding period of the security offsetting an "in-the-money
qualified covered call" option will not include the period of time the option is
outstanding.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options, may be long-term capital
loss, if the security covering the option was held for more than twelve months
prior to the writing of the option.
In order for each Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or currencies. In addition, gains realized on the sale or other
disposition of securities, including options, futures or forward contracts on
securities or securities indexes and, in some cases, currencies, held for less
than three months, must be limited to less than 30% of the Fund's annual gross
income. In order to avoid realizing excessive gains on securities or currencies
held less than three months, the Fund may be required to defer the closing out
of options, futures or foreign forward exchange contracts beyond the time when
it would otherwise be advantageous to do so. Unrealized gains on Section 1256
options, futures and foreign forward exchange contracts, which have been open
for less than three months as of the end of the Fund's fiscal year and which are
recognized for tax purposes, will not be considered gains on securities or
currencies held less than three months for purposes of the 30% test.
Swap Agreements. Each of the Funds may enter into interest rate,
index and currency exchange rate swap agreements in attempts to obtain a
particular desired return at a lower cost to the Fund than if the Fund had
invested directly in an instrument that yielded that desired return. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged or
"swapped" between the parties are calculated with respect to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency, or in
a "basket" of securities representing a particular index. The "notional amount"
of the swap agreement is only a fictive basis on which to calculate the
obligations the parties to a swap agreement have agreed to exchange. A Fund's
obligations (or rights) under a swap agreement will generally be equal only to
the amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's obligations under a swap agreement will be accrued daily (offset
against any amounts owing to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash, U.S. Government securities, or other liquid
securities, to avoid leveraging of the Fund's portfolio. A Fund will not enter
into a swap agreement with any single party if the net amount owed or to be
received under existing contracts with that party would exceed 5% of the Fund's
assets.
Whether a Fund's use of swap agreements enhance the Fund's total return
will depend on the Adviser's or Sub-Adviser's ability correctly to predict
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and may have terms of
greater than seven days, swap agreements may be considered to be illiquid.
Moreover, a Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty. The Adviser or Sub-Adviser will cause a Fund to enter
into swap agreements only with counterparties that would be eligible for
consideration as repurchase agreement counterparties under the Funds' repurchase
agreement guidelines. The swap market is a relatively new market and is largely
unregulated. It is possible that developments in the swap market, including
potential government regulation, could adversely affect a Fund's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
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<PAGE>
Certain swap agreements are exempt from most provisions of the
Commodity Exchange Act ("CEA") and, therefore, are not regulated as futures or
commodity option transactions under the CEA, pursuant to regulations of the
CFTC. To qualify for this exemption, a swap agreement must be entered into by
"eligible participants," which include the following, provided the participants'
total assets exceed established levels: a bank or trust company, savings
association or credit union, insurance company, investment company subject to
regulation under the 1940 Act, commodity pool, corporation, partnership,
proprietorship, organization, trust or other entity, employee benefit plan,
governmental entity, broker-dealer, futures commission merchant, natural person.
or regulated foreign person. To be eligible, natural persons and most other
entities must have total assets exceeding $10 million; commodity pools and
employees benefit plans must have assets exceeding $5 million. In addition, an
eligible swap transaction must meet three conditions. First, the swap agreement
may not be part of a fungible class of agreements that are standardized as to
their material economic terms. Second, the creditworthiness of parties with
actual or potential obligations under the swap agreement must be a material
consideration in entering into or determining the terms of the swap agreement,
including pricing, cost or credit enhancement terms. Third, swap agreements may
not be entered into and traded on or through a multilateral transaction
execution facility.
Loans and Other Direct Debt Instruments. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to each Fund's policies regarding the
quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating service. If a Fund does not receive scheduled interest or principal
payments on such indebtedness, the Fund's share price and yield could be
adversely affected. Loans that are fully secured offer a Fund more protections
than an unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidations of collateral
from a secured loan would satisfy the borrower's obligation, or that the
collateral could be liquidated. Indebtedness of borrowers whose creditworthiness
is poor involves substantially greater risks and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also involves a risk that the governmental
entities responsible for the repayment of the debt may be unable, or unwilling,
to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. In addition, it is conceivable that under
emerging legal theories of lender liability, the Fund could be held liable as a
co-lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to a Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
each Fund relies on the Adviser's or Sub-Adviser's research in an attempt to
avoid situations where fraud or misrepresentation could adversely affect the
Fund.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the loan,
as specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the effect
of requiring the Fund to increase its investment in a borrower at a time
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<PAGE>
when it would not otherwise have done so, even if the borrower's condition makes
it unlikely that the amount will ever be repaid. A Fund will set aside
appropriate liquid assets in a custodial account to cover its potential
obligations under standby financing commitments.
Each Fund limits the amount of total assets that it will invest in any
one issuer or, except for the Strategic Natural Resources Fund and the Info-Tech
& Communications Fund, in issuers within the same industry (see each Fund's
investment limitations). For purposes of these limitations, a Fund generally
will treat the borrower as the "issuer" of indebtedness held by the Fund. In the
case of loan participations where a bank or other lending institution serves as
financial intermediary between a Fund and the borrower, if the participation
does not shift to the Fund the direct debtor-creditor relationship with the
borrower, SEC interpretations require the Fund, in appropriate circumstances, to
treat both the lending bank or other lending institution and the borrower as
"issuers" for these purposes. Treating a financial intermediary as an issuer of
indebtedness may restrict a Fund's ability to invest in indebtedness related to
a single financial intermediary, or a group of intermediaries engaged in the
same industry, even if the underlying borrowers represent many different
companies and industries.
Brady Bonds. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk.
Dollar-denominated collateralized Brady bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.
MANAGEMENT OF THE TRUST
Trustees and Officers
Trustees and officers of the Trust, together with information as to
their principal business occupations during the last five years, are shown
below. Each Trustee who is considered an "interested person" of the Trust (as
defined in Section 2(a)(19) of the 1940 Act) is indicated by an asterisk next to
his name.
<TABLE>
<CAPTION>
Position with the Trust and
Name, Age and Principal Occupation within
Business Address the Past Five Years
<S> <C>
Ronald Altbach, 50 Trustee of the Trust. Chairman, Paul Sebastian, Inc. (perfume
1540 West Park Avenue distributor) (1994 - present); President, Olcott Corporation
Ocean, New Jersey 07712 (perfume distributor) (1992 - 1994).
*Thomas T. Bachmann, 51 Trustee of the Trust. Chairman, Orbitex Management Ltd.
Maritime House (investment management) (1986 - present).
Frederick Street
Nassau, Bahamas
*Otto J. Felber, 64 Trustee of the Trust. President and Vice-Chairman, Altamira
250 Bloor Street East Management Ltd. (investment management) (1987 - present).
Suite 300
Toronto, Ontario
Canada M4W 1E6
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<PAGE>
Position with the Trust and
Name, Age and Principal Occupation within
Business Address the Past Five Years
Robert F. Raucci, 42 Trustee of the Trust. President, RAM Investment Corp.
599 Lexington Avenue (investment management) (1994 - present); Vice President,
New York, NY 10022 Alliance Capital Management Corp. (investment management) (1985 -
1994).
*James L. Nelson, 47 Trustee, President, Assistant Treasurer and Assistant Secretary
660 Madison Avenue of the Trust. Director and Chief Executive Officer, Orbitex
New York, NY 10021 Management, Inc., Chief Executive Officer and President, Orbitex,
Inc. (business development) (1995 - present); President, AVIC
Group International (communications) (1993 - 1995); President,
Eaglescliff Corporation (consulting) (1986 - present).
Timothy P. Mullaney, 29 Treasurer of the Trust. Chief Financial Officer, Orbitex
660 Madison Avenue Management, Inc. (August 1997 - present), Treasurer and Chief
New York, NY 10021 Financial Officer, Manning & Napier Insurance Fund, Inc.
(September 1994 - August 1997), Chief Financial Officer, Manning &
Napier Fund, Inc. (October 1994 - August 1997), Mutual Fund Chief
Financial Officer, Manning & Napier Advisors, Inc. (July 1994 -
December 1994), Tax Manager, Investors Bank & Trust (January 1994 -
August 1994), Senior Tax Associate, Coopers & Lybrand, LLP (1990 - 1994).
Mark Breault, 30 Secretary of the Trust. Vice President - Operations,
660 Madison Avenue Orbitex Management, Inc. (1996 - present); Vice President,
New York, NY 10021 State Street Bank and Trust Company (1991 - 1996).
</TABLE>
Each Trustee of the Trust who is not an interested person of the Trust
or Adviser or Sub-Adviser receives an annual fee of $5,000 . The Trust also
reimburses each such Trustee for travel and other expenses incurred in attending
such meetings.
The following table estimates the amount of compensation to be paid to
the Trustees during the fiscal year ending April 30, 1998. The Trust is newly
organized and has not paid any fees to Trustees.
Name Compensation Paid
Ronald Altbach $5,000
Thomas T. Bachmann $0
Otto J. Felber $0
James L. Nelson $0
Robert F. Raucci $5,000
Trustees and officers of the Trust, as a group, owned less than 1% of
each Fund's outstanding voting securities as of the date of this Statement of
Additional Information.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of this Statement of Additional Information, Orbitex
Management, Inc. held 100% of the outstanding voting shares of each Fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Adviser
Orbitex Management, Inc., 660 Madison Avenue, New York, NY 10021,
serves as the Adviser of each Fund pursuant to an Investment Advisory Agreement
that has been approved by the Board, including a majority of the independent
Trustees. The initial term of the Investment Advisory Agreement is two years.
However, the Investment Advisory Agreement may continue in effect from year to
year if approved at least annually by a vote of a majority of the Board
(including a majority of the Trustees who are not parties to the Investment
Advisory Agreement or interested persons of any such parties) cast in person at
a meeting called for the purpose of voting on such renewal, or by the vote of a
majority of the outstanding shares of the particular Fund.
The directors and the principal executive officers of the Adviser are:
Otto J. Felber, Director and James L. Nelson, Director and Chief Executive
Officer. The Adviser is a subsidiary of Orbitex, Inc., a business development
firm.
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<PAGE>
In addition to the duties set forth in the Prospectus under "How the
Trust is Managed - Adviser", the Adviser, in furtherance of such duties and
responsibilities, is authorized in its discretion to engage in the following
activities or to cause or permit the Sub-Advisers to engage in the following
activities on behalf of the Trust: (i) develop a continuing program for the
management of the assets of each Fund; (ii) buy, sell, exchange, convert, lend,
or otherwise trade in portfolio securities and other assets; (iii) place orders
and negotiate the commissions for the execution of transactions in securities
with or through broker-dealers, underwriters, or issuers; (iv) prepare and
supervise the preparation of shareholder reports and other shareholder
communications; and (v) obtain and evaluate business and financial information
in connection with the exercise of its duties.
Subject to policies established by the Board of Trustees of the Trust,
which has overall responsibility for the business and affairs of each Fund, the
Adviser manages the operations of the Funds. In addition to providing advisory
services, the Adviser furnishes the Funds with office space and certain
facilities and personnel required for conducting the business of the Funds.
The Trust has agreed that the word "Orbitex" in its name is derived
from the name of the Adviser; that such name is the property of the Adviser for
copyrights and/or other purposes; and that therefore, such name may freely be
used by the Adviser for other investment companies, entities or products. The
Trust has further agreed that in the event that for any reason, the Adviser
ceases to be its investment adviser, the Trust will, unless the Adviser
otherwise consents, promptly take all steps necessary to change its name to one
which does not include "Orbitex."
Sub-Advisers
Each of the Sub-Advisers described in the Prospectus serves as
sub-adviser to one or more of the Funds pursuant to separate Sub-Advisory
Agreements by and among the Trust on behalf of the applicable Fund, the Adviser
and the Sub-Adviser.
In addition to the duties set forth in the Prospectus, each
Sub-Adviser, in furtherance of such duties and responsibilities, is authorized
and has agreed to provide or perform the following functions with respect to a
particular Fund or its segment of a particular Fund: (1) formulate and implement
a continuing investment program for use in managing the assets and resources of
each Fund in a manner consistent with each Fund's investment objective,
policies, and restrictions, which program may be amended and updated from time
to time to reflect changes in financial and economic conditions; (2) make all
determinations with respect to the investment of each Fund's assets in
accordance with (a) applicable law, (b) each Fund's investment objective,
policies, and restrictions as provided in the Trust's Prospectus and Statement
of Additional Information, as amended from time to time, (c) provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
relating to regulated investment companies, and (d) such other limitations as
the Board of Trustees of the Trust may impose by written notice; (3) make all
determinations as to the purchase or sale of portfolio securities, including
advising the Board of Trustees of the Trust as to certain matters involving each
Fund's portfolio securities that are not in the nature of investment decisions;
(4) buy, sell, exchange, convert for each Fund's use, and otherwise trade in
portfolio securities and other assets; (5) furnish to the Board of Trustees of
the Trust periodic reports concerning the Sub-Adviser's economic outlook and
investment strategy, as well as information concerning each Fund's portfolio
activity and investment performance; (6) place orders for the execution of
portfolio transactions with such broker-dealers, underwriters or issuers, and
negotiate the commissions (if any) for the execution of transactions in
securities with or through such broker-dealers, underwriters or issuers selected
by the Sub-Adviser; (7) obtain and evaluate business and financial information
in connection with the exercise of its duties; (8) determine the
creditworthiness of the issuers, obligors, or guarantors of portfolio
securities; and (9) evaluate the creditworthiness of any entities with which the
Fund proposes to engage in repurchase transactions.
ADMINISTRATOR
State Street is the administrator of the Trust. State Street is a
Massachusetts trust company with a principal office at 225 Franklin Street,
Boston, Massachusetts 02111. State Street serves as administrator of other
mutual funds.
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<PAGE>
Pursuant to the Administration Agreement with the Trust, State Street
provides all administrative services reasonably necessary for the Trust, other
than those provided by the Adviser, subject to the supervision of the Board of
Trustees of the Trust.
Under the Administration Agreement with the Trust, State Street
provides administrative services including, without limitation: (i) services of
personnel competent to perform such administrative and clerical functions as are
necessary to provide effective administration of the Trust; (ii) maintaining the
Trust's books and records (other than financial and accounting books and records
and records maintained by the Trust's custodian or transfer agent); (iii)
overseeing the Trust's insurance relationships; (iv) preparing or assisting in
the preparation of all required tax returns, proxy statements and reports to the
Trust's shareholders and Trustees and reports to and filings with the SEC and
any other governmental agency; (v) preparing or assisting in the preparation of
such notices and reports as may be necessary to offer and sell the Trust's
shares under applicable state securities laws; (vi) preparing or assisting in
the preparation of, and coordinating the distribution of all materials for
meetings of the Board of Trustees of the Trust; (vii) monitoring daily and
periodic compliance with respect to all requirements and restrictions of the
1940 Act, the Internal Revenue Code and the Prospectus; (viii) monitoring the
calculation of all income and expense accruals, sales and redemptions of capital
shares outstanding by the Trust's custodian; (ix) evaluating expenses,
projecting future expenses, and processing payments of expenses; and (x)
monitoring and evaluating performance of accounting and related services by the
Trust's custodian.
The Agreement is terminable at any time by the Trust or State Street on
sixty days' written notice. If the Trust terminates the Agreement within three
years of its effective date, the Fund must reimburse State Street for any fees
waived by State Street.
CUSTODIAN
State Street serves as the custodian of the Trust's assets pursuant to
a Custodian Contract by and between State Street and the Trust. State Street's
responsibilities include safeguarding and controlling the Trust's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on the Trust's investments. Pursuant to the Custodian
Contract, State Street also provides certain accounting and pricing services to
the Trust, including calculating the daily net asset value per share for each
Fund; maintaining original entry documents and books of record and general
ledgers; posting cash receipts and disbursements; reconciling bank account
balances monthly; recording purchases and sales based upon communications from
the Adviser and Sub-Advisers; and preparing monthly and annual summaries to
assist in the preparation of financial statements of, and regulatory reports
for, the Trust. The Trust may employ foreign sub-custodians that are approved by
the Board of Trustees to hold foreign assets.
TRANSFER AGENT SERVICES
State Street provides transfer agent and dividend disbursing services
to each Fund pursuant to the terms of a Transfer Agency and Service Agreement by
and between State Street and the Trust.
DISTRIBUTION OF SHARES
Funds Distributor, Inc. (the "Distributor") serves as the distributor
of the shares of each Fund pursuant to a Distribution Agreement between the
Distributor and the Trust. The Distributor's principal business address is 60
State Street, Boston, Massachusetts 02108. The Distributor receives front-end or
contingent deferred sales commissions or sales loads for providing such services
to the Trust under the Distribution Agreement. In addition, pursuant to a
written Distribution Plan and Agreement pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Rule 12b-1 Plan and Agreement"), the Funds
are authorized to use a portion of their assets to finance certain activities
relating to the distribution of their shares to investors.
Each Fund is authorized to pay the Distributor quarterly at a rate
equal to an annualized rate of .30% (in the case of the Asian High Yield Fund)
and .40% (in the case of the other Funds) of the average daily net assets of the
Fund during that quarter. Any Fund may pay fees to the Distributor at a lesser
rate, as agreed upon by the Board of Trustees of the Trust and the Distributor.
The Rule 12b-1 Plan and Agreement authorizes payments to
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the Distributor as compensation for providing account maintenance services to
investors in the Fund, including arranging for certain securities dealers or
brokers, administrators and others ("Recipients") to provide these services and
paying compensation for these services. Each Fund will bear its own costs of
distribution.
The services to be provided by Recipients may include, but are not
limited to, the following: assistance in the offering and sale of shares of the
Funds and in other aspects of the marketing of the shares to clients or
prospective clients of the respective recipients, answering routine inquiries
concerning a Fund; assisting in the establishment and maintenance of accounts or
sub-accounts in a Fund and in processing purchase and redemption transactions;
making a Fund's investment plans and shareholder services available; and
providing such other information and services to investors in shares of a Fund
as the Distributor or the Trust, on behalf of a Fund, may reasonably request.
The distribution services shall also include any advertising and marketing
services provided by or arranged by the Distributor with respect to the Funds.
The Distributor is required to provide a written report, at least
quarterly to the Board of Trustees of the Trust, which the Trustees will review,
specifying in reasonable detail the amounts expended pursuant to the Rule 12b-1
Plan and Agreement and the purposes for which such expenditures were made.
Further, the Distributor will inform the Board of any Rule 12b-1 fees to be paid
by the Distributor to Recipients.
The initial term of the Rule 12b-1 Plan and Agreement is one year and
it will continue in effect from year to year thereafter, provided such
continuance is specifically approved at least annually by a majority of the
Board of Trustees of the Trust and a majority of the Trustees who are not
"interested persons" of the Trust and do not have a direct or indirect financial
interest in the Rule 12b-1 Plan and Agreement ("Rule 12b-1 Trustees") by votes
cast in person at a meeting called for the purpose of voting on the Rule 12b-1
Plan and Agreement. The Rule 12b-1 Plan and Agreement may be terminated at any
time by the Trust or any Fund by vote of a majority of the Rule 12b-1 Trustees
or by vote of a majority of the outstanding voting securities of the Trust or
the affected Fund. The Rule 12b-1 Plan and Agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Rule 12b-1 Plan and Agreement may not be amended to increase
materially the amount of the Distributor's compensation to be paid by a Fund,
unless such amendment is approved by the vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act). All material
amendments must be approved by a majority of the Board of Trustees of the Trust
and a majority of the Rule 12b-1 Trustees by votes cast in person at a meeting
called for the purpose of voting on the Rule 12b-1 Plan and Agreement. During
the term of the Rule 12b-1 Plan and Agreement, the selection and nomination of
non-interested Trustees of the Trust will be committed to the discretion of
current non-interested Trustees. The Distributor will preserve copies of the
Rule 12b-1 Plan and Agreement, any related agreements, and all reports, for a
period of not less than six years from the date of such document and for at
least the first two years in an easily accessible place.
Any agreement related to the Rule 12b-1 Plan and Agreement will be in
writing and provide that: (a) it may be terminated by the Trust or a Fund at any
time upon sixty days' written notice, without the payment of any penalty, by
vote of a majority of the Rule 12b-1 Trustees, or by vote of a majority of the
outstanding voting securities of the Trust or the affected Fund; (b) it will
automatically terminate in the event of its assignment (as defined in the 1940
Act); and (c) it will continue in effect for a period of more than one year from
the date of its execution or adoption only so long as such continuance is
specifically approved at least annually by a majority of the Board and a
majority of the Rule 12b-1 Trustees by votes cast in person at a meeting called
for the purpose of voting on such agreement.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to the general supervision of the Board of Trustees of the
Trust, the Adviser and Sub-Advisers are responsible for making decisions with
respect to the purchase and sale of portfolio securities on behalf of the Funds.
The Adviser and Sub-Advisers are also responsible for the implementation of
those decisions, including the selection of broker-dealers to effect portfolio
transactions, the negotiation of commissions, and the allocation of principal
business and portfolio brokerage.
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In purchasing and selling each Fund's portfolio securities, it is the
Adviser's and each Sub-Adviser's policy to obtain quality execution at the most
favorable prices through responsible broker-dealers and, in the case of agency
transactions, at competitive commission rates where such rates are negotiable.
However, under certain conditions, a Fund may pay higher brokerage commissions
in return for brokerage and research services. In selecting broker-dealers to
execute a Fund's portfolio transactions, considerations is given to such factors
as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing brokers and dealers,
their expertise in particular markets and the brokerage and research services
they provide to the Adviser or a Sub-Adviser or the Funds. It is not the policy
of the Adviser or Sub-Advisers to seek the lowest available commission rate
where it is believed that a broker or dealer charging a higher commission rate
would offer greater reliability or provide better price or execution.
Transactions on stock exchanges involve the payment of brokerage
commissions. In transactions on stock exchanges in the United States, these
commissions are negotiated. Traditionally, commission rates have generally not
been negotiated on stock markets outside the United States. In recent years,
however, an increasing number of overseas stock markets have adopted a system of
negotiated rates, although a number of markets continue to be subject to an
established schedule of minimum commission rates. It is expected that equity
securities will ordinarily be purchased in the primary markets, whether
over-the-counter or listed, and that listed securities may be purchased in the
over-the-counter market if such market is deemed the primary market. In the case
of securities traded on the over-the-counter markets, there is generally no
stated commission, but the price usually includes an undisclosed commission or
markup. In underwritten offerings, the price includes a disclosed, fixed
commission or discount.
For fixed income securities, it is expected that purchases and sales
will ordinarily be transacted with the issuer, the issuer's underwriter, or with
a primary market maker acting as principal on a net basis, with no brokerage
commission being paid by the Fund. However, the price of the securities
generally includes compensation which is not disclosed separately. Transactions
placed through dealers who are serving as primary market makers reflect the
spread between the bid and asked prices.
With respect to equity and fixed income securities, the Adviser and
Sub-Advisers may effect principal transactions on behalf of the Funds with a
broker or dealer who furnishes brokerage and/or research services, designate any
such broker or dealer to receive selling concessions, discounts or other
allowances or otherwise deal with any such broker or dealer in connection with
the acquisition of securities in underwritings. The prices the Funds pay to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter. The Adviser and Sub-Advisers may receive research
services in connection with brokerage transactions, including designations in
fixed price offerings.
The Adviser and Sub-Advisers receive a wide range of research services
from brokers and dealers covering investment opportunities throughout the world,
including information on the economies, industries, groups of securities,
individual companies, statistics, political developments, technical market
action, pricing and appraisal services, and performance analyses of all the
countries in which a Fund's portfolio is likely to be invested. The Adviser and
Sub-Advisers cannot readily determine the extent to which commissions charged by
brokers reflect the value of their research services, but brokers occasionally
suggest a level of business they would like to receive in return for the
brokerage and research services they provide. To the extent that research
services of value are provided by brokers, the Adviser and Sub-Advisers may be
relieved of expenses which they might otherwise bear. In some cases, research
services are generated by third parties but are provided to the Adviser and
Sub-Advisers by or through brokers.
Certain broker-dealers which provide quality execution services also
furnish research services to the Adviser and Sub-Advisers. The Adviser and
Sub-Advisers have adopted a brokerage allocation policy embodying the concepts
of Section 28(e) of the Securities Exchange Act of 1934, which permits an
investment adviser to cause its clients to pay a broker which furnishes
brokerage or research services a higher commission than that which might be
charged by another broker which does not furnish brokerage or research services,
or which furnishes brokerage or research services deemed to be of lesser value,
if such commission is deemed reasonable in relation to the brokerage and
research services provided by the broker, viewed in terms of either that
particular transaction or the overall responsibilities of the adviser with
respect to the accounts as to which it exercises investment discretion.
Accordingly, the Adviser and Sub-
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Advisers may assess the reasonableness of commissions in light of the total
brokerage and research services provided by each particular broker.
Portfolio securities will not be purchased from or sold to the Adviser,
Sub-Advisers, or the Distributor, or any affiliated person of any of them acting
as principal, except to the extent permitted by rule or order of the SEC.
The Sub-Advisers currently provide investment advice to private
advisory accounts that have investment objectives and programs similar to the
Trust. Accordingly, occasions may arise when a Sub-Adviser may engage in
simultaneous purchase and sale transactions of securities that are consistent
with the investment objectives and programs of the Trustand other accounts.
On those occasions when such simultaneous investment decisions are
made, the Sub-Adviser will allocate purchase and sale transactions in an
equitable manner according to written procedures approved by the Board of
Trustees of the Trust. Specifically, such written procedures provide that, in
allocating purchase and sale transactions made on a combined basis, the
Sub-Adviser will seek to achieve the same average unit price of securities for
each entity and will seek to allocate, as nearly as practicable, such
transactions on a pro-rata basis substantially in proportion to the amounts
ordered to be purchased or sold by each entity. Such procedures may, in certain
instances, be either advantageous or disadvantageous to the Trust.
PURCHASE AND REDEMPTION OF SECURITIES BEING OFFERED
Letter of Intent. In submitting a Letter of Intent to purchase shares
of the Funds at a reduced sales charge, the investor agrees to the terms of the
Prospectus, the Applications used to buy such shares, and the language in this
Statement of Additional Information as to Letters of Intent, as they may be
amended from time to time by the Trust. Such amendments will apply automatically
to existing Letters of Intent.
A Letter of Intent ("Letter") is the investor's statement of intention
to purchase shares of one or more of the Funds during the 13-month period from
the investor's first purchase pursuant to the Letter (the "Letter of Intent
period"), which may, at the investor's request, include purchases made up to 90
days prior to the date of the Letter. The investor states the intention to make
the aggregate amount of purchases (excluding any reinvestment of dividends or
distributions or purchases made at net asset value without sales charge), which
together with the investor's holdings of such funds (calculated at their
respective public offering prices calculated on the date of the Letter) will
equal or exceed the amount specified in the Letter to obtain the reduced sales
charge rate (as set forth in "How To Purchase Shares" in the Prospectus)
applicable to purchases of shares in that amount (the "intended amount"). Each
purchase under the Letter will be made at the public offering price applicable
to a single lump-sum purchase of shares in the intended amount, as described in
the Prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of Intent
period, when added to the value (at offering price) of the investor's holdings
of such Fund shares on the last day of that period, do not equal or exceed the
intended amount, the investor agrees to pay the additional amount of sales
charge applicable to such purchases, as set forth in "Terms of Escrow," below,
as those terms may be amended from time to time. The investor agrees that shares
equal in value to 5% of the intended amount will be held in escrow by the
Trust's transfer agent subject to the Terms of Escrow.
If the total eligible purchases made during the Letter or Intent period
do not equal or exceed the intended amount, the commissions previously paid to
the dealer of record for the account and the amount of sales charge retained by
the Distributor will be adjusted to the rates applicable to actual total
purchases. If total eligible purchases during the Letter of Intent period exceed
the intended amount and exceed the amount needed to qualify for the next sales
charge rate reduction set forth in the applicable prospectus, the sales charges
paid will be adjusted to the lower rate, but only if and when the dealer returns
to the Distributor the excess of the amount of commissions allowed or paid to
the dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be used to
purchase additional shares for the investor's account at the net asset value per
share in effect on the date of such purchase, promptly after the Distributor's
receipt thereof.
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In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of Intent
period will be deducted. It is the responsibility of the dealer of record and/or
the investor to refer to the Letter in placing any purchase orders for the
investor during the Letter of Intent period. All of such purchases must be made
through the Distributor.
Terms of Escrow
1. Out of the initial purchase (or subsequent purchases if necessary)
made pursuant to a Letter, shares of the Fund equal in value to 5% of the
intended amount specified in the Letter shall be held in escrow by the Fund's
transfer agent. For example, if the intended amount specified under the Letter
is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed
at the public offering price adjusted for a $50,000 purchase). Any dividends and
capital gains distributions on the escrowed shares will be credited to the
investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed shares
will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended amount
specified in the Letter, the investor must remit to the Distributor an amount
equal to the difference between the dollar amount of sales charges actually paid
and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. Such sales charge adjustment will
apply to any shares redeemed prior to the completion of the Letter. If such
difference in sales charges is not paid within twenty days after a request from
the Distributor or the dealer, the Distributor will, within sixty days of the
expiration of the Letter, redeem the number of escrowed shares necessary to
realize such difference in sales charges. Full and fractional shares remaining
after such redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the transfer agent of the Trust as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. Shares held in escrow hereunder will automatically be exchanged for
shares of another Fund to which an exchange is requested, and the escrow will be
transferred to that other Fund.
In-Kind. Each Fund intends to pay all redemptions of its shares in
cash. However, each Fund may make full or partial payment of any redemption
request by the payment to shareholders of portfolio securities of the applicable
Fund (i.e., by redemption-in-kind), at the value of such securities used in
determining the redemption price. The Funds, nevertheless, pursuant to Rule
18f-1 under the 1940 Act, have filed a notification of election under which each
Fund is committed to pay in cash to any shareholder of record, all such
shareholder's requests for redemption made during any 90-day period, up to the
lesser of $250,000 or 1% of the applicable Fund's net asset value at the
beginning of such period. The securities to be paid in-kind to any shareholders
will be readily marketable securities selected in such manner as the Board of
Trustees of the Trust deems fair and equitable. If shareholders were to receive
redemptions-in-kind, they would incur brokerage costs should they wish to
liquidate the portfolio securities received in such payment of their redemption
request. The Trust does not anticipate making redemptions-in-kind.
The right to redeem shares or to receive payment with respect to any
redemption of shares of the Funds may only be suspended (1) for any period
during which trading on the New York Stock Exchange ("NYSE") is restricted or
such Exchange is closed, other than customary weekend and holiday closings, (2)
for any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of the Fund is not reasonably
practicable, or (3) for such other periods as the SEC may by order permit for
protection of shareholders of the Funds.
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SHAREHOLDER SERVICES
Systematic Withdrawal Program. A shareholder owning or purchasing
shares of any Fund having a total value of $10,000 or more may participate in
a systematic withdrawal program providing regular monthly or quarterly payments
. An application form containing details of the Systematic Withdrawal Program
is available upon request from the Funds' transfer agent. The Program is
voluntary and may be terminated at any time by the shareholders.
Income dividends and capital gain distributions on shares of the Funds
held in a Systematic Withdrawal Program are automatically reinvested in
additional shares of the relevant Fund at net asset value. A Systematic
Withdrawal Program is not an annuity and does not and cannot protect against
loss in declining markets. Amounts paid to a shareholder from the Systematic
Withdrawal Program represents the proceeds from redemptions of Fund shares, and
the value of the shareholder's investment in a Fund will be reduced to the
extent that the payments exceed any increase in the aggregate value of the
shareholder's shares (including shares purchased through reinvestment of
dividends and distributions). If a shareholder receives payments that are
greater than the appreciation in value of his or her shares, plus the income
earned on the shares, the shareholder may eventually withdraw his or her entire
account balance. This will occur more rapidly in a declining market. For tax
purposes, depending upon the shareholder's cost basis and date of purchase, each
withdrawal will result in a capital gain or loss. See "Dividends, Distributions
and Taxes" in this SAI and in the Funds' Prospectus.
The Funds offer certain shareholder services, which are designed to
facilitate investment in their shares. Each of the options is described in the
Funds' Prospectus. All of these special services may be terminated by either the
Funds or the shareholder without any prior written notice.
Systematic Exchange Program. The Systematic Exchange Program allows you
to make regular, systematic exchanges from one Orbitex Fund account into
another Orbitex Fund account. By setting up the program, you authorize the Fund
and its agents to redeem a set dollar amount or number of shares from the first
account and purchase shares of a second Fund. An exchange transaction is a sale
and a purchase of share for federal income tax purposes and may result in a
capital gain or loss.
To participate in the Systematic Exchange Program, you must have an
initial account balance of $10,000 in the first account and at least
$1,000 in the second account. Exchanges may be made on any day or days of your
choice. If the amount remaining in the first account is less than the exchange
amount you requested, then the remaining amount will be exchanged. At such time
as the first account has a zero balance, your participation the program will be
terminated. You may also terminate the program by calling or writing the Fund.
Once participation in the program has been terminated for any reason, to
reinstate the program you must do so in writing; simply investing additional
funds will not reinstate the program.
DETERMINATION OF NET ASSET VALUE
The net asset value of shares of each Fund is normally calculated as of
the close of trading on the NYSE on every day the NYSE is open for
trading. The NYSE is open Monday through Friday except on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Short-term debt instruments with a remaining maturity of more than 60
days, intermediate and long-term bonds, convertible bonds, and other debt
securities are generally valued at prices obtained from an independent pricing
service. Where such prices are not available, valuations will be obtained from
brokers who are market makers for such securities. However, in circumstances
where the Adviser or a Sub-Adviser deems it appropriate to do so, the mean of
the bid and asked prices for over-the-counter securities or the last available
sale price for exchange-traded debt securities may be used. Where no last sale
price for exchange traded debt securities is available, the mean of the bid and
asked prices may be used.
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Other securities and assets for which market quotations are not readily
available or for which valuation cannot be provided, as described above, are
valued as determined in good faith in accordance with procedures approved by the
Board of Trustees of the Trust.
Trading in securities on Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the NYSE is open). In
addition, Far Eastern securities trading generally or in a particular country or
countries may not take place on all business days in New York. Furthermore,
trading takes place in Japanese markets on certain Saturdays in various foreign
markets on days which are not business days in New York and on which a Fund's
net asset value is not calculated. Each Fund calculates net asset value per
share, and therefore effects sales, redemptions and repurchases of its shares,
as of the close of regular trading on the NYSE once on each day on which the
NYSE is open. Such calculation may not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. If events materially affecting the value of such securities
occur between the time when their price is determined and the time when the
Fund's net asset value is calculated, such securities will be valued at fair
value as determined in good faith in accordance with procedures approved by the
Board of Trustees of the Trust.
TAXES
Each Fund intends to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Internal Revenue Code. In general, to qualify
as a RIC: (a) at least 90% of the gross income of a Fund for the taxable year
must be derived from dividends, interest, payments with respect to loans of
securities, gains from the sale or other disposition of securities, or other
income derived with respect to its business of investing in securities; (b) less
than 30% of a Fund's gross income for the taxable year can be attributable to
gains (without deductions for losses) from the sale or other disposition of
securities held for less than three months; (c) a Fund must distribute to its
shareholders 90% of its ordinary income and net short-term capital gains; and
(d) a Fund must diversity its assets so that, at the close of each quarter of
its taxable year, (i) at least 50% of the fair market value of its total (gross)
assets is comprised of cash, cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in respect
of any one issuer to no more than 5% of the fair market value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer and
(ii) no more than 25% of the fair market value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or of two or more issuers
controlled by the Fund and engaged in the same, similar, or related trades or
businesses.
In addition, each Fund must declare and distribute dividends equal to
at least 98% of its ordinary income (as of the twelve months ended December 31)
and at least 98% of its net capital gain (as of the twelve months ended October
31), in order to avoid a federal excise tax. Each Fund intends to make the
required distributions, but they cannot guarantee that they will do so.
Dividends attributable to a Fund's ordinary income and net capital gain
dividends are taxable as such to shareholders in the year in which they are
received except dividends declared in October, November and December and paid in
January.
A corporate shareholder may be entitled to take a deduction for income
dividends received by it that are attributable to dividends received from a
domestic corporation, provided that both the corporate shareholder retains its
shares in the applicable Fund for more than 45 days and the Fund retains its
shares in the issuer from whom it received the income dividends for more than 45
days. A distribution of net capital gain reflects a Fund's excess of net
long-term gains over its net short-term losses. Each Fund must designate
distributions of net capital gain and must notify shareholders of this
designation within sixty days after the close of the Trust's taxable year. A
corporate shareholder of a Fund cannot use a dividends-received deduction for
distributions of net capital gain.
Foreign currency gains and losses, including the portion of gain or
loss on the sale of debt securities attributable to foreign exchange rate
fluctuations are taxable as ordinary income. If the net effect of these
transactions is a gain, the dividend paid by the Fund will be increased; if the
result is a loss, the income dividend paid by the Fund will be decreased.
Adjustments, to reflect these gains and losses will be made at the end of each
Fund's taxable year.
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At the time of purchase, each Fund's net asset value may reflect
undistributed income or net capital gains. A subsequent distribution to
shareholders of such amounts, although constituting a return of their
investment, would be taxable either as dividends or capital gain distributions.
For federal income tax purposes, each Fund is permitted to carry forward its net
realized capital losses, if any, for eight years, and realize net capital gains
up to the amount of such losses without being required to pay taxes on, or
distribute such gains.
Income received by each Fund from sources within various foreign
countries may be subject to foreign income taxes withheld at the source. Under
the Internal Revenue Code, if more than 50% of the value of a Fund's total
assets at the close of its taxable year comprise securities issued by foreign
corporations, the Fund may file an election with the Internal Revenue Service to
"pass through" to the Fund's shareholders the amount of any foreign income taxes
paid by the Fund. Pursuant to this election, shareholders will be required to:
(i) include in gross income, even though not actually received, their respective
pro rata share of foreign taxes paid by the Fund; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income, or use it as a foreign
tax credit against U.S. income taxes (but not both). No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions.
The Strategic Natural Resources Fund, the Asian High Yield Fund and
the Asian Select Advisers Fund intend to meet the requirements of the Internal
Revenue Code to "pass through" to its shareholders foreign income taxes paid,
but there can be no assurance that they will be able to do so. Shareholders of
such Funds will be notified within 60 days after the close of each taxable year
of a Fund, if that Fund will "pass through" foreign taxes paid for that year,
and, if so, the amount of each shareholder's pro rata share (by country) of (i)
the foreign taxes paid, and (ii) the Fund's gross income from foreign sources.
Of course, shareholders who are not liable for federal income taxes, such as
retirement plans qualified under Section 401 of the Internal Revenue Code, will
not be affected by any such "pass through" of foreign tax credits.
If, in any taxable year, a Fund should not qualify as a RIC under the
Internal Revenue Code: (1) that Fund would be taxed at normal corporate rates on
the entire amount of its taxable income without deduction for dividends or other
distributions to its shareholders, and (2) that Fund's distributions to the
extent made out of that Fund's current or accumulated earnings and profits would
be taxable to its shareholders (other than shareholders in tax deferred
accounts) as ordinary dividends (regardless of whether they would otherwise have
been considered capital gain dividends), and may qualify for the deduction for
dividends received by corporations.
Passive Foreign Investment Companies. If a Fund purchases shares in
certain foreign passive investment entities described in the Internal Revenue
Code as passive foreign investment companies ("PFIC"), the Fund will be subject
to U.S. federal income tax on a portion of any "excess distribution" (the Fund's
ratable share of distributions in any year that exceeds 125% of the average
annual distribution received by the Fund in the three preceding years or the
Fund's holding period, if shorter, and any gain from the disposition of such
shares) even if such income is distributed as a taxable dividend by the Fund to
its shareholders. Additional charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from such "excess distributions."
If the Fund were to invest in a PFIC and elect to treat the PFIC as a "qualified
electing fund" under the Internal Revenue Code (and if the PFIC were to comply
with certain reporting requirements), in lieu of the foregoing requirements the
Fund would be required to include in income each year its pro rata share of the
PFIC's ordinary earnings and net realized capital gains, whether or not such
amounts were actually distributed to the Fund.
Pursuant to legislation enacted August 5, 1997 any taxpayer holding
shares of "marketable" PFICs may make an election to mark that stock to market
at the close of the taxpayer's taxable year. A Fund making an irrevocable
election will mark its PFICs to market at taxable year-end for income tax
purposes and at October 31 for purposes of the excise tax minimum distribution
requirements of Code Section 4982. This provision is effective for taxable years
of U.S. persons beginning after December 31, 1997, and taxable years of foreign
corporations ending with or within such taxable years of U.S. persons.
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ORGANIZATION OF THE TRUST
As a Delaware business trust entity, the Trust need not hold regular
annual shareholder meetings and, in the normal course, does not expect to hold
such meetings. The Trust, however, must hold shareholder meetings for such
purposes as, for example: (1) approving certain agreements as required by the
1940 Act; (2) changing fundamental investment objectives, policies, and
restrictions of the Funds; and (3) filling vacancies on the Board of Trustees of
the Trust in the event that less than a majority of the Trustees were elected by
shareholders. The Trust expects that there will be no meetings of shareholders
for the purpose of electing Trustees unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders. At
such time, the Trustees then in office will call a shareholders meeting for the
election of Trustees. In addition, holders of record of not less than two-thirds
of the outstanding shares of the Trust may remove a Trustee from office by a
vote cast in person or by proxy at a shareholder meeting called for that purpose
at the request of holders of 10% or more of the outstanding shares of the Trust.
The Funds have the obligation to assist in such shareholder communications.
Except as set forth above, Trustees will continue in office and may appoint
successor Trustees.
Costs incurred by the Funds in connection with their organization,
estimated at $15,000 for each Fund, will be amortized on a straight line basis
over a five year period beginning at the commencement of operations of the
Funds. In the event that any of the initial shares of the Funds are redeemed
during the amortization period, the redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number of
initial shares outstanding at the time of such redemption.
PERFORMANCE INFORMATION ABOUT THE FUNDS
Total Return Calculations
Each Fund may provide average annual total return information
calculated according to a formula prescribed by the SEC. According to that
formula, average annual total return figures represent the average annual
compounded rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a static
account in the Fund and the ending value of that account measured by then
current net asset value of that Fund assuming that all dividends and capital
gains distributions during the stated period were reinvested in shares of the
Fund when paid. Total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment that would equate the
initial amount invested to the ending redeemable value of such investment,
according to the following formula:
T = (ERV/P)(1/n) - 1
where T equals average annual total return; where ERV, the ending redeemable
value, is the value at the end of the applicable period of a hypothetical $1,000
payment made at the beginning of the applicable period; where P equals a
hypothetical initial payment of $1,000; and where n equals the number of years.
Each Fund, from time to time, also may advertise its cumulative total
return figures. Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of a Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in shares of that Fund. Cumulative total return is calculated by
finding the compound rates of a hypothetical investment over such period,
according to the following formula (cumulative total return is then expressed as
a percentage):
34
<PAGE>
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value; ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.
Yield Calculation.
In addition to providing cumulative total return information, the Asian
High Yield Fund may also illustrate its performance by providing information
concerning its yield.
The Fund's yield is based on a specified 30-day (or one month) period
and is computed by dividing the net investment income per share earned during
the specified period by the maximum offering price (i.e., net asset value) per
share on the last day of the specified period, and annualizing the net results
according to the following formula:
YIELD = 2[(a-b + 1)(6) - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last day
of the period.
Yield fluctuations may reflect changes in the Fund's net income, and
portfolio changes resulting from net purchases or net redemptions of the Fund's
shares may affect its yield. Accordingly, the Fund's yield may vary from day to
day, and the yield stated for a particular past period is not necessarily
representative of the Fund's future yield. The Fund's yield is not guaranteed,
and its principal is not insured.
From time to time, in reports and promotional literature, each Fund's
performance may be compared to: (1) other groups of mutual funds tracked by: (A)
Lipper Analytical Services, a widely-used independent research firm which ranks
mutual funds by overall performance, investment objectives, and asset size; (B)
Forbes Magazine's Annual Mutual Funds Survey and Mutual Fund Honor Roll; or (C)
other financial or business publications, such as Business Week, Money Magazine,
and Barron's, which provide similar information; (2) the Consumer Price Index
(measure for inflation), which may be used to assess the real rate of return
from an investment in each Fund; (3) other Government statistics such as GNP,
and net import and export figures derived from Governmental publications, e.g.,
The Survey of Current Business, which may be used to illustrate investment
attributes of each Fund or the general economic, business, investment, or
financial environment in which each Fund operates; (4) Alexander Steele's Mutual
Fund Expert, a tracking service which ranks various mutual funds according to
their performance; and (5) Morningstar, Inc. which ranks mutual funds on the
basis of historical risk and total return. Morningstar's rankings are calculated
using the mutual fund's average annual returns for a certain period and a risk
factor that reflects the mutual fund's performance relative to three-month
Treasury bill monthly returns. Morningstar's rankings range from five star
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a mutual fund as a weighted average
for 3, 5, and 10-year periods. In each category, Morningstar limits its five
star rankings to 10% of the funds it follows and its four star rankings to 22.5%
of the funds it follows. Rankings are not absolute or necessarily predictive of
future performance.
In addition, the performance of the Funds may be compared to indices of
broad groups of similar but unmanaged securities or other benchmarks considered
to be representative of a Fund's holdings.
35
<PAGE>
The performance of the indices that may be used as benchmarks for each
Fund's performance, unlike the returns of the Funds, do not include the effect
of paying brokerage costs (for equity securities) and other transaction costs
that investors normally incur when investing directly in the securities in those
indices.
The Trust may also illustrate a particular Fund's investment returns or
returns in general by graphs and charts, that compare, at various points in
time, the return from an investment in the particular Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the same return on a taxable
basis.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP whose address is 160 Federal Street, Boston,
Massachusetts 02110 serves as the Trust's Independent Accountants providing
services including (1) audit of annual financial statements, (2) assistance and
consultation in connection with SEC filings and (3) review of the annual federal
income tax returns filed on behalf of the Funds.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal
securities laws applicable to the Trust and the offer and sale of its shares has
been provided by Rogers & Wells, 200 Park Avenue, New York, New York 10166,
which serves as Counsel to the Trust.
FINANCIAL STATEMENTS
Following are (1) the Statement of Assets and Liabilities for the
Orbitex Group of Funds at May 29, 1997 including the notes thereto and the
report of Price Waterhouse LLP thereon and (2) the unaudited Statement of Assets
and Liabilities for the Orbitex Group of Funds at September 24, 1997 including
the notes thereto.
36
<PAGE>
ORBITEX GROUP OF FUNDS
STATEMENT OF ASSETS AND LIABILITIES
MAY 29, 1997
<TABLE>
<CAPTION>
Global Info-Tech & Asian High
Natural Resources Communications Growth Yield Asian Select
Fund Fund Fund Fund Advisers Fund
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $20,000 $20,000 $20,000 $20,000 $20,000
Deferred organizational
expenses 14,265 14,265 14,265 14,265 14,265
Prepaid registration 14,600 14,600 14,600 14,600 14,600
------ ------ ------ ------ ------
Total Assets 48,865 48,865 48,865 48,865 48,865
LIABILITIES
Payable to Adviser 28,865 28,865 28,865 28,865 28,865
------ ------ ------ ------ ------
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
Shares outstanding 1,333.333 1,333.333 1,333.333 1,666.667 1,333.333
(unlimited amount
authorized ,$.001 par value)
Net asset value per share $15.00 $15.00 $15.00 $12.00 $15.00
Offering price per share $15.92 $15.92 $15.92 $12.60 $15.92
Net assets consist of:
Capital paid in $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
</TABLE>
See Notes to Financial Statements.
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
MAY 29, 1997
1. Organization
The Orbitex Group of Funds (the "Trust"), an open-end diversified
management investment company, was organized as a Delaware business trust in
December, 1996. The Trust has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940 and the sale of its shares to Orbitex Management,
Inc., the Trust's Investment Adviser. The Trust currently consists of five
portfolios, Global Natural Resources Fund, Info-Tech & Communications Fund,
Growth Fund, Asian High Yield Fund and Asian Select Advisers Fund (collectively
the "Funds" and individually the "Fund"), each of which represents a separate
series of beneficial interest in the Trust. All funds are offered at net asset
value plus a maximum sales load of 5.75%, except for the Asian High Yield Fund,
which is offered at net asset value plus a maximum sales load of 4.75%.
2. Deferred Organizational Expenses
Estimated organizational expenses will be deferred and amortized over a
period not to exceed five years commencing with operations. In the event that
any of the initial shares are redeemed by the Adviser during the amortization
period, the proceeds of such redemption will be reduced by an amount equal to
the pro-rata portion of unamortized deferred organizational expense in the same
proportion as the number of shares being redeemed bears to the number of initial
shares of the respective portfolio outstanding at the time of such redemption.
3. Agreements and Transactions with Affiliates
Each Fund has entered into an Investment Advisory Agreement with Orbitex
Management, Inc. (the "Adviser"), as described under "How the Trust is Managed"
in the Prospectus. As compensation for the services rendered, facilities
furnished, and expenses borne by the Adviser, the Funds will pay the Adviser a
fee accrued daily and paid monthly, at the annualized rate of 1.25% for Global
Natural Resources Fund, 1.25% for Info-Tech & Communications Fund, 0.75% for
Growth Fund, 1.25% for Asian High Yield Fund, and 1.50% for Asian Select
Advisers Fund. The Advisory Agreement also provides that the Adviser may retain
Sub-Advisers at the Adviser's own cost and expense, for the purpose of managing
the investment of the assets of one or more Funds of the Trust.
The Adviser has agreed to waive or limit its fees and to pay certain
operating expenses to the extent necessary to limit total fund operating
expenses to 2.40%, 2.40%, 1.60%, 2.00%, and 2.50% for Global Natural Resources
Fund, Info-Tech & Communications Fund, Growth Fund, Asian High Yield Fund and
Asian Select Advisers Fund, respectively, subject to possible reimbursement by
the Funds in future years if such reimbursement can be achieved within the
foregoing expense limits.
<PAGE>
Report of Independent Accountants
---------------------------------
To the Shareholders and Trustees of the Orbitex Group of Funds:
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial positions of Global Natural
Resources Fund, Info-Tech & Communications Fund, Growth Fund, Asian High Yield
Fund, and Asian Select Advisers Fund, constituting of the Orbitex Group of Funds
( the "Trust") at May 29, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Trust's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this financial statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, MA
May 30, 1997
<PAGE>
ORBITEX GROUP OF FUNDS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 24, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Strategic Info-Tech & Asian High
Natural Resources Communications Growth Yield Asian Select
Fund Fund Fund Fund Advisers Fund
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $20,000 $20,000 $20,000 $20,000 $20,000
Deferred organizational
expenses 14,265 14,265 14,265 14,265 14,265
Prepaid registration 14,600 14,600 14,600 14,600 14,600
------ ------ ------- ------ -------
Total Assets 48,865 48,865 48,865 48,865 48,865
LIABILITIES
Payable to Adviser 28,865 28,865 28,865 28,865 28,865
------ ------ ------- ------ -------
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
Shares outstanding 1,333.333 1,333.333 1,333.333 1,666.667 1,333.333
(unlimited amount
authorized ,$.001 par value)
Net asset value per share $15.00 $15.00 $15.00 $12.00 $15.00
Offering price per share $15.92 $15.92 $15.92 $12.60 $15.92
Net assets consist of:
Capital paid in $20,000 $20,000 $20,000 $20,000 $20,000
======= ======= ======= ======= =======
NET ASSETS $20,000 $20,000 $20,000 $20,000 $20,000
======= ======== ======= ======= =======
</TABLE>
See Notes to Financial Statements.
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 24, 1997 (UNAUDITED)
1. Organization
The Orbitex Group of Funds (the "Trust"), an open-end diversified
management investment company, was organized as a Delaware business trust in
December, 1996. The Trust has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940 and the sale of its shares to Orbitex Management,
Inc., the Trust's Investment Adviser. The Trust currently consists of five
portfolios, Strategic Natural Resources Fund, Info-Tech & Communications Fund,
Growth Fund, Asian High Yield Fund and Asian Select Advisers Fund (collectively
the "Funds" and individually the "Fund"), each of which represents a separate
series of beneficial interest in the Trust. All funds are offered at net asset
value plus a maximum sales load of 5.75%, except for the Asian High Yield Fund,
which is offered at net asset value plus a maximum sales load of 4.75%.
Effective June, 1997 the name of the Global Natural Resources Fund was
changed to the Strategic Natural Resources Fund.
2. Deferred Organizational Expenses
Estimated organizational expenses will be deferred and amortized over a
period not to exceed five years commencing with operations. In the event that
any of the initial shares are redeemed by the Adviser during the amortization
period, the proceeds of such redemption will be reduced by an amount equal to
the pro-rata portion of unamortized deferred organizational expense in the same
proportion as the number of shares being redeemed bears to the number of initial
shares of the respective portfolio outstanding at the time of such redemption.
3. Agreements and Transactions with Affiliates
Each Fund has entered into an Investment Advisory Agreement with Orbitex
Management, Inc. (the "Adviser"), as described under "How the Trust is Managed"
in the Prospectus. As compensation for the services rendered, facilities
furnished, and expenses borne by the Adviser, the Funds will pay the Adviser a
fee accrued daily and paid monthly, at the annualized rate of 1.25% for
Strategic Natural Resources Fund, 1.25% for Info-Tech & Communications Fund,
0.75% for Growth Fund, 1.25% for Asian High Yield Fund, and 1.50% for Asian
Select Advisers Fund. The Advisory Agreement also provides that the Adviser may
retain Sub-Advisers at the Adviser's own cost and expense, for the purpose of
managing the investment of the assets of one or more Funds of the Trust.
The Adviser has agreed to waive or limit its fees and to pay certain
operating expenses to the extent necessary to limit total fund operating
expenses to 2.40%, 2.40%, 1.60%, 2.00%, and 2.50% for Strategic Natural
Resources Fund, Info-Tech & Communications Fund, Growth Fund, Asian High Yield
Fund and Asian Select Advisers Fund, respectively, subject to possible
reimbursement by the Funds in future years if such reimbursement can be achieved
within the foregoing expense limits. The Adviser has agreed to waive or limit
its fees and to pay all operating expenses of the Asian High Yield Fund for the
first sixty days of Fund operations, thereby resulting in a lower annualized
expense limitation.
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<S> <C> <C> <C>
Item 24. Financial Statements and Exhibits.
(a) (1) Financial Statements included in Prospectus: None
(2) Financial Statements for the Orbitex Group of Funds at May 29, 1997 included in the Statement
of Additional Information:
1. Report of Independent Accountants
2. Statement of Assets and Liabilities
3. Notes to Financial Statements
4. Consent of Independent Accountants
(3) Financial Statements, which are unaudited, for the Orbitex Group of Funds at September 24, 1997
included in the Statement of Additional Information:
1. Statement of Assets and Liabilities
2. Notes to Financial Statements
(b) Exhibits:
1. Declaration of Trust of Orbitex Group of Funds (the "Trust").*
2. By-Laws of the Trust.*
3. Not applicable.
5(a). Form of Investment Advisory Agreement by and between the Trust on behalf of each Fund and
Orbitex Management, Inc.**
5(b). Form of Sub-Advisory Agreement among the Trust, on behalf of the Asian High Yield Fund,
Orbitex Management, Inc. and J.P. Morgan Investment Management Inc.
5(c). Form of Sub-Advisory Agreement among the Trust, on behalf of the Asian Select Advisers Fund,
Orbitex Management, Inc. and Asia Strategic Investment Management (HK) Limited.**
5(d). Form of Sub-Advisory Agreement among the Trust, on behalf of the Asian Select Advisers Fund,
Orbitex Management, Inc. and Bankers Trust Company.
5(e). Form of Sub-Subadvisory Agreement among the Trust, on behalf of the Asian Select Advisers
Fund, Orbitex Management, Inc., Bankers Trust Company and BT Fund Managers International
Limited.
6(a). Form of Distribution Agreement between the Trust and Funds Distributor, Inc.*
6(b). Form of Selected Dealers Agreement.*
7. Not applicable.
8. Form of Custodian Contract by and between the Trust and State Street Bank and Trust Company.*
<FN>
- --------
* Previously filed in the Registration Statement on January 29, 1997 and incorporated herein by reference.
** Previously filed in Pre-Effective Amendment No. 1 to the Registration Statement on April 14, 1997 and
incorporated herein by reference.
</FN>
C-1-
<PAGE>
9(a). Form of Transfer Agency and Service Agent Agreement by and between the Trust and State Street
Bank and Trust Company.*
9(b). Form of Administration Agreement by and between the Trust and State Street Bank and Trust
Company.*
10. Opinion and Consent of Rogers & Wells regarding the legality of the securities being
registered.
11. Consent of Independent Accountants.
12. Not applicable.
13. Form of Share Subscription Agreement by and between Orbitex Management, Inc. and the Trust on
behalf of each Fund.
14. Form of Individual Retirement Account Agreement.
15(a). Distribution Plan and Agreement Pursuant to Rule 12b-1 under the Investment Company Act of
1940.
15(b). Form of Distribution Sub-Agreement.
16. Schedule for Computation of Performance Quotation.+
17. Not applicable.
18. Not applicable.
19. Powers of Attorney.
</TABLE>
Item 25. Persons Controlled by or under Common Control with Registrant.
None
Item 26. Number of Holders of Securities, as of the effective date of
this Registration Statement.
-------------------------------------------------------------
Title of Class Number of Record Holders
-------------- ------------------------
Orbitex Strategic Natural Resources Fund 1
Orbitex Info-Tech & Communications Fund 1
Orbitex Growth Fund 1
Orbitex Asian High Yield Fund 1
Orbitex Asian Select Advisers Fund 1
- --------
* Previously filed in the Registration Statement on January 29, 1997 and
incorporated herein by reference.
+ To be filed by amendment.
C-2-
<PAGE>
Item 27. Indemnification
Reference is made to Article VI of the Registrant's
Declaration of Trust filed herein as Exhibit 1 to this
Registration Statement.
The Registrant will indemnify its Trustees and officers to the
extent permitted by law. Indemnification may not be made if
the Trustee or officer has incurred liability by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of duties in the conduct of his office ("Disabling
Conduct"). The means of determining whether indemnification
shall be made are (1) a final decision on the merits by a
court or other body before whom the proceeding is brought that
the Trustee or officer was not liable by reason of Disabling
Conduct, or (2) in the absence of such a decision, a
reasonable determination, based on a review of the facts, that
the Trustee or officer was not liable by reason of Disabling
Conduct. Such latter determination may be made either by (a)
vote of a majority of Trustees who are neither interested
persons (as defined in the Investment Company Act of 1940) nor
parties to the proceeding or (b) independent legal counsel in
a written opinion. The advancement of legal expenses may not
occur unless the Trustee or officer agrees to repay the
advance (if it is determined that he is not entitled to the
indemnification) and one of three other conditions is
satisfied: (1) he provides security for his agreement to
repay; (2) the Registrant is insured against loss by reason of
lawful advances; or (3) the Trustees who are not interested
persons and are not parties to the proceedings, or independent
counsel in a written opinion, determine that there is reason
to believe that the Trustee or officer will be found entitled
to indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "1933 Act") may be permitted to
Trustees, officers, 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 1933 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 1933 Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of the Adviser and the
Sub-Advisers.
(a) Certain information pertaining to business and other
connections of the Registrant's Adviser, Orbitex Management,
Inc. is hereby incorporated herein by reference to the section
of the Prospectus captioned "How the Trust is Managed" and to
the section of the Statement of Additional Information
captioned "Investment Management and Other Services." The
information required by this Item 28 with respect to each
director, officer or partner of Orbitex Management, Inc. is
incorporated by reference to Form ADV filed by Orbitex
Management, Inc. with the Securities and Exchange Commission
pursuant to the Investment Advisers Act of 1940, as amended
(File No. 801-52312).
(b) Certain information pertaining to business and other
connections of Asia Strategic Investment Management Limited,
one of the Registrant's Sub-Advisers, is hereby incorporated
herein by reference to the section of the Prospectus captioned
"How the Trust is Managed" and to the section of the Statement
of Additional Information captioned "Investment Management and
Other Services." Set forth below is a list of each director
and officer of Asia Strategic Investment Management Limited
indicating each business, profession, vocation, or employment
of a substantial
C-3-
<PAGE>
nature in which each such person has been, at any time during
the past two fiscal years, engaged for his own account or in
the capacity of director, officer, partner, or trustee. The
principal business address of each individual listed in the
table below, unless otherwise indicated, is Chekiang First
Bank Center, 1 Duddell Street, Hong Kong.
<TABLE>
<CAPTION>
Position with Asian Strategic Investment
Management Limited ("ASIM") and
Name Other Positions within Last Two Years
---- -------------------------------------
<S> <C>
Michael Tze Han Lee Managing Director, ASIM, 1995 - present; Director/Equity Partner,
Lloyd George Management (Hong Kong) Ltd., 1992 - 1995.
Patrick Wai Cheong Shun Chief Investment Officer, ASIM, 1995 - present; Director/Senior Fund
Manager, Barclays de Zoete Wedd Investment Management (Hong Kong)
Limited, 1990 - 1995.
James Kuang Kno Cheng Research Director, ASIM, April 1996 - present; Executive
Director/Senior Fund Manager, Morgan Stanley Asset Management
(Singapore) Ltd., 1988 - 1996.
Peter King Wah Woo Director, ASIM, 1995 - present; Director/Associate Director, Kim Eng
Securities (Hong Kong) Ltd. (investment management firm), 1993 -
1995.
Dr. The Honourable K.P. Li David Non-executive director, ASIM; Deputy Chairman and Chief
Executive of the Bank of East Asia, Limited.
Li Kai Cheong Samson Non-executive director, ASIM; Deputy General Manager of the Bank of
East Asia, Limited.
</TABLE>
(c) Certain information pertaining to business and other
connections of Bankers Trust Company, one of the
Registrant's Sub-Advisers, is hereby incorporated herein by
reference to the section of the Prospectus captioned "How the
Trust is Managed" and to the section of the Statement of
Additional Information captioned "Investment Management and
Other Services." Set forth below is a list of each director
and officer of Bankers Trust Company indicating each
business, profession, vocation, or employment of a substantial
nature in which each such person has been, at any time during
the past two fiscal years, engaged for his own account or in
the capacity of director, officer, partner, or trustee. The
principal business address of each individual listed in the
table below, unless otherwise indicated, is One Bankers
Trust Plaza, New York, New York 10006.
C-4-
<PAGE>
<TABLE>
<CAPTION>
Position with Bankers Trust Company and
Name Business and Other Positions within Last Two Years
---- --------------------------------------------------
<S> <C>
David Marshall Chief information officer of Bankers Trust New York Corporation (the
"Corporation"). Executive vice president of the Corporation and a
senior managing director Bankers Trust Company. A member of Bankers
Trust's Management Committee. Has responsibility for Bankers Trust's
technology infrastructure and for the operations units of its
Investment Banking, Trading & Sales and Risk Management Services
businesses, as well as for the further development of the firm's
technology strategy. Previously, executive vice president and chief
information officer of Canadian Imperial Bank of Commerce. Earlier
with Unitel Communications Inc. and with the Canadian government
from 1977 to 1993, serving consecutively as the country's assistant
auditor general; assistant deputy minister, Information Technology
for Revenue Canada and assistant deputy minister, Information
Technology for Employment and Immigration Canada. Also, previously
with Toronto Dominion Bank from 1966 to 1977. Member of the Advisory
Boards of Hewlett Packard, IBM Canada and Microsoft.
Richard H. Daniel Chief Financial Officer, Bankers Trust New York Corporation. Vice
chairman and chief financial officer of both Bankers Trust Company
and the parent, Bankers Trust New York Corporation. Joined Bankers
Trust as chief financial officer in February of 1996 from Federal
Home Loan Mortgage Corporation, where he had been chief financial
officer since June of 1994. Previously executive vice president and
director of financial analysis and panning at BankAmerica
Corporation from 1987 to 1994, and was earlier with Federal National
Mortgage Corporation, from 1983 to 1987, as senior vice president
for mortgage-backed securities. With Wells Fargo Bank from 1973 to
1983. Beneficial owner, General Partner of Daniel Brothers, Daniel
Lingo & Associates, Daniel Pelt and Associates and a beneficial
owner of Rhea C. Daniel Trust.
C-5-
<PAGE>
Donald L. Staheli Chairman of the Board and Chief Executive Officer, Continental Grain
Company. Director of Bankers Trust Company. Also a director of
ContiFinancial Corporation, Prudential Life Insurance Company of
America, Fresenius Medical Care, A.g., America-China Society,
National Committee on United States-China Relations and the New York
City Partnership; chairman of the U.S.-China Business Council on
Foreign Relations and the National Advisory Council of Brigham Young
University's Marriott School of Management; vice chairman of The
Points of Light Foundation; and a trustee of the American Graduate
School of International Management.
Patricia Carry Stewart Former Vice President, The Edna McConnell Clark Foundation (a
charitable foundation). Director of Bankers Trust. Also a director
of CVS Corporation and of the Community Foundation for Palm Beach
and Martin Counties, and a trustee emerita of Cornell University.
George J. Vojta Vice Chairman of the Corporation, Bankers Trust Company. Director of
Bankers Trust Company. Also a director of Alicorp S.A., Northwest
Airlines, Private Export Funding Corp., the New York State Banking
Board and St. Lukes-Roosevelt Hospital Center; a partner of New York
City Partnership; and chairman, Wharton Financial Services Center.
Paul A. Volcker Director of Various Corporations. Director of Bankers Trust Company.
Former Chairman and Chief Executive Officer of Wolfensohn & Co.,
Inc. and former Chairman of the Board of Governors of the Federal
Reserve System. Also a director of the American Stock Exchange,
Nestle S.A., Prudential Insurance Company and UAL Corporation;
chairman of Group of 30; North American Chairman of the Trilateral
Commission; co-chairman of Bretton Woods Committee and U.S./Hong
Kong Economic Cooperation Committee; director of American Council on
Germany, the Aspen Institute, Council on Foreign Relations, and The
Japan Society; trustee of The American Assembly; and member of
Senior Advisory Board of The Arthritis Foundation.
Hamish Maxwell Retired Chairman and Chief Executive Officer, Philip Morris
Companies, Inc. Director of Bankers Trust Company. Also a director
of The News Corporation Limited and Sola International Inc., and
chairman of WWP Group plc.
C-6-
<PAGE>
Frank N. Newman Chairman of the Board, Chief Executive Officer and President of the
Corporation, Bankers Trust Company. Director of Bankers Trust
Company. Former deputy secretary of the United States Treasury and
former vice chairman of the board and director of BankAmerica
Corporation and Bank of America NT&SA. Also a director of Dow-Jones,
Inc. and Carnegie Hall.
N.J. Nicholas Jr. Investor. Director of Bankers Trust Company. Former co-chief
executive officer of Time Warner Inc. Also a director of Boston
Scientific Corporation and Xerox Corporation.
Russell E. Palmer Chairman and Chief Executive Officer, The Palmer Group. Director of
Bankers Trust Company. Former Dean of The Wharton School, University
of Pennsylvania and former chief executive officer of Touche Ross &
Co. (now Deloitte & Touche). Also a director of Allied-Signal Inc.,
Federal Home Loan Mortgage Corporation, GTE Corporation, The May
Department Stores Company and Safeguard Scientifics, Inc.; member,
advisory board of the Controller General of the United States; and a
trustee, the University of Pennsylvania.
George B. Beitzel Director of Various Corporations. Director of Bankers Trust Company.
Retired senior vice president and director, International Business
Machines Corporation. Also a director of Computer Task Group,
Phillips Petroleum Company, Caliber Systems, Inc. (formerly Roadway
Services, Inc.), Rohm and Haas Company and TIG Holdings; chairman
emeritus of Amherst College; and chairman of the Colonial
Williamsburg Foundation.
Phillip A. Grifiths Director, Institute for Advanced Study. Director of Bankers Trust
Company. Chairman, Committee on Science, Engineering and Public
Policy of the National Academies of Sciences and Engineering & the
Institute of Medicine; member, National Academy of Sciences,
American Academy of Arts and Sciences and American Philosophical
Society; member and chairman of the Nominations Committee and
Committee on Science and Engineering Indicators, National Science
Board; and trustee of North Carolina School of Science and
Mathematics and the Woodward Academy. Former member of the board of
directors, Research Triangle Institute.
William R. Howell Chairman Emeritus, J.C. Penny Company, Inc. Director of Bankers
Trust Company. Also a director of Exxon Corporation, Halliburton
Company, Warner-Lambert Company, The Williams Companies, Inc. and
the National Retail Federation.
C-7-
<PAGE>
Vernon E. Jordan, Jr. Senior Partner, Akin Gump, Strauss, Hauer & Feld, LLP,
Attorneys-at-law Washington, D.C. and Dallas, Texas. Director of
Bankers Trust Company. Former president of the National Urban
League, Inc. Also a director of American Express Company, Dow-Jones,
Inc., J.C. Penny Company, Inc., Revlon Group Incorporated, Ryder
Systems, Inc. Sara Lee Corporation, Union Carbide Corporation and
Xerox Corporation; and a trustee of Brookings Institution, The Ford
Foundation and Howard University.
Melvin A. Yellin Senior Managing Director and General Counsel, Bankers Trust Company.
Director of 1136 Tenants Corporation and ABA Securities Association.
</TABLE>
(d) Certain information pertaining to business and other
connections of J.P. Morgan Investment Management Inc., one of
the Registrant's Sub-Advisers, is hereby incorporated herein
by reference to the section of the Prospectus captioned "How
the Trust is Managed" and to the section of the Statement of
Additional Information captioned "Investment Management and
Other Services." The information required by this Item 28 with
respect to each director, officer or partner of J.P. Morgan
Investment Management Inc. is incorporated by reference to
Form ADV filed by J.P. Morgan Investment Management Inc. with
the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940, as amended (File No.
801-21011).
Item 29. Principal Underwriters.
(a) Funds Distributor, Inc. (the "Funds Distributor") acts as
principal underwriter for the following investment companies.
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
The JPM Advisor Funds
The JPM Institutional Funds
The JPM Pierpont Funds
The JPM Series Trust
LKCM Fund
The Munder Funds Trust
The Munder Funds, Inc.
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
St. Clair Money Market Fund
The Skyline Funds
Waterhouse Investors Cash Management Fund, Inc.
C-8-
<PAGE>
Funds Distributor is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the
National Association of Securities Dealers. Funds Distributor
is an indirect wholly-owned subsidiary of Boston Institutional
Group, Inc., a holding company all of whose outstanding shares
are owned by key employees.
(b) The information required by this Item 29(b) with respect
to each director, officer, or partner of Funds Distributor is
incorporated by reference to Schedule A of Form BD filed by
Funds Distributor with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (File No.
8-20518).
(c) Not applicable.
Item 30. Location of Accounts and Records.
The following entities prepare, maintain and preserve the
records required by Section 31(a) of the 1940 Act for the
Registrant. These services are provided to the Registrant
through written agreements between the parties to the effect
that such services will be provided to the Registrant for such
periods prescribed by the rules and regulations of the
Securities and Exchange Commission under the 1940 Act and such
records are the property of the entity required to maintain
and preserve such records and will be surrendered promptly on
request.
State Street Bank and Trust Company ("State Street") provides
custodian and accounting services pursuant to a Custodian
Contract between State Street and the Trust and provides
transfer agent and dividend disbursing services pursuant to a
Transfer Agency and Service Agreement between State Street and
the Trust. In such capacities, State Street provides pricing
for each Fund's portfolio securities, keeps records regarding
securities and other assets in custody and in transfer, bank
statements, canceled checks, financial books and records, and
keeps records of each shareholder's account and all
disbursements made to shareholders. Orbitex Management, Inc.,
pursuant to its Investment Advisory Agreement with respect to
each Fund, maintains all records required pursuant to such
agreement. Each Sub-Adviser, pursuant to its Sub-Advisory
Agreement with Orbitex Management, Inc. and the Trust with
regard to each Fund, maintains all records required pursuant
to such agreement. State Street, pursuant to its
Administration Agreement with the Trust, maintains all records
required pursuant to such agreement. Funds Distributor, Inc.,
as principal underwriter for the Trust, maintains all records
required to be kept pursuant to the Distribution Agreement
with the Trust, and such other records as must be maintained
pursuant to the Trust's Distribution Plan and Agreement
adopted pursuant to Rule 12b-1 under the 1940 Act.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) Registrant undertakes to file a post-effective amendment,
using financial statements which need not by certified, within
four to six months after the commencement of operations of
each Fund.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge, beginning with the fiscal year ending April 30, 1998.
C-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized in the City of New York, and the State of New York on
the 26th day of September 1997.
ORBITEX GROUP OF FUNDS
By: /s/ James L. Nelson
------------------------------
James L. Nelson
Trustee and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Otto J. Felber* Trustee September 26, 1997
- ------------------------------------
Otto J. Felber
/s/ James L. Nelson Trustee, President, Assistant September 26, 1997
- ------------------------------------
James L. Nelson Treasurer & Assistant Secretary
/s/ Timothy Mullaney Treasurer September 26, 1997
- ------------------------------------
Timothy Mullaney
Ronald Altbach* Trustee September 26, 1997
- ------------------------------------
Ronald Altbach
Thomas Bachmann* Trustee September 26, 1997
- ------------------------------------
Thomas Bachmann
Robert Raucci* Trustee September 26, 1997
- ------------------------------------
Robert Raucci
* By: /s/ James L. Nelson
------------------------------------
James L. Nelson, Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT LIST
Exhibit
Number Description
------ -----------
5(b) Form of Sub-Advisory Agreement among the Trust, on behalf of the Asian
High Yield Fund, Orbitex Management, Inc. and J.P. Morgan Investment
Management Inc.
5(d) Form of Sub-Advisory Agreement among the Trust, on behalf of the Asian
Select Advisers Fund, Orbitex Management, Inc. and Bankers Trust
Company
5(e) Form of Sub-Subadvisory Agreement among the Trust, on behalf of the
Asian Select Advisers Fund, Orbitex Management, Inc., Bankers Trust
Company and BT Fund Managers International Limited
10 Opinion and Consent of Rogers & Wells regarding the legality of the
securities being registered
11 Consent of Independent Accountants
13 Form of Share Subscription Agreement
14 Form of Individual Retirement Account Plan Agreement
15(a) Form of Distribution Plan and Agreement Pursuant to Rule 12b-1
15(b) Form of Distribution Sub-Agreement
19 Powers of Attorney
Exhibit 5(b)
Form of Sub-Advisory Agreement among Orbitex Group of Funds, Orbitex
Management, Inc. and J.P. Morgan Investment Management Inc.
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Orbitex Asian High Yield Fund
June , 1997
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Dear Sir or Madam:
Orbitex Group of Funds, a Delaware business trust (the
"Trust"), and Orbitex Management, Inc., a New York corporation (the
"Adviser"), hereby agree with J.P. Morgan Investment Management Inc., a
Delaware corporation (the "Sub-Adviser") as follows:
1. Investment Description; Appointment. The Trust desires to
employ the capital of the Trust's Orbitex Asian High Yield Fund (the
"Fund") by investing and reinvesting in investments of the kind and in
accordance with the limitations specified in its Declaration of Trust
and Bylaws, each as amended to date (the "Charter Documents"), and in
the prospectus (the "Prospectus") and the statement of additional
information (the "Statement") filed with the Securities and Exchange
Commission as part of the Trust's Registration Statement on Form N-1A,
as amended from time to time, and in such manner and to such extent as
from time to time may be approved by the Trust's Board. Copies of the
Prospectus, the Statement and the Charter Documents, each as currently
in effect, have been delivered to the Sub-Adviser. The Trust agrees, on
an ongoing basis, to provide to the Sub-Adviser as promptly as
practicable copies of all amendments and supplements to the Prospectus
and the Statement and amendments to the Charter Documents. The Trust
desires to engage and hereby appoints the Sub-Adviser to act as
investment sub-adviser to the Fund. The Sub-Adviser accepts the
appointment and agrees to furnish the services described herein for the
compensation set forth below.
2. Services as Investment Sub-Adviser, Guidelines and Advice.
Subject to the supervision of the Trust's Board and of the Adviser, the
Sub-Adviser will
1
<PAGE>
(a) manage the Fund's assets in accordance with the Fund's investment
objective(s) and policies stated in the Prospectus, the Statement and
the Charter Documents, but subject to the Guidelines (as such term is
defined below) if any; (b) make investment decisions for the Fund; (c)
place purchase and sale orders for portfolio transactions for the Fund;
and (d) employ professional portfolio managers and securities analysts
to provide research services to the Fund. In providing these services,
the Sub-Adviser will conduct a continual program of investment,
evaluation and, if appropriate, sale and reinvestment of the Fund's
assets.
The Adviser may on an on-going basis provide or cause to be
provided to the Sub-Adviser guidelines, to be revised as provided below
(the "Guidelines"), setting forth limitations, by dollar amount or
percentage of net assets, on the types of securities in which the Fund
is permitted to invest or investment activities in which the Fund is
permitted to engage. The Guidelines shall remain in effect until 12:00
p.m. on the third business day following actual receipt by the
Sub-Adviser of a written notice, denominated clearly as such, setting
forth revised Guidelines. The Adviser agrees to cause to be delivered
to a person designated in writing for such purpose by the Sub-Adviser
at least monthly, a written report dated the date of its delivery (the
"Report") with respect to the funds' compliance for its current fiscal
year with the short-three test set forth in Section 851(b) (3) of the
Code (the "short-three test"). The Report shall include in chart form
the fund's gross income (within the meaning of Section 851 of the Code)
from the beginning of the current fiscal year to the date of the Report
and its cumulative income and gains described in Section 851(b) (3) of
the Code for such period. If the Report is not timely delivered, the
Sub-Adviser shall be permitted to rely on the most recent Report
delivered to it. The Trust and the Adviser agree that the Sub-Adviser
may rely on the Guidelines and the Report without independent
verification of their accuracy.
3. Brokerage. In selecting brokers or dealers to execute
transactions on behalf of the Fund, the Sub-Adviser will seek the best
overall terms available. In assessing the best overall terms available
for any transaction, the Sub-Adviser will consider factors it deems
relevant, including, without limitation, the breadth of the market in
the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of
the commission, if any, for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a
particular transaction, and in evaluating the best overall terms
available, the Sub-Adviser is authorized to consider the brokerage and
research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Fund
and/or other accounts over which the Sub-Adviser or its affiliates
exercise investment discretion.
2
<PAGE>
4. Information Provided to the Trust. The Sub-Adviser will
keep the Trust and the Adviser informed of developments materially
affecting the Fund, and will, on its own initiative, furnish the Trust
and the Adviser from time to time with whatever information the
Sub-Adviser believes is appropriate for this purpose.
5. Standard of Care. The Sub-Adviser shall exercise its best
judgment in rendering the services described in paragraphs 2, 3 and 4
above. The Sub-Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement (each such act or omission
shall be referred to as "Disqualifying Conduct"). The Sub-Adviser shall
not be deemed to have engaged in Disqualifying Conduct it if complies
with the Guidelines and acts in reliance on the Report, and the
Sub-Adviser's failure to act in accordance therewith shall not
constitute evidence that it engaged in Disqualifying Conduct.
6. Compensation. In consideration of the services rendered
pursuant to this Agreement, the Adviser will pay the Sub-Adviser on the
fifth business day of each month a fee for the previous month at the
annual rate of ________% of the Fund's average daily net assets. The
fee for the period from the date the initial public sale of the Fund's
shares commences to the end of the month during which such sale shall
have been commenced shall be prorated according to the proportion that
such period bears to the full monthly period. Upon any termination of
this Agreement before the end of a month, the fee for such part of that
month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement. For the purpose of determining fees
payable to the Sub-Adviser, the value of the Fund's net assets shall be
computed at the times and in the manner specified in the Prospectus
and/or the Statement.
7. Expenses. The Sub-Adviser will bear all of its expenses in
connection with the performance of its services under this Agreement.
All other expenses to be incurred in the operation of the Fund will be
borne by the Trust, except to the extent specifically assumed by the
Sub-Adviser. The expenses to be borne by the Trust include, without
limitation, the following: organizational costs, taxes, interest,
brokerage fees and commissions, Director's fees, Securities and
Exchange Commission fees and state Blue Sky qualification fees,
advisory fees, charges of custodians, transfer and dividend disbursing
agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of independent pricing
services, costs of maintaining existence,
3
<PAGE>
costs attributable to investor services (including, without limitation,
telephone and personnel expenses), costs of preparing and printing
prospectuses and statements of additional information for regulatory
purposes and for distribution to existing stockholders, costs of
stockholders' reports and meetings, and any extraordinary expenses.
8. Services to Other Companies or Accounts. The Trust
understands that the Sub-Adviser now acts, will continue to act and may
act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to other investment companies, and
the Trust has no objection to the Sub-Adviser so acting, provided that
whenever the Trust and one or more other accounts or investment
companies advised by the Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be
allocated in accordance with a methodology believed to be equitable to
each entity. The Sub-Adviser agrees to allocate similarly opportunities
to sell securities. The Trust recognizes that, in some cases, this
procedure may limit the size of the position that may be acquired or
sold for the Fund. In addition, the Trust understands that the persons
employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser's duties hereunder will not devote their full time to such
service and nothing contained herein shall be deemed to limit or
restrict the right of the Sub-Adviser or any affiliate of the
Sub-Adviser to engage in and devote time and attention to other
business or to render services of whatever kind or nature.
9. Books and Records. In compliance with the requirements of
Rule 31a-3 under the Investment Company Act of 1940, as amended (the
"Act"), the Sub-Adviser hereby agrees that all records which it
maintains for the Fund are the property of the Trust and further agrees
to surrender promptly to the Trust copies of any of such records upon
the Fund's or the Adviser's request. The Sub-Adviser further agrees to
preserve for the periods prescribed by Rule 31a-2 under the Act the
records relating to its activities hereunder required to be maintained
by Rule 31a-1 under the Act and to preserve the records relating to its
activities hereunder required by Rule 204-2 under the Investment
Advisers Act of 1940, as amended, for the period specified in said
Rule.
10. Term of Agreement. This Agreement shall become effective
as of the date of its execution and shall continue in effect for a
period of two years from the date of execution. Thereafter this
Agreement shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by
(i) the Trust's Board or (ii) a vote of a "majority" (as defined in the
Act) of the Fund's outstanding voting securities, provided that in
either event the continuance also is approved by a majority of the
Trust's Board who are not "interested persons" (as defined in the Act)
of any party to this Agreement, by
4
<PAGE>
vote cast in person at a meeting called for the purpose of voting on
such approval. This Agreement is terminable, without penalty, on 60
days' written notice, by the Adviser, by the Trust's Board, by vote of
holders of a majority of the Fund's shares or by the Sub-Adviser, and
will terminate five business days after the Sub-Adviser receives
written notice of the termination of the advisory agreement between the
Trust and the Adviser. This Agreement also will terminate automatically
in the event of its assignment (as defined in the Act).
11. Indemnification. The Adviser agrees to indemnify and hold
harmless the Sub-Adviser from and against any and all claims, losses,
liabilities or damages (including reasonable attorneys' fees and other
related expenses), howsoever arising, from or in connection with this
Agreement or the performance by the Sub-Adviser of its duties
hereunder; provided, however, that nothing contained herein shall
require that the Sub-Adviser be indemnified for Disqualifying Conduct.
12. Disclosure. Neither the Trust nor the Adviser shall,
without the prior written consent of the Sub-Adviser, make
representations regarding or reference to the Sub-Adviser or any
affiliates in any disclosure document, advertisement, sales literature
or other promotional materials.
13. Miscellaneous. All notices provided for by this Agreement
shall be in writing and shall be deemed given when received, against
appropriate receipt, by Diane Minardi in the case of the Sub-Adviser,
_______________________ in the case of the Adviser, and the Fund's
Secretary in the case of the Fund, or such other person as a party
shall designate by notice to the other parties. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
This Agreement constitutes the entire agreement among the parties
hereto and supersedes any prior agreement among the parties relating to
the subject matter hereof. The paragraph headings of this Agreement are
for convenience of reference and do not constitute a part hereof. This
Agreement shall be governed in accordance with the internal laws of the
State of New York, without giving effect to principles of conflict of
laws.
If the foregoing accurately sets forth our agreement, kindly
indicate your acceptance hereof by signing and returning the enclosed
copy hereof.
Very truly yours,
5
<PAGE>
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
Accepted:
J.P. Morgan Investment Management Inc.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
6
Exhibit 5(d)
Form of Sub-Advisory Agreement among Orbitex Group of Funds, Orbitex
Management, Inc. and Bankers Trust Company
<PAGE>
SUBADVISORY AGREEMENT
This Subadvisory Agreement is made and entered into on this day of 1997,by
Bankers Trust Australia Limited a [ ] (the "Sub-Adviser"), Orbitex Management,
Inc., a New York corporation (the "Adviser"), and Orbitex Group of Funds, a
Delaware business trust (the "Trust").
WlTNESSETH:
WHEREAS, the Adviser is engaged pursuant to an Investment Advisory
Agreement (the "Advisory Agreement") with the Trust in the investment of the
Trust's assets in accordance with the Trust's Prospectus and Statement of
Additional Information (collectively the "Prospectus"); and
WHEREAS, pursuant to the Advisory Agreement the Adviser may delegate
its responsibilities for the management of the investment of the assets of one
or more series of the Trust to one or more sub-advisers; and
WHEREAS, the Adviser desires to so delegate responsibility for
management of the investments of one or more series of the Trust to the
Sub-Adviser, and the Sub-Adviser agrees to manage the investment of one or more
series of the Trust in accordance with this Subadvisory Agreement and the
Prospectus;
NOW, THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. The Adviser hereby appoints the Sub-Adviser to act as the investment adviser
to the Adviser with respect to one or more Series of the Trust (singly or
collectively the "Fund") as identified in Schedule A, which is attached hereto
and by this reference is incorporated herein. The Sub-Adviser hereby accepts
such appointment and agrees to render the services herein set forth, for the
compensation set forth on Schedule B, which is attached hereto and by this
reference is incorporated herein. The Adviser represents to the Sub-Adviser that
it is authorized pursuant to the Advisory Agreement to delegate to the
Sub-Adviser all of the services to be performed by the Sub-Adviser pursuant
hereto.
2. Subject to the supervision of the Trustees of the Trust and the Adviser, the
Sub-Adviser will manage the securities and investments (including cash) of the
Fund, including the purchase, retention, disposition and lending thereof, and
the execution of agreements relating thereto in accordance with the Fund's
investment objective(s), policies and restrictions as those are stated in the
Prospectus and further subject to the following understandings:
(a) The Sub-Adviser shall furnish a continuous investment program for
the Fund and in so doing shall determine from time to time what investments or
securities will be purchased, retained, sold or lent by the Fund, and what
portion of the assets will be invested or held uninvested as cash;
(b) The Sub-Adviser in the performance of its duties and obligations
under this Subadvisory Agreement shall act in conformity with the Declaration of
Trust, Bylaws and the Prospectus of the Trust, and with the instructions and
directions of the Trustees of the Trust and, to the extent consistent therewith
and herewith, of the Adviser, and will conform to and comply with the
requirements of the Investment Company Act of 1940, as amended (the "1940 Act"),
and all other applicable federal and state laws and regulations;
<PAGE>
(c) The Sub-Adviser shall determine the securities to be purchased or
sold by the Fund and, as agent for the Fund, will effect transactions pursuant
to its determinations either directly with the issuer or with any broker and/or
dealer in such securities. The Sub-Adviser shall also determine whether or not
the Fund shall enter into repurchase agreements or engage in any other
investment transactions or techniques that are consistent with subsection (b)
above;
(d) The Sub-Adviser shall maintain, or arrange for others to maintain,
all books and records with respect to the securities transactions of the Fund
and shall render to the Adviser or Adviser's designees, such periodic and
special reports as the Adviser may reasonably request;
(e) The Sub-Adviser shall, to the extent the information is within its
control, provide or cause to be provided to the Trust's Custodian all requested
information relating to all transactions concerning the assets of the Fund
(other than share transactions of the Fund);
(f) The investment advisory services of the Sub-Adviser to the Fund
under this Subadvisory Agreement are not to be deemed exclusive, and the
Sub-Adviser shall be free to render similar service to others;
(g) The Sub-Adviser is authorized, subject to the supervision of the
Adviser and the Trustees of the Trust, to place orders for the purchase and sale
of the Fund's investments with or through such persons, brokers or dealers,
including the Sub-Adviser or affiliates thereof, and to negotiate commissions to
be paid in such transactions in accordance with the Fund's policy with respect
to brokerage as set forth in the Prospectus. The Sub-Adviser may, on behalf of
the Fund, pay brokerage commissions to a broker which provides brokerage and
research services to the Sub-Adviser in excess of the amount another broker
would have charged for effecting the transaction, provided the Sub-Adviser
determines in good faith that the amount is reasonable in relation to the value
of the brokerage and research services provided by the executing broker in terms
of the particular transaction or in terms of the Sub-Adviser's overall
responsibilities with respect to the Fund and the accounts as to which the
Sub-Adviser exercises investment discretion. It is recognized that the services
provided by such brokers may be useful to the Sub-Adviser in connection with the
Sub-Adviser's service to other clients. On occasions when the Sub-Adviser deems
the purchase or sale of a security to be in the best interests of the Fund as
well as other customers, the Sub-Adviser may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased in order to obtain the best execution or
lower brokerage commissions, if any. In such event, allocation of the securities
so sold or purchased, as well as the expenses incurred in the transaction, will
be made by the Sub-Adviser in the manner it considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and, if applicable, to
such other customers. The Trust and the Adviser acknowledge that in order to
comply with Federal securities laws and related regulatory requirements, there
may be periods when the Sub-Adviser will not be permitted to initiate or
recommend certain types of transactions in the securities of issuers for which
affiliates of the Sub-Adviser are performing investment banking services, and
neither the Trust nor the Adviser will be advised of that fact. For example,
during certain periods when affiliates of the Sub-Adviser are engaged in an
underwriting or other distribution of a company's securities, the Sub-Adviser
may be prohibited from purchasing or recommending the purchase of certain
securities of that company for its clients. Similarly, the Sub-Adviser may on
occasion be prohibited from selling or recommending the sale of securities of a
company for which affiliates are providing investment banking services.
(h) The Sub-Adviser shall provide marketing support to the Adviser in
connection with the sale of Trust shares, as reasonably requested by the
Adviser. Such support shall include, but not
2
<PAGE>
necessarily be limited to, presentations by representatives of the Sub-Adviser
at investment seminars, conferences and other industry meetings. Any materials
utilized by the Adviser which contain any information relating to the
Sub-Adviser shall be submitted to the Sub-Adviser for approval prior to use, not
less than five (5) business days before such approval is needed by the Adviser.
Any materials utilized by the Sub-Adviser which contain any information relating
to the Adviser or the Trust shall be submitted to the Adviser for approval prior
to use, not less than five (5) business days before such approval is needed by
the Sub-Adviser, which approval shall not be unreasonably withheld.
(i) The Trust represents that is has delivered true and correct copies
to the Sub-Adviser of, and agrees to promptly notify and deliver to the
Sub-Adviser all future amendments and supplements to, the Prospectus, the
Trust's Declaration of Trust, the Trust's Bylaws, resolutions or other
instructions of the Trustees relevant to the Sub-Adviser's performance of its
duties under this Agreement, the Advisory Agreement and the Trust's Registration
Statement on Form N1-A.
3. The Sub-Adviser agrees that all records which it maintains for the Fund
pursuant to Section 2(d) of this Subadvisory Agreement are the property of the
Trust and will promptly surrender any of such records to the Adviser upon the
Trustees' or the Adviser's request. The Sub-Adviser shall preserve for periods
prescribed by Rule 31a-2 of the 1940 Act any such records as are required to be
maintained by the Sub-Adviser with respect to the Fund by Rule 31a-1 of the 1940
Act.
4. For performance of the services hereunder with respect to the Fund, the
Adviser shall pay the Sub-Adviser pursuant to the Fee Schedule set forth in
Schedule B. The fee prescribed in Schedule B shall be calculated daily and
payable monthly in arrears at an annual rate per Schedule B of the Fund's
average daily net assets.
5. The Sub-Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Trust, Fund or the Adviser in connection
with the matters to which this Subadvisory Agreement relates, except for a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Subadvisory Agreement.
6. The term of this Subadvisory Agreement shall begin on the date first above
written, and unless sooner terminated as hereinafter provided, this Subadvisory
Agreement shall remain in effect for a period of two years from the date of this
Subadvisory Agreement. Thereafter, this Subadvisory Agreement shall continue in
effect with respect to the Fund from year to year, subject to the termination
provisions and all other terms and conditions hereof; provided, such continuance
with respect to the Fund is approved at least annually by vote of the holders of
a majority of the outstanding voting securities of the Fund or by the Trustees
of the Trust; provided, that in either event such continuance is also approved
annually by the vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Trustees of the Trust who are not
parties to this Subadvisory Agreement or interested persons of any party hereto.
The Sub-Adviser shall furnish to the Trust, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Subadvisory Agreement or any extension, renewal or amendment thereof. This
Subadvisory Agreement may be terminated at any time by any party hereto, without
the payment of any penalty, upon sixty (60) days' prior written notice to the
other parties; provided, that in the case of termination by the Trust, such
action shall have been authorized (i) by resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who are
not parties to this Subadvisory Agreement or interested persons of any party
hereto, or (ii) by vote of a majority of the outstanding voting securities of
the Fund. This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the 1940 Act).
3
<PAGE>
7. The Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall not, unless otherwise expressly provided herein or
authorized by the Trustees of Trust from time to time, have any authority to act
for or represent the Fund or Trust in any way or otherwise be deemed to be an
agent of the Fund or the Trust.
8. Any amendment to this SubAdvisory Agreement shall be in writing signed by the
parties hereto; provided, that no such amendment shall be effective unless
authorized (i) by resolution of the Trustees of the Trust, including the vote or
written consent of a majority of the Trustees of the Trust who are not parties
to this Agreement or interested persons of either party hereto, and (ii) by vote
of a majority of the outstanding voting securities of the Fund affected by such
amendment. This Agreement shall terminate automatically and immediately in the
event of its assignment.
9. Any notice that is required to be given by the parties to each other under
the terms of this Subadvisory Agreement shall be in writing, delivered, or
mailed postpaid to the other party, or transmitted by facsimile with
acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Sub-Adviser:
(b) If to the Adviser:
Orbitex Management, Inc.
600 Madison Avenue
New York, NY 10021
Attention: James L. Nelson
Facsimile:
(c) If to the Trust:
Orbitex Group of Funds
600 Madison Avenue
New York, NY 10021
Attention: James L. Nelson
Facsimile:
10. This Subadvisory Agreement shall be governed and construed in accordance
with the laws of the State of New York.
11. The Sub-Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Trust's Declaration of Trust and
agrees that the obligations assumed by the Trust or the Fund, as the case may
be, pursuant to this Subadvisory Agreement shall be limited in all cases to the
Trust or the Fund, as the case may be, and its assets, and the Sub-Adviser shall
not seek satisfaction of any such obligation from the shareholders or any
shareholder of the Trust. In addition, the Sub-Adviser shall not seek
satisfaction of any such obligations from the Trustees or any individual
Trustee. The Sub-Adviser
4
<PAGE>
understands that the rights and obligations of any Fund under the Declaration of
Trust are separate and distinct from those of any and all other Funds. The
Sub-Adviser further understands and agrees that no Fund of the Trust shall be
liable for any claims against any other Fund of the Trust and that the
Sub-Adviser must look solely to the assets of the pertinent Fund of the Trust
for the enforcement or satisfaction of any claims against the Trust with respect
to that Fund.
12. Any question of interpretation of any term or provision of this SubAdvisory
Agreement having a counterpart in or otherwise derived from a term or provision
of the Act shall be resolved by reference to such term or provision of the Act
and to interpretation thereof, if any, by the United States courts, or, in the
absence of any controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued pursuant to the
Act. Specifically, the terms "vote of a majority of the outstanding voting
securities," "interested persons," "assignment" and "affiliated person," as used
in this Agreement shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, when the effect of a requirement of the Act reflected in
any provision of this Agreement is modified, interpreted or relaxed by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
13. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
14. This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
IN WlTNESS WHEREOF, the parties hereto have caused this Subadvisory
Agreement to be executed by their respective officers designated below as of the
day and year first above written.
ORBITEX MANAGEMENT, INC. ORBITEX GROUP OF FUNDS
By: ________________________________ By: ________________________________
James L. Nelson, President James L. Nelson, President
BANKERS TRUST AUSTRALIA LIMITED
By: _______________________________________________
5
<PAGE>
SUBADVISORY AGREEMENT
ORBITEX GROUP OF FUNDS
Schedule A
Funds Subject to SubAdvisory Agreement
Orbitex Asian Select Advisers Fund
6
<PAGE>
SUBADVISORY AGREEMENT
ORBITEX GROUP OF FUNDS
Schedule B
Fee Schedule
For the performance of the services under the Agreement, on a monthly basis the
Adviser shall pay the Sub-Adviser a fee based on the Fund's average daily net
assets at the annualized rate .70%.
7
Exhibit 5(e)
Form of Sub-Sub-Advisory Agreement among Orbitex Group of Funds, Orbitex
Management, Inc., Bankers Trust Company and BT Funds Management (International)
Limited
<PAGE>
SUB-SUBADVISORY AGREEMENT
This Sub-Subadvisory Agreement is made and entered into on this day of
1997, by BT Fund Managers International Limited (the "Sub-Sub-Adviser"), a
wholly-owned subsidiary of Bankers Trust Australia Limited (located in Sydney,
Australia) which, in turn, is wholly-owned subsidiary of Bankers Trust New York
Corporation ("BTNY"), a bank holding company located in New York, and Bankers
Trust Company (the "Sub-Adviser"), a New York banking corporation which is also
a wholly-owned subsidiary of BTNY, Orbitex Management, Inc., a New York
corporation (the "Adviser, and Orbitex Group of Funds a Delaware business trust
(the "Trust").
WITNESSETH
WHEREAS, the "Adviser" is engaged pursuant to an Investment Advisory
Agreement (the "Advisory Agreement") with the Trust in the investment of the
Trust's assets in accordance with the Trust's Prospectus and Statement of
Additional Information (collectively the "Prospectus"); and
WHEREAS, pursuant to the Advisory Agreement, the Adviser may delegate
its responsibilities for the management of the investment of the assets of one
or more Funds of the Trust to one or more sub-advisers, and
WHEREAS, pursuant to a Sub-Advisory Agreement among the Trust, Adviser
and Sub-Adviser (the "Sub-Advisory Agreement") the Adviser has delegated
responsibility for management of the investments of one or more Funds of the
Trust to the Sub-Adviser and the Sub-Adviser has agreed to managed the
investment of one or more Funds in accordance with this Sub-Advisory Agreement
and Prospectus; and
WHEREAS, pursuant to the Sub-Advisory Agreement, the Sub-Adviser may
delegate its responsibilities for the management of the investment of the
Fund(s) which it has assumed therein to one or more Sub-Sub-Advisers, and
WHEREAS, the Sub-Adviser desires to so delegate responsibility for
management of the investments of one or more Funds of the Trust to the
Sub-Sub-Adviser, the Sub-Sub-Adviser agrees to manage the investment of one or
more Funds in accordance with this Sub-Subadvisory Agreement and the Prospectus;
NOW THEREFORE:, in consideration of the premises and mutual promises
hereinafter set forth, the parties hereto agree as follows;
1. The Sub-Adviser hereby appoints the Sub-Sub-Adviser to act as the investment
advisor to the Sub-Adviser with respect to one or more funds (individually or
collectively the "Fund" as identified in "Schedule A", which is attached hereto
and by this reference is incorporated herein. The Sub-Sub-Adviser hereby accepts
such appointment and agrees to render the services herein set forth for the
compensation set forth on Schedule B, which is attached hereto and by this
reference is incorporated herein. The Sub-Adviser represents to the
Sub-Sub-Adviser that it is authorized pursuant to the Sub-Advisory Agreement to
delegate to the Sub-Sub-Adviser all of the services to be performed by the
Sub-Sub-Adviser pursuant hereto.
<PAGE>
2. Subject to the supervision of the Trustees of the Trust and the Adviser and
Sub-Adviser the Sub-Sub-Adviser will manage the securities and investments
(including cash) of the Fund, including the purchase, retention and disposition
thereof, and the execution of agreements relating thereto in accordance with the
Fund's investment objectives, policies and restriction as those are stated in
the Prospectus and further subject to the following understandings:
(a) The Sub-Sub-Adviser shall furnish a continuous investment program
to the Fund and in doing so shall determine from time to time what investments
or securities will be purchased, retained or sold by the Fund, and what portions
of the assets will be invested or held uninvested as cash;
(b) The Sub-Sub-Adviser, in the performance of its duties and
obligations under this Agreement shall act in conformity with the requirements
of the Declaration of Trust, Bylaws and the Prospectus of the Trust, and with
the instructions and directions of the Trustees of the Trust and, to the extent
consistent therewith and herewith, of the Adviser and/or Sub-Adviser, and will
conform to and comply with the requirements of the Investment Company Act of
1940, as amended (the "1940 Act"), and all other applicable federal and state
laws and regulations;
(c) The Sub-Sub-Adviser shall determine the securities to be purchased
or sold by the Fund and, as agent for the Fund, will effect transactions
pursuant to its determinations either directly with the issuer or with or
through any broker and/or dealer in such securities. The Sub-Sub-Adviser shall
also determine whether or not the Fund shall enter into repurchase agreements or
engage in any other investment transactions or techniques that are consistent
with subsection (b) above;
(d) The Sub-Sub-Adviser shall maintain such books and records as are
required by the 1940 Act or other applicable law with respect to the securities
transactions of the Fund and shall render to the Adviser or Sub-Adviser or
either of their designees, such periodic and special reports as they may
reasonably request;
(e) The Sub-Sub-Adviser shall, to the extent the information is within
its reasonable control, provide or cause to be provided to the Trust's Custodian
all requested information relating to all transactions concerning the assets of
the Fund (other than share transactions of the Fund). The Trust shall ensure
that its Custodian complies with the Sub-Sub-Adviser's instructions provided
that such instructions are authorized pursuant to this Agreement;
(f) The investment advisory services of the Sub-Sub-Adviser to the Fund
under its Sub-Subadvisory Agreement are not to be deemed exclusive, and the
Sub-Sub-Adviser shall be free to render similar services to others;
(g) The Sub-Sub-Adviser is authorized subject to the supervision of the
Adviser, Sub-Adviser and the Trustees of the Trust, to place orders for the
purchase and sale of the Fund's investments with or through such persons,
brokers or dealers, including the Sub-Sub-Adviser or affiliates thereof and to
negotiate commissions to be paid in such transactions in accordance with the
Fund's policy with respect to brokerage as set forth in the Prospectus. The
Sub-Sub-Adviser may, on behalf of the Fund, pay brokerage commissions to a
broker which provides brokerage and research services to the Sub-Sub-Adviser in
excess of the amount another broker would have charged for effecting the
transaction, provided the Sub-Sub-Adviser determines in good faith that the
amount is reasonable in relation to the value of the brokerage and research
services provided by the executing broker in terms of the particular transaction
or in terms of the Sub-Sub-Adviser's overall responsibilities with respect to
the Fund and the accounts as to which the Sub-Sub-Adviser exercises investment
discretion. It is recognized
2
<PAGE>
that the services provided by such brokers may be useful to the Sub-Sub-Adviser
in connection with the Sub-Adviser's services to other clients;
(h) On occasions when the Sub-Sub-Adviser deems the purchase or sale of
a security to be in the best interest of the Fund as well as other customers,
the Sub-Sub-Adviser may, to the extent permitted by applicable law and
regulations, but shall not be obligated to, aggregate the securities to be sold
or purchased in order to obtain the best execution or lower brokerage
commissions, if any. In such event, allocation of the securities so sold or
purchased, as well as the expenses incurred in the transaction, will be made by
the Sub-Sub-Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and, if applicable, to
such other customers;
(i) The Trust, the Adviser and the Sub-Adviser acknowledges that in
order to comply with U.S. and Australian securities and banking laws and related
regulatory requirements, there may be periods when the Sub-Sub-Adviser will not
be permitted to initiate or recommend certain types of transactions in the
securities of issuers for which affiliates of the Sub-Sub-Adviser performing
investment banking services, and neither the Trust nor either the Adviser or
Sub-Adviser will be advised of that fact. For example, during certain periods
when affiliates of the Sub-Sub-Adviser are engaged in an underwriting or other
distribution of a company's securities, the Sub-Sub-Adviser may be prohibited
from purchasing or recommending the purchase of certain securities of that
company for its clients. Similarly, the Sub-Sub-Adviser may on occasion be
prohibited from selling or recommending the sale of securities of a company for
which affiliates are providing investment banking services.
(j) The Sub-Sub-Adviser shall provide marketing support to the Adviser
and/or the Sub-Advisor in connection with the sale of Trust shares, as agreed
to, from time to time, by either of the Adviser or Sub-Adviser with the
Sub-Sub-Adviser. Such support shall includes attendance at meetings of the
Trust's Board of Trustees at least annually, presentations by representatives of
the Sub-Sub-Adviser at investment seminars, conferences and other industry
meetings. Any materials utilized by the Adviser or Sub-Adviser which contain any
information relating to the Sub-Sub-Adviser shall be submitted to the
Sub-Sub-Adviser for approval prior to use, not less than ten (10) business days
before such approval is needed by either of them. Any materials utilized by the
Sub-Sub-Adviser which contain any information relating to any of the Adviser,
Sub-Adviser or the Trust shall be submitted to the Adviser (if related to the
Adviser or the Trust) or to the Sub-Adviser (if related to the Sub-Adviser) for
approval prior to use, not less than ten (10) business days before such approval
is needed by the Sub-Sub-Adviser, which approval shall not be unreasonably
withheld.
In the event of termination of this Agreement, the Adviser and
Sub-Adviser will continue to furnish to the Sub-Sub-Adviser copies of any such
materials that refer in any way to the Sub-Sub-Adviser. The Adviser and
Sub-Adviser shall furnish or otherwise make available to the Sub-Sub-Adviser
such other information relating to the business affairs of the Fund as the
Sub-Sub-Adviser at any time, or from time to time, reasonably requests in order
to discharge its obligations hereunder.
(k) The Trust represents that it has delivered true ant correct copies
to the Sub-Sub-Adviser of, and agrees to promptly notify and deliver to the
Sub-Sub-Adviser, all future amendments and supplements to, the Prospectus, the
Trust's Declaration of Trust, the Trust's Bylaws, resolutions or other
instructions of the Trustees, and such other documents or instruments governing
the instruments and investment policies and practices of the Fund which are
relevant to the Sub-Sub-Adviser's performance of its duties under this Agreement
and the Trust's Registration Statement on Form N-1A.
3
<PAGE>
(1) The Trust, Adviser and Sub-Adviser each represents, warrants and
agrees that:
(i) it has the power and has taken all necessary action,
and has obtained all necessary licenses,
authorizations and approvals (including approval by
the Trust's Board of Trustees, to execute this
Agreement which constitutes its legal, valid and
binding obligation, enforceable in accordance with
its terms;
(ii) the Fund is duly registered with the SEC under the
1940 Act as a diversified management investment
company, and that all required action has been taken
by the Fund under the Securities Act of 1933, as
amended and the l940 Act to make the public offering
and consummate the sale of its shares pursuant to the
Prospectus; and
(iii) the adviser, for the purposes of investing in
securities, controls or managers assets exceeding
$10,000,000 AUD. Such amount may include assets of a
trust managed by the Adviser and assets managed by an
affiliate of the Adviser.
3. The Sub-Sub-Adviser agrees that all records which it maintains for the Fund
pursuant to Section 2(d) of this Sub-Subadvisory Agreement are the property of
the Trust and will promptly surrender any of such records to the Adviser or
Sub-Adviser upon the request of the Trustee, the Adviser or the Sub-Adviser. The
Sub-Sub-Adviser shall preserve for periods prescribed by Rule 31a-2 of the 1940
Act any such records as are required to be maintained by the Sub-Sub-Adviser
with respect to the Fund by Rule 31a-1 of the 1940 Act and to comply in full
with the requirements of Rule 204-2 under the Investment Advisers Act of 1940
pertaining to the maintenance of books and records.
4. For performance of the services hereunder with respect to the Fund, the
Sub-Adviser shall pay the Sub-Sub-Adviser compensation pursuant to the Fee
Schedule contained in Schedule B. The fee prescribed in Schedule B shall be
calculated daily and payable monthly in arrears at an annual rate per Schedule B
of the Fund's average daily net assets as such is calculated pursuant to the
Prospectus. The Sub-Adviser shall provide the Sub-Sub-Adviser with supporting
documentation indicating how the fee is calculated each month.
5. The Sub-Sub-Adviser shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Trust, Fund, Adviser or Sub-Adviser in
connection with the matters to which this Sub-Sub-Advisory Agreement relates,
except for a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
The Fund, and/or the Adviser and/or the Sub-Adviser will indemnify and
defend the Sub-Sub-Adviser and hold it harmless against any loss, cost or claims
or any demands or proceedings made by any person, in any way arising from its
appointment hereunder, except as may result from the Sub-Sub-Adviser's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations hereunder. The provisions of this section 5 shall survive
termination of this Agreement.
6. The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain in
effect for a period of two years from the date of this Agreement. Thereafter,
this Agreement shall continue in effect with respect to the Fund from year to
year, subject to the termination provisions and all other terms and conditions
hereof; provided such continuance with respect to the Fund is approved at least
annually by vote of the holders
4
<PAGE>
of a majority of the outstanding voting securities of the Fund (as defined in
the 1940 Act) or by the Trustees of the Trust; provided that in either event,
such continuance is also approved annually by the vote, cast in person or a
meeting called for the purpose of voting on such approval, of a majority of the
Trustees of the Trust who are not parties to this Agreement or interested
persons of any party hereto. The Sub-Sub-Adviser shall furnish to the Trust,
promptly upon its request, such information as may reasonably be necessary to
evaluate the terms of this Agreement or any extension, renewal or amendment
thereof. This Agreement may be terminated at any time by any party hereto,
without the payment of any penalty, upon sixty (60) days prior written notice to
the other parties; provided, that in the case of termination by the Trust, such
action shall have been authorized (i) resolution of the Trust's Board of
Trustees, including the vote or written consent of Trustees of the Trust who are
not parties to this Agreement or interested persons of any party hereto, or (ii)
by vote of a majority of the outstanding voting securities of the Fund as
defined in the 1940 Act). This Agreement shall automatically terminate in the
event of it's "assignment" (as defined in the 1940 Act).
7. The Sub-Sub-Adviser shall for all purposes herein be deemed to be an
independent contractor and shall not, unless otherwise expressly provided herein
or authorized by the Trustees of Trust from time to time, have any authority to
act for or represent the Fund or Trust in any way or otherwise be deemed to be
an agent of the Fund or the Trust.
8. In rendering the services required under this Agreement, the Sub-Sub-Adviser
may from time to time employ or associate itself with such person or persons as
it believes necessary to assist it in carrying out its obligations under this
Agreement, provided that the Sub-Sub-Adviser may not retain as a sub-adviser any
company that would be an "investment adviser", as that term is defined in
Section 2(a)(20) of the 1940 Act, to the Fund unless the contract with such
company has been approved by the Fund in the manner required by the 1940 Act.
9. It is understood that the Trust will pay from the assets of the Fund all of
its own expenses allocable to the Fund including, without limitation,
compensation of Trustees; governmental fees; interest charges; taxes; fees and
expenses of independent auditors, legal counsel and of any transfer agent,
administrator, distributor or shareholder servicing agent; costs associated with
printing and mailing of Prospectuses, shareholder reports, notices, proxy
statements and reports to governmental officers and commissions and to
shareholders of the Fund; expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the custodian for all services to the Fund, including safekeeping of
securities and maintaining required books and accounts; expenses of calculating
the net asset value of shares of the Fund; expenses of shareholder meetings; and
expenses relating to the issuance, registration and qualification of shares of
the Fund. Costs and expenses (other than the Sub-Sub-Adviser's overhead cost)
incurred by the Sub-Sub-Adviser in connection with its performance of its duties
hereunder that are not acceptable to the Fund (such as costs of attending
conferences at the request of the Adviser or Sub-Adviser) shall be reimbursed to
the Sub-Sub-Adviser by the Sub-Adviser.
10. The Sub-Sub-Adviser Agreement may be amended only in accordance with the
1940 Act.
11. Any notice that is required to be given by the parties to each other under
the terms of this Agreement shall be in writing, delivered, or mailed postpaid
to the other party, or transmitted by facsimile with acknowledgment of receipt,
to the parties at the following addresses or facsimile numbers, which may from
time to time be changed by the parties by notice to the other parties:
5
<PAGE>
(a) If to the Sub-Sub-Adviser:
BT Fund Manager International Ltd.
Level 42
Australia Square Tower
Sydney, New South Wales, Australia 2000
Attn:
(b) If to the Sub-Adviser:
Bankers Trust Company
Global Investment Management
One Bankers Trust Plaza
New York, New York 10006
Attn:
(c) If to the Adviser:
Orbitex Management, Inc.
660 Madison Avenue
New York, New York 10021
Attention: James L. Nelson
Facsimile: 212-207-8464
(d) If to the Trust:
Orbitex Group of Funds
660 Madison Avenue
New York, New York 10021
Attention: James L. Nelson
Facsimile: 212-207-8464
l2. This Sub-Subadvisory Agreement shall be governed and construed m accordance
with the laws of the State of New York.
13. This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sub-Subadvisory
Agreement to be executed by their respective officers designated below as of the
day and year first above written.
ORBITEX MANAGEMENT, INC. ORBITEX GROUP OF FUNDS
By: ___________________________ By: ____________________________________
James L. Nelson, President James L. Nelson, President
BANKERS TRUST COMPANY BT FUND MANAGERS INTERNATIONAL LTD.
By: ___________________________ By: ____________________________________
7
Exhibit 10
Opinion and Consent of Rogers & Wells
<PAGE>
September 26, 1997
Orbitex Group of Funds
660 Madison Avenue
New York, New York 10021
Ladies and Gentlemen:
We have acted as counsel for Orbitex Group of Funds, a Delaware
business trust (the "Fund"), in connection with the organization of the Fund,
its registration as a opened-end investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act of a Registration Statement on Form
N-1A (the "Registration Statement") relating to the proposed public offering by
the Fund of transferable units of beneficial interest in the Fund (the
"Shares").
In so acting, we have examined and relied upon originals or copies,
certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinions expressed below.
Based upon the foregoing, and on such examination of law as we have
deemed necessary, we are of the opinion that:
1. The Fund has been duly formed and is validly existing in good
standing under the laws of the State of Delaware.
2. When the Shares have been offered and sold as contemplated in the
Registration Statement and in accordance with the terms of the Underwriting
Agreement, filed as an Exhibit to the Registration Statement, the Shares will be
validly issued, fully paid and non-assessable.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement and to the
reference to this firm under the heading "Legal Matters" in the form of
statement of additional information contained therein. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Rogers & Wells
------------------
Rogers & Wells
Exhibit 11
Consent of Independent Accountants
<PAGE>
Report of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated May
30, 1997, relating to the statement of assets and liabilities of the Orbitex
Group of Funds at May 29, 1997, which appears in such Statement of Additional
Information. We also consent to the references to us under the heading
"Independent Accountants" and "Financial Statements" in such Statement of
Additional Information.
- --------------------
Price Waterhouse LLP
Boston, MA
May 30, 1997
Exhibit 13
Form of Share Subscription Agreement
<PAGE>
ORBITEX GROUP OF FUNDS
Subscription Agreement
1. Share Subscription. Orbitex Management, Inc. ("Orbitex") hereby
agrees to purchase from Orbitex Group of Funds (the "Trust"), a series-type
investment company having five investment portfolios (the "Funds"), the
following shares of the below named Funds at a per-share purchase price
indicated below, on the terms and conditions set forth herein and in the
registration statement described below:
Amount Price Shares
Funds Purchased Per Share Purchased
- ----- --------- --------- ---------
Orbitex Global Natural
Resources Fund $15.00
Orbitex Info-Tech &
Communications Fund $15.00
Orbitex Growth Fund $15.00
Orbitex Asian High
Yield Fund $12.00
Orbitex Asian Select
Advisers Fund $15.00
Orbitex will purchase shares of each Fund at the price per-share
indicated above, tendering $100,000 for such shares, at a time mutually
agreeable to Orbitex and the Trust, but in no event later than one week prior to
the date on which the Trust will file a final pre-effective amendment to its
registration statement with the Securities and Exchange Commission (the
"Commission") on Form N-1A (the "Registration Statement"). At the time of
purchase, the Trust's shares will be fully paid and non-assessable.
Orbitex understands that the Trust has filed with the Commission a
Registration Statement which contains the prospectus describing the Trust and
the shares of beneficial interest to be issued thereunder. By its signature
hereto, the undersigned hereby acknowledges receipt of a copy of the
Registration Statement.
2. Representation and Warranties. Orbitex hereby represents and
warrants to the Trust as follows:
(a) It is aware that no federal or state agency has made any
findings or determinations as to the fairness for investment, nor any
recommendations or endorsement, of the Trust's shares;
(b) It has such knowledge and experience of financial and
business matters as will enable it to utilize the information made
available to it in connection with the
<PAGE>
offering described in the Trust's Registration Statement, to evaluate
the merits and risks of the prospective investment and to make an
informed investment decision;
(c) It recognizes that the Trust has only recently been
organized and has no financial or operating history and, further, that
investment in the Trust involves certain risks related to the purchase
of the Trust's shares, and it acknowledges that is has suitable
financial resources and anticipated income to bear the economic risk of
such an investment;
(d) It is purchasing the Trust's shares for its own account,
for investment, in order to provide initial capital or "seed money,"
for each of the Funds and not with any intent to distribute or resell
the shares, either in whole or in part, and with no present intent to
sell or otherwise dispose of the shares, either in whole or in part;
(e) It will not sell the shares purchased by it without
registration of such shares under the Securities Act of 1933 except in
reliance upon an exemption therefrom;
(f) It will not sell the shares purchased by it until the
assets of the particular Fund (reflecting the shares purchased by
Orbitex plus shares owned by Fund investors) are large enough, in
Orbitex's reasonable judgment, so that a requested sale will not have
an adverse effect upon the investment performance of such Fund. This
determination having been made, Orbitex may request to sell its shares
from time to time, and the Fund shares held by Orbitex will be redeemed
at the net asset value next determined after the Fund receives
Orbitex's proper notice of redemption;
(g) It has been furnished with, and has carefully read, this
subscription agreement and the Registration Statement and such material
documents relating to the Trust as it has requested and as have been
provided to it by the Trust; and
(h) It has had the opportunity to ask questions of, and
receive answers from, the Trust concerning each Fund and the terms of
the offering.
IN WITNESS WHEREOF, the undersigned have executed this instrument on May , 1997.
ORBITEX MANAGEMENT, INC.
By: ______________________________________
James L. Nelson, President
ORBITEX GROUP OF FUNDS
By: ______________________________________
James L. Nelson, President
Exhibit 14
Form of Individual Retirement Account Plan
<PAGE>
ORBITEX GROUP OF FUNDS
State Street Bank and Trust Company
Individual Retirement Custodial Account
Adoption Agreement
I, the person signing this Adoption Agreement (hereinafter called the
"Depositor"), establish an Individual Retirement Account (the "Account") with
State Street Bank and Trust Company as Custodian. I agree to the terms of my
Account, which are contained in the document entitled "State Street Bank and
Trust Company Individual Retirement Custodial Account" and this Adoption
Agreement. I certify the accuracy of the information in this Adoption Agreement.
My Account will be effective upon acceptance by State Street Bank and Trust
Company.
<TABLE>
<S> <C>
1. Depositor Information
[ ][ ][ ] - [ ][ ] - [ ][ ][ ][ ]
----------------------------------------------------------------- Social Security Number
Print Full Name
----------------------------------------------------------------- --------------------------------
Address Date of Birth
( )
----------------------------------------------------------------- --------------------------------
City State Zip Daytime Telephone No.
2. Type of Account
A. [ ] Accumulation IRA or [ ] Spousal IRA (A separate Adoption Agreement must be submitted for each IRA account.)
[ ] Current Contribution for the year 19_______. Check enclosed for $________________ payable to
"________________________." This contribution does not exceed the maximum permitted amount as described in the IRA
Disclosure Statement.
[ ] Transfer of existing IRA directly from current Custodian or Trustee. Check this box if the existing IRA is one to
which you made contributions (as opposed to an IRA you established by rolling over a distribution from an employer
plan). Complete the separate Transfer of IRA Assets Form.
B. [ ] Rollover IRA
The requirements for a valid rollover are complex. See the IRA Disclosure Statement for additional information and
consult your tax advisor for help if needed. Check enclosed for $ payable to " ."
[ ] Rollover of a qualifying rollover distribution to Depositor from an employer plan or 403(b) arrangement, or
rollover from an IRA which held assets distributed to Depositor from an employer plan or 403(b) arrangement and to
which Depositor made no direct contributions.
[ ] Rollover of assets distributed to Depositor from another IRA where the IRA contained amounts contributed directly
by the Depositor.
C. [ ] Direct Rollover
[ ] Direct rollover of an eligible distribution from a qualified plan.
[ ] Direct rollover of an eligible distribution from a 403(b) account or annuity.
Direct rollovers are described in the IRA Disclosure Statement. The plan administrator or 403(b) sponsor should make the
check payable to "------------------------------------------------------------------------."
D. [ ] SEP Provision - check here if the Depositor intends to use this Account in connection with a Simplified Employee
Pension Plan established by the Depositor's employer.
3. Investments
Invest contributions to my Account as follows: [Fund 1] %
---------
[Fund 2] %
---------
[Fund 3] %
---------
[Fund 4] %
---------
[etc.] 100%
I acknowledge that I have sole responsibility for my investment choices and that I have received a current prospectus for
each Fund I select. Please read the prospectus(es) of the Fund(s) selected before investing.
[Telephone Transfers Authorization]
4. Certifications and Signatures
In the case of a Rollover IRA or Direct Rollover IRA, Depositor certifies that the contribution does not include any employee
contributions to any qualified plan (other than accumulated deductible employee contributions) or 403(b) arrangement; that any
assets transferred in kind by Depositor are the same assets received by the Depositor in the distribution being rolled over; if
the distribution is from an IRA, that no rollover into such IRA has been made within the one-year period immediately preceding
this rollover; that such distribution was received within 60 days of making the rollover to the Account; and that no portion of
the amount rolled over is a required minimum distribution under the required distribution rules.
Depositor has received and read the "IRA Disclosure Statement" relating to this Account (including the Custodian's fee
schedule), the Custodial Account document, and the "Instructions" pertaining to this Adoption Agreement.
2
<PAGE>
Depositor acknowledges receipt of the Custodial Account document and IRA Disclosure Statement at least 7 days before the date
inscribed below and acknowledges that Depositor has no further right of revocation.
----------------------------------------
Signature of Depositor
Date -----------------------------------
Custodian Acceptance. State Street Bank and Trust Company will accept appointment as Custodian of the Depositor's Account.
However, this Agreement is not binding upon the Custodian until the Depositor has received a statement of the transaction.
Receipt by the Depositor of a confirmation of the purchase of the Fund shares indicated above will serve as notification of
State Street Bank and Trust Company's acceptance of appointment as Custodian of the Depositor's Account.
STATE STREET BANK AND TRUST COMPANY, CUSTODIAN
By -------------------------------------
Date -----------------------------------
RETAIN A PHOTOCOPY OF THE COMPLETED ADOPTION AGREEMENT FOR YOUR RECORDS
</TABLE>
3
<PAGE>
ORBITEX GROUP OF FUNDS
State Street Bank and Trust Company Individual Retirement Custodial Account
Transfer of IRA Assets Form
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. NAME AND ADDRESS OF DEPOSITOR
Name
--------------------------------------------------------------------------------------------------
Address
------------------------------------------------------------------------------------------------
Street City State Zip
Day Telephone No. ( ) Social Security No.
-------------------------------------- -------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
2. INSTRUCTIONS TO PRESENT IRA CUSTODIAN OR TRUSTEE (Completed by Depositor)
Name of Custodian/Trustee
-----------------------------------------------------------------------------
Attn: Mr./Ms.
----------------------------------------------------------------------------------------
Address
-----------------------------------------------------------------------------------------------
Street City State Zip
Account no.
-----------------------------------------------
Please transfer assets of my present Individual Retirement Account to State Street Bank and Trust Company. All assets should
be transferred as cash according to the following instructions:
( ) Transfer the total amount in my account or ( ) Transfer $ and retain the balance.
--------------------
Make check payable to:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
3. INVESTMENT INSTRUCTIONS TO STATE STREET BANK AND TRUST COMPANY
(Depositor - check one box and complete if necessary)
( ) Invest the transferred amount in accordance with the investment instructions in the Adoption Agreement for my
State Street Bank and Trust Company Individual Retirement Custodial Account.
( ) Invest the transferred [Fund 1] %
amount as follows: ------------
[Fund 2] %
------------
[etc.] 100%
I acknowledge that I have sole responsibility for my investment choices and that I have received a current prospectus for each
Fund I select. Please read the prospectus(es) of the Fund(s) you select before investing.
- ------------------------------------------------------------------------------------------------------------------------------------
4. SIGNATURE OF DEPOSITOR
-------------------------------------------------------------- ---------------------------------------
Date Signature of Depositor
SIGNATURE GUARANTEE (only if required by current IRA Sponsor)
Signatured guaranteed by: ---------------------------------------------------------------------------
Name of Bank or Dealer Firm
---------------------------------------------------------------------------
Signature of Officer and Title
- ------------------------------------------------------------------------------------------------------------------------------------
4
<PAGE>
5. ACCEPTANCE BY NEW CUSTODIAN (Completed by State Street Bank and Trust Company)
State Street Bank and Trust Company agrees to accept transfer of the above amount for deposit to the Depositor's State Street
Bank and Trust Company Individual Retirement Custodial Account, and requests the liquidation and transfer of assets as
indicated above.
----------------------------------------- By: ---------------------------------------------------------
Date
</TABLE>
5
<PAGE>
STATE STREET BANK INDIVIDUAL RETIREMENT ACCOUNT
DESIGNATION OF BENEFICIARY
Print Name of Depositor ________________________________________________________
As Depositor, I hereby make the following designation of beneficiary in
accordance with the State Street Bank and Trust Company Individual Retirement
Custodial Account:
In the event of my death, pay any interest I may have under my Account to the
following Primary Beneficiary or Beneficiaries that survive me. Make payment in
the proportions specified below (or in equal proportions if no different
proportions are specified). If any Primary Beneficiary predeceases me, his share
is to be divided among the Primary Beneficiaries who survive me in the relative
proportions assigned to each such surviving Primary Beneficiary.
Primary Beneficiary or Beneficiaries:
<TABLE>
<CAPTION>
Propor-
Name Relationship Date of Birth Social Security Number tion
<S> <C> <C> <C> <C>
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
</TABLE>
If none of the Primary Beneficiaries survives me, pay any interest I may have
under my Account to the following Alternate Beneficiary or Beneficiaries that
survive me. Make payment in the proportions specified below (or in equal
proportions if no different proportions are specified). If any Alternate
Beneficiary predeceases me, his share is to be divided among the Alternate
Beneficiaries who survive me in the relative proportions assigned to each such
surviving Alternate Beneficiary.
Alternate Beneficiary or Beneficiaries:
<TABLE>
<CAPTION>
Propor-
Name Relationship Date of Birth Social Security Number tion
<S> <C> <C> <C> <C>
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
- --------------------------------- --------------------- ---------------- -------------------------- -----------
</TABLE>
I understand that the beneficiaries named herein may be changed or revoked at
any time by filing a new designation in writing with the Custodian. All forms
must be acceptable to the Custodian and dated and signed by the Depositor.
Signature of Depositor Date
- ------------------------------------------------------- -----------------------
IMPORTANT: This Designation of Beneficiary may have important tax or estate
planning effects. Also, if you are married and reside in a community property
state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas or
Washington), you may need to obtain your spouse's consent if you have not
designated your spouse as primary beneficiary for at least half of your Account.
See your lawyer or other tax professional for additional information and advice.
6
<PAGE>
STATE STREET BANK AND TRUST COMPANY
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following provisions of Articles I to VII are in the form promulgated
by the Internal Revenue Service in Form 5305-A for use in establishing an
individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c)(but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993 include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled with other
property except in a common trust fund or common investment fund (within the
meaning of section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m) except as otherwise permitted by section 408(m)(3)
which provides an exception for certain gold and silver coins and coins issued
under the laws of any state.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
section 408(a)(6) and Proposed Regulations section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse under
paragraph 4, other than in the case of a life annuity, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date, the April 1
following the calendar year end in which the Depositor reaches age 70-1/2. By
that date, the Depositor may elect, in a manner acceptable to the Custodian, to
have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially equal
monthly, quarterly, or annual payments over the joint and last
survivor lives of the Depositor and his or her designated
beneficiary.
(d) Equal or substantially equal annual payments over a specified period
that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period
that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed
to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her
interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has
begun, the entire remaining interest will, at the election of the
Depositor or, if the Depositor has not so elected, at the election
of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the
fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over
the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following
the year of the Depositor's death. If, however, the
beneficiary is the Depositor's surviving spouse, then this
distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70-1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on
the Depositor's required beginning date, even though payments may
actually have been made before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of distribution over life expectancy in equal or
substantially equal annual payments, to determine the minimum annual payment for
each year, divide the Depositor's entire interest in the Custodial account as of
the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor expectancy of
the Depositor and the Depositor's designated beneficiary, or the life expectancy
of the designated beneficiary, whichever applies.) In the case of distributions
under paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designated
beneficiary as of their birthdays in the year the Depositor reaches age 70-1/2.
In the case of a distribution in accordance with paragraph 4(b)(ii), determine
life expectancy using the attained age of
7
<PAGE>
the designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one individual
retirement account the amount required to satisfy the requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information
necessary for the Custodian to prepare any reports required under section 408(i)
and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service
and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles through and this sentence will be controlling. Any
additional articles that are not consistent with section 408(a) and the related
regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the persons whose signatures appear on the Adoption
Agreement.
Article VIII.
1. As used in this Article VIII the following terms have the following
meanings:
"Custodian" means State Street Bank and Trust Company.
"Fund" means a mutual fund or registered investment company which is
specified in the Adoption Agreement, or which is designated by the Distributor
named in the Adoption Agreement, as being available as an investment for the
custodial account; provided, however, that such a mutual fund or registered
investment company must be legally offered for sale in the state of the
Depositor's residence in order to be a Fund hereunder.
"Distributor" means the entity which has a contract with the Fund(s) to
serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder
to the Distributor may be performed by the Fund(s) or by an entity that has a
contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the
Distributor, including the transfer agent for the Fund(s), to perform various
administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned
hereunder to the Service Company will be performed by the Distributor (if any)
or by an entity specified in the second preceding paragraph.
2. The Depositor may revoke the custodial account established hereunder by
mailing or delivering a written notice of revocation to the Custodian within
seven days after the Depositor receives the Disclosure Statement related to the
custodial account. Mailed notice is treated as given to the Custodian on date of
the postmark (or on the date of Post Office certification or registration in the
case of notice sent by certified or registered mail). Upon timely revocation,
the Depositor's initial contribution will be returned, without adjustment for
administrative expenses, commissions or sales charges, fluctuations in market
value or other changes.
3. All contributions to the custodial account shall be invested and
reinvested in full and fractional shares of one or more Funds. Such investments
shall be made in such proportions and/or in such amounts as Depositor from time
to time in the Adoption Agreement or by other written notice to the Service
Company (in such form as may be acceptable to the Service Company) may direct.
The Service Company shall be responsible for promptly transmitting all
investment directions by the Depositor for the purchase or sale of shares of one
or more Funds hereunder to the Funds' transfer agent for execution. However, if
investment directions with respect to the investment of any contribution
hereunder are not received from the Depositor as required or, if received, are
unclear or incomplete in the opinion of the Service Company, the contribution
will be returned to the Depositor without liability for interest or for loss of
income or appreciation. If any directions or other orders by the Depositor with
respect to the sale or purchase of shares of one or more Funds for the custodial
account are unclear or incomplete in the opinion of the Service Company, the
Service Company will refrain from carrying out such investment directions or
from executing any such sale or purchase, without liability for loss of income
or for appreciation or depreciation of any asset, pending receipt of
clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum
initial or additional investment or minimum balance rules applicable to a Fund
as described in its prospectus.
All dividends and capital gains or other distributions received on the
shares of any Fund held in the Depositor's account shall be retained in the
account and (unless received in additional shares) shall be reinvested in full
and fractional shares of such Fund.
4. Subject to the minimum initial or additional investment, minimum
balance and other exchange rules applicable to a Fund, the Depositor may at any
time direct the Service Company to exchange all or a specified portion of the
shares of a Fund in the Depositor's account for shares and fractional shares of
one or more other Funds. The Depositor shall give such directions by written or
telephonic notice acceptable to the Service Company, and the Service Company
will process such directions as soon as practicable after receipt thereof
(subject to the second paragraph of Section 3 of this Article VIII.
5. Any purchase or redemption of shares of a Fund for or from the
Depositor's account will be effected at the public offering price or net asset
value of such Fund (as described in the then effective prospectus for such Fund)
next established after the Service Company has transmitted the Depositor's
investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or
from the Depositor's account will be subject to any applicable sales, redemption
or other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Depositor's custodial account. Any
account maintained in connection herewith shall be in the name of the Custodian
for the benefit of the Depositor. All assets of the custodial account shall be
registered in the name of the Custodian or of a suitable nominee. The books and
records of the Custodian shall show that all such investments are part of the
custodial account.
The Custodian shall maintain or cause to be maintained adequate records
reflecting transactions of the custodial account. In the discretion of the
Custodian, records maintained by the Service Company with respect to the account
hereunder will be deemed to
8
<PAGE>
satisfy the Custodian's recordkeeping responsibilities therefor. The Service
Company agrees to furnish the Custodian with any information the Custodian
requires to carry out the Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the
custodial account will have any responsibility for rendering advice with respect
to the investment and reinvestment of Depositor's custodial account, nor shall
such parties be liable for any loss or diminution in value which results from
Depositor's exercise of investment control over his custodial account. Depositor
shall have and exercise exclusive responsibility for and control over the
investment of the assets of his custodial account, and neither Custodian nor any
other such party shall have any duty to question his directions in that regard
or to advise him regarding the purchase, retention or sale of shares of one or
more Funds for the custodial account.
8. The Depositor may appoint an investment advisor with respect to the
custodial account on a form acceptable to the Custodian and the Service Company.
The investment advisor's appointment will be in effect until written notice to
the contrary is received by the Custodian and the Service Company. While an
investment advisor's appointment is in effect, the investment advisor may issue
investment directions or may issue orders for the sale or purchase of shares of
one or more Funds to the Service Company, and the Service Company will be fully
protected in carrying out such investment directions or orders to the same
extent as if they had been given by the Depositor.
The Depositor's appointment of any investment advisor will also be deemed
to be instructions to the Custodian and the Service Company to pay such
investment advisor's fees to the investment advisor from the custodial account
hereunder without additional authorization by the Depositor or the Custodian.
9. Distribution of the assets of the custodial account shall be made at
such time and in such form as Depositor (or the Beneficiary if Depositor is
deceased) shall elect by written order to the Custodian. Depositor acknowledges
that any distribution (except for distribution on account of Depositor's
disability or death, return of an "excess contribution" referred to in Code
Section 408(d), or a "rollover" from this custodial account) made earlier than
age 59-1/2 may subject Depositor to an "additional tax on early distributions"
under Code Section 72(t). For that purpose, Depositor will be considered
disabled if Depositor can prove, as provided in Code Section 72(m)(7), that
Depositor is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or be of long-continued and indefinite duration. It is the
responsibility of the Depositor (or the Beneficiary) by appropriate distribution
instructions to the Custodian to insure that the distribution requirements of
Code Section 401(a)(9) and Article IV above are met. If the Depositor (or
Beneficiary) does not direct the Custodian to make distributions from the
custodial account by the time that such distributions are required to commence
in accordance with such distribution requirements, the Custodian (and Service
Company) shall assume that the Depositor (or Beneficiary) is meeting the minimum
distribution requirements from another individual retirement arrangement
maintained by the Depositor (or Beneficiary) and the Custodian and Service
Company shall be fully protected in so doing. The Depositor (or the Depositor's
surviving spouse) may elect to comply with the distribution requirements in
Article IV using the recalculation of life expectancy method, or may elect that
the life expectancy of the Depositor (and/or the Depositor's surviving spouse)
will not be recalculated; any such election may be in such form as the Depositor
(or surviving spouse) provides (including the calculation of minimum
distribution amounts in accordance with a method that does not provide for
recalculation of the life expectancy of one or both of the Depositor and
surviving spouse and instructions to the Custodian in accordance with such
method). Neither Custodian nor any other party providing services to the
custodial account assumes any responsibility for the tax treatment of any
distribution from the custodial account; such responsibility rests solely with
the person ordering the distribution.
10. Custodian assumes (and shall have) no responsibility to make any
distribution except upon the written order of Depositor (or Beneficiary if
Depositor is deceased) containing such information as the Custodian may
reasonably request. Also, before making any distribution or honoring any
assignment of the custodial account, Custodian shall be furnished with any and
all applications, certificates, tax waivers, signature guarantees and other
documents (including proof of any legal representative's authority) deemed
necessary or advisable by Custodian, but Custodian shall not be responsible for
complying with an order which appears on its face to be genuine, or for refusing
to comply if not satisfied it is genuine, and Custodian has no duty of further
inquiry. Any distributions from the account may be mailed, first-class postage
prepaid, to the last known address of the person who is to receive such
distribution, as shown on the Custodian's records, and such distribution shall
to the extent thereof completely discharge the Custodian's liability for such
payment.
11. (a) The term "Beneficiary" means the person or persons designated as
such by the "designating person" (as defined below) on a form
acceptable to the Custodian for use in connection with the custodial
account, signed by the designating person, and filed with the
Custodian. The form may name individuals, trusts, estates, or other
entities as either primary or contingent beneficiaries. However, if
the designation does not effectively dispose of the entire custodial
account as of the time distribution is to commence, the term
"Beneficiary" shall then mean the designating person's estate with
respect to the assets of the custodial account not disposed of by
the designation form. The form last accepted by the Custodian before
such distribution is to commence, provided it was received by the
Custodian (or deposited in the U.S. Mail or with a delivery service)
during the designating person's lifetime, shall be controlling and,
whether or not fully dispositive of the custodial account, thereupon
shall revoke all such forms previously filed by that person. The
term "designating person" means Depositor during his/her lifetime;
after Depositor's death, it also means Depositor's spouse if the
spouse begins to receive a portion of the custodial account
(pursuant to such a designation by Depositor) under a form of
distribution permitted by Article IV. A designation by Depositor's
spouse shall relate solely to the balance remaining in the spouse's
portion of the custodial account after the death of the spouse.
(b) When and after distributions from the custodial account to
Depositor's Beneficiary commence, all rights and obligations
assigned to Depositor hereunder shall inure to, and be enjoyed and
exercised by, Beneficiary instead of Depositor.
12. (a) The Depositor agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to
prepare any reports required under Section 408(i) of the Code and
the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and manner
and containing such information as is prescribed by the Internal
Revenue Service.
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<PAGE>
(c) The Depositor, Custodian and Service Company shall furnish to each
other such information relevant to the custodial account as may be
required under the Code and any regulations issued or forms adopted
by the Treasury Department thereunder or as may otherwise be
necessary for the administration of the custodial account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required of him by law (including Form 5329), and neither
the Custodian nor Service Company shall have any duty to advise
Depositor concerning or monitor Depositor's compliance with such
requirement.
13. (a) Depositor retains the right to amend this custodial account document
in any respect at any time, effective on a stated date which shall
be at least 60 days after giving written notice of the amendment
(including its exact terms) to Custodian by registered or certified
mail, unless Custodian waives notice as to such amendment. If the
Custodian does not wish to continue serving as such under this
custodial account document as so amended, it may resign in
accordance with Section 17 below.
(b) Depositor delegates to the Custodian the Depositor's right so to
amend, provided the Custodian amends in the same manner all
agreements comparable to this one, having the same Custodian,
permitting comparable investments, and under which such power has
been delegated to it; this includes the power to amend retroactively
if necessary or appropriate in the opinion of the Custodian in order
to conform this custodial account to pertinent provisions of the
Code and other laws or successor provisions of law, or to obtain a
governmental ruling that such requirements are met, to adopt a
prototype or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion of the
Custodian. Such an amendment by the Custodian shall be communicated
in writing to Depositor, and Depositor shall be deemed to have
consented thereto unless, within 30 days after such communication to
Depositor is mailed, Depositor either (i) gives Custodian a written
order for a complete distribution or transfer of the custodial
account, or (ii) removes the Custodian and appoints a successor
under Section 17 below.
Pending the adoption of any amendment necessary or desirable to conform
this custodial account document to the requirements of any amendment to
the Internal Revenue Code or regulations or rulings thereunder, the
Custodian and the Service Company may operate the Depositor's custodial
account in accordance with such requirements to the extent that the
Custodian and/or the Service Company deem necessary to preserve the tax
benefits of the account.
(c) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(d) This Section 13 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the manner provided by Section
16 below, and no such substitution shall be deemed to be an
amendment of this Agreement.
14. (a) Custodian shall terminate the custodial account if this Agreement is
terminated or if, within 30 days (or such longer time as Custodian
may agree) after resignation or removal of Custodian under Section
17, Depositor has not appointed a successor which has accepted such
appointment. Termination of the custodial account shall be effected
by distributing all assets thereof in a single payment in cash or in
kind to Depositor, subject to Custodian's right to reserve funds as
provided in Section 17.
(b) Upon termination of the custodial account, this custodial account
document shall have no further force and effect, and Custodian shall
be relieved from all further liability hereunder or with respect to
the custodial account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more contractors
or service providers to carry out any of its functions and may
compensate them from the custodial account for expenses attendant to
those functions.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor and for
dealing with or forwarding the same to the transfer agent for the
Fund(s).
(c) The parties do not intend to confer any fiduciary duties on
Custodian or Service Company (or any other party providing services
to the custodial account), and none shall be implied. Neither shall
be liable (or assumes any responsibility) for the collection of
contributions, the proper amount, time or deductibility of any
contribution to the custodial account or the propriety of any
contributions under this Agreement, or the purpose, time, amount
(including any minimum distribution amounts) or propriety of any
distribution hereunder, which matters are the responsibility of
Depositor and Depositor's Beneficiary.
(d) Not later than 60 days after the close of each calendar year (or
after the Custodian's resignation or removal), the Custodian and
Service Company shall each file with Depositor a written report or
reports reflecting the transactions effected by it during such
period and the assets of the custodial account at its close. Upon
the expiration of 60 days after such a report is sent to Depositor
(or Beneficiary), the Custodian and Service Company shall be forever
released and discharged from all liability and accountability to
anyone with respect to transactions shown in or reflected by such
report except with respect to any such acts or transactions as to
which Depositor shall have filed written objections with the
Custodian or Service Company within such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and other
reports to shareholders, proxies and proxy soliciting materials
relating to the shares of the Funds(s) credited to the custodial
account. No shares shall be voted, and no other action shall be
taken pursuant to such documents, except upon receipt of adequate
written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor,
the Fund(s) and Custodian and save them harmless from any and all
liability whatsoever which may arise either (i) in connection with
this Agreement and the matters which it contemplates, except that
which arises directly out of the Service Company's, Distributor's or
Custodian's negligence or willful misconduct, or (ii) with respect
to making or failing to make any distribution, other
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<PAGE>
than for failure to make distribution in accordance with an order
thereof which is in full compliance with Section 10. Neither Service
Company nor Custodian shall be obligated or expected to commence or
defend any legal action or proceeding in connection with this
Agreement or such matters unless agreed upon by that party and
Depositor, and unless fully indemnified for so doing to that party's
satisfaction.
(g) The Custodian and Service Company shall each be responsible solely
for performance of those duties expressly assigned to it in this
Agreement, and neither assumes any responsibility as to duties
assigned to anyone else hereunder or by operation of law.
(h) Custodian and Service Company may each conclusively rely upon and
shall be protected in acting upon any written order from Depositor
or Beneficiary, or any investment advisor appointed under Section 8,
or any other notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been
properly executed, and so long as it acts in good faith, in taking
or omitting to take any other action in reliance thereon. In
addition, Custodian will carry out the requirements of any
apparently valid court order relating to the custodial account and
will incur no liability or responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable fee
schedule. The fee schedule originally applicable shall be the one
specified in the Disclosure Statement furnished to the Depositor.
The Custodian may substitute a different fee schedule at any time
upon 30 days' written notice to Depositor. The Custodian shall also
receive reasonable fees for any services not contemplated by any
applicable fee schedule and either deemed by it to be necessary or
desirable or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of
any kind whatsoever, including transfer taxes incurred in connection
with the investment or reinvestment of the assets of the custodial
account, that may be levied or assessed in respect to such assets,
and all other administrative expenses incurred by the Custodian in
the performance of its duties (including fees for legal services
rendered to it in connection with the custodial account) shall be
charged to the custodial account.
(c) All such fees and taxes and other administrative expenses charged to
the custodial account shall be collected either from the amount of
any contribution or distribution to or from the account, or (at the
option of the person entitled to collect such amounts) to the extent
possible under the circumstances by the conversion into cash of
sufficient shares of one or more Funds held in the custodial account
(without liability for any loss incurred thereby). Notwithstanding
the foregoing, the Custodian or Service Company may make demand upon
the Depositor for payment of the amount of such fees, taxes and
other administrative expenses. Fees which remain outstanding after
60 days may be subject to a collection charge.
17. (a) Upon 30 days' prior written notice to the Custodian, Depositor may
remove it from its office hereunder. Such notice, to be effective,
shall designate a successor custodian and shall be accompanied by
the successor's written acceptance. The Custodian also may at any
time resign upon 30 days' prior written notice to Depositor,
whereupon the Depositor shall appoint a successor to the Custodian.
(b) The successor custodian shall be a bank, insured credit union, or
other person satisfactory to the Secretary of the Treasury under
Code Section 408(a)(2). Upon receipt by Custodian of written
acceptance by its successor of such successor's appointment,
Custodian shall transfer and pay over to such successor the assets
of the custodial account and all records (or copies thereof) of
Custodian pertaining thereto, provided that the successor custodian
agrees not to dispose of any such records without the Custodian's
consent. Custodian is authorized, however, to reserve such sum of
money or property as it may deem advisable for payment of all its
fees, compensation, costs, and expenses, or for payment of any other
liabilities constituting a charge on or against the assets of the
custodial account or on or against the Custodian, with any balance
of such reserve remaining after the payment of all such items to be
paid over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
18. References herein to the "Internal Revenue Code" or "Code" and
sections thereof shall mean the same as amended from time to time, including
successors to such sections.
19. Except where otherwise specifically required in this Agreement, any
notice from Custodian to any person provided for in this Agreement shall be
effective if sent by first-class mail to such person at that person's last
address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power
to anticipate any part of the custodial account or to sell, assign, transfer,
pledge or hypothecate any part thereof. The custodial account shall not be
liable for the debts of Depositor or Depositor's Beneficiary or subject to any
seizure, attachment, execution or other legal process in respect thereof. At no
time shall it be possible for any part of the assets of the custodial account to
be used for or diverted to purposes other than for the exclusive benefit of the
Depositor or his/her Beneficiary.
21. When accepted by the Custodian, this agreement is accepted in and
shall be construed and administered in accordance with the laws of The
Commonwealth of Massachusetts. Any action involving the Custodian brought by any
other party must be brought in a state or federal court in such Commonwealth.
This Agreement is intended to qualify under Code Section 408(a) as an
individual retirement custodial account and to entitle Depositor to the
retirement savings deduction under Code Section 219 if available, and if any
provision hereof is subject to more than one interpretation or any term used
herein is subject to more than one construction, such ambiguity shall be
resolved in favor of that interpretation or construction which is consistent
with that intent.
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<PAGE>
However, Custodian shall not be responsible for whether or not such intentions
are achieved through use of this Agreement, and Depositor is referred to
Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the
legal consequences (including but not limited to federal and state tax matters)
of entering into this Agreement, contributing to the custodial account, and
ordering Custodian to make distributions from the account. Depositor
acknowledges that Custodian and Service Company (and any company associated
therewith) are prohibited by law from rendering such advice.
23. Articles I through VII of this Agreement are in the form promulgated
by the Internal Revenue Service (Form 5305-A October 1992). It is anticipated
that if and when the Internal Revenue Service promulgates changes to Form
5305-A, the Custodian will amend this Agreement correspondingly.
24. The Depositor acknowledges that he or she has received and read the
current prospectus for each Fund in which his or her account is invested and the
Individual Retirement Account Disclosure Statement related to the Account. The
Depositor represents under penalties of perjury that his or her Social Security
number (or other Taxpayer Identification Number) as stated in the Adoption
Agreement is correct.
12
<PAGE>
DISCLOSURE STATEMENT
SPECIAL NOTE
This disclosure statement describes the rules applicable to IRAs beginning
January 1, 1997. For contributions for 1996 (including contributions made up to
April 15, 1997 but designated as contributions for 1996), the limit on
contributions to spousal IRAs is generally $2,250 (or, if lower, 100% of the
compensation of the higher compensated spouse). Also, the exceptions to the 10%
early withdrawal penalty for withdrawals to pay deductible medical expenses or
health insurance premiums under certain circumstances do not apply to
withdrawals in 1996.
This disclosure statement also does not describe IRAs established in
connection with a SIMPLE IRA program maintained by your employer. Employers
provide special explanatory materials for accounts established as part of an
employer's SIMPLE IRA program.
ESTABLISHING YOUR IRA
This disclosure statement contains information about your Individual
Retirement Custodial Account with State Street Bank and Trust Company as
Custodian. Your IRA gives you several tax benefits. Earnings on the assets held
in your IRA are not subject to federal income tax until withdrawn by you. You
may be able to deduct all or part of your IRA contribution on your federal
income tax return. State income tax treatment of your IRA may differ from
federal treatment; ask your state tax department or your personal tax advisor
for details.
All IRAs must meet certain requirements. Contributions generally must be
made in cash. The IRA trustee or custodian must be a bank or other person who
has been approved by the Secretary of the Treasury. Your contributions may not
be invested in life insurance or collectibles or be commingled with other
property except in a common trust or investment fund. Your interest in the
account must be nonforfeitable at all times. You may obtain further information
on IRAs from any district office of the Internal Revenue Service.
You may revoke a newly established IRA at any time within seven days after
the date on which you receive this Disclosure Statement. An IRA established more
than seven days after the date of your receipt of this Disclosure Statement may
not be revoked.
To revoke your IRA, mail or deliver a written notice of revocation to the
Custodian at the address which appears at the end of this Disclosure Statement.
Mailed notice will be deemed given on the date that it is postmarked (or, if
sent by certified or registered mail, on the date of certification or
registration). If you revoke your IRA within the seven-day period, you are
entitled to a return of the entire amount you contributed into your IRA, without
adjustment for such items as sales charges, administrative expenses or
fluctuations in market value.
FEES AND EXPENSES
Custodian's Fees
The following is a list of the fees charged by the Custodian for
maintaining your IRA.
Account Installation Fee $ ______
Annual Maintenance Fee per mutual fund $ ______
Termination, Rollover, or Transfer of
Account to Successor Custodian
$ ________.
<PAGE>
General Fee Policies
- Fees may be paid by you directly or the Custodian may deduct them
from your IRA.
- Fees may be changed upon 30 days written notice to you.
- The full annual maintenance fee will be charged for any calendar year
during which you have an IRA with us. This fee is not prorated for
periods of less than one full year.
- Termination fees are charged when your account is closed whether the
funds are distributed to you or transferred to a successor custodian
or trustee.
- The Custodian may charge you for its reasonable expenses for services
not covered by its fee schedule.
Other Charges
- There may be sales or other charges associated with the purchase or
redemption of shares of a Fund in which your IRA is invested. Be sure
to read carefully the current prospectus of any Fund you are
considering as an investment for your IRA for a description of
applicable charges.
ELIGIBILITY
What are the eligibility requirements for an IRA?
You are eligible to establish and contribute to an IRA for a year if:
- You received compensation (or earned income if you are self employed)
during the year for personal services you rendered. If you received
taxable alimony, this is treated like compensation for IRA purposes.
- You did not reach age 70-1/2 during the year.
Can I Contribute to an IRA for my Spouse?
For each year before the year when your spouse attains age 70-1/2, you can
contribute to a separate IRA for your spouse, regardless of whether your spouse
had any compensation or earned income in that year. This is called a "spousal
IRA." To make a contribution to a spousal IRA for your spouse, you must file a
joint tax return for the year with your spouse. For a spousal IRA, your spouse
must set up a different IRA, separate from yours, to which you contribute.
CONTRIBUTIONS
When Can I Make Contributions to an IRA?
You may make a contribution to your existing IRA or establish a new IRA for
a taxable year by the due date (not including any extensions)
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<PAGE>
for your federal income tax return for the year. Usually this is April 15 of
the following year.
How Much Can I Contribute to my IRA?
For each year when you are eligible (see above), you can contribute up to
the lesser of $2,000 or 100% of your compensation (or earned income, if you are
self-employed). However, under the tax laws, all or a portion of your
contribution may not be deductible.
If you and your spouse have spousal IRAs, each spouse may contribute up to
$2,000 to his or her IRA for a year as long as the combined compensation of both
spouses for the year (as shown on your joint income tax return) is at least
$4,000. If the combined compensation of both spouses is less than $4,000, the
spouse with the higher amount of compensation may contribute up to that spouse's
compensation amount, or $2,000 if less. The spouse with the lower compensation
amount may contribute any amount up to that spouse's compensation plus any
excess of the other spouse's compensation over the other spouse's IRA
contribution. However, the maximum contribution to either spouse's IRA is $2,000
for the year.
How Do I Know if my Contribution is Tax Deductible?
The deductibility of your contribution depends upon whether you are (or
your spouse is) an active participant in any employer-sponsored retirement plan.
If neither you nor your spouse is an active participant, the entire IRA
contribution is deductible.
If either you or your spouse is an active participant, your IRA
contribution may still be completely or partly deductible on your tax return.
This depends on the amount of your income.
How do I Determine my or my Spouse's "Active Participant" status?
Your Form W-2 (or your spouse's W-2) should indicate if you were an active
participant in an employer-sponsored retirement plan for a year. If you have a
question, you should ask your employer or the plan administrator.
In one situation, your spouse's "active participant" status will not affect
the deductibility of your contributions to your IRA. This rule applies only if
you and your spouse file separate tax returns for the taxable year and you lived
apart at all times during the taxable year.
What are the Deduction Restrictions?
The portion of your contribution that is deductible depends upon your
filing status and the amount of your adjusted gross income ("AGI"). The
following table shows the deduction rules.
<TABLE>
<CAPTION>
FOR ACTIVE PARTICIPANTS
---------------------------- --------------------------- ---------------------------
If You Are If You Are Then Your
Single Married Filing Jointly IRA Contribution Is
---------------------------- --------------------------- ---------------------------
--------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Up to Up to Fully
$25,000 $40,000 Deductible
--------------------------- ---------------------------- ---------------------------
Adjusted Over $25,000 Over $40,000 Partly
Gross but less than but less than Deductible
Income $35,000 $50,000
--------------------------- ---------------------------- ---------------------------
$35,000 $50,000 Not
and up and up Deductible
--------------------------- ---------------------------- ---------------------------
</TABLE>
How do I Calculate my Deduction if I Fall in the "Partly Deductible" Range?
If your AGI falls in the partly deductible range, you must calculate the
portion of your contribution that is deductible. To do this, multiply your
contribution by a fraction. The numerator is the amount by which your AGI
exceeds the lower limit of the partly deductible range ($25,000
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<PAGE>
if single, or $40,000 if married filing jointly). The denominator is $10,000.
Subtract this from your contribution and then round up to the nearest $10. The
deductible amount is the greater of the amount calculated or $200 (provided you
contributed at least $200). If your contribution was less than $200, then the
entire contribution is deductible.
For example, assume that you make a $2,000 contribution to your IRA in a
year in which you are an active participant in your employer's retirement plan.
Also assume that your AGI for the year is $47,555 and you are married, filing
jointly. You would calculate the deductible portion of your contribution this
way:
1. The amount by which your AGI exceeds the lower limit of the
partly - deductible range:
(47,555-40,000) = 7,555
2. Divide this by 10,000: 7,555
------ = 0.7555
10,000
3. Multiply this by your contribution:
0.7555 x $2,000 = $1,511
4. Subtract this from your contributions:
($2,000 - $1,551) = $489
5. Round this up to the nearest $10: = $490
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still
contribute to your IRA (and your spouse may contribute to your spouse's IRA) up
to the limit on contributions. When you file your tax return for the year, you
must designate the amount of non-deductible IRA contributions for the year. See
IRS Form 8606.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all
taxpayers even if they don't itemize. Instructions to calculate your AGI are
provided with your income tax Form 1040 or 1040A.
What Happens if I Contribute more than Allowed to my IRA?
The maximum contribution you can make to an IRA generally is $2,000 or 100%
of compensation or earned income, whichever is less. Any amount contributed to
the IRA above the maximum is considered an "excess contribution." The excess is
calculated using your contribution limit, not the deductible limit. An excess
contribution is subject to excise tax of 6% for each year it remains in the IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do
so, you must withdraw the excess and any earnings on the excess before the due
date (including extensions) for filing your federal income tax return for the
year for which you made the excess contribution. A deduction should not be taken
for any excess contribution. Earnings on the amount withdrawn must also be
withdrawn. The earnings must be included in your income for the tax year for
which the contribution was made and may be subject to a 10% premature withdrawal
tax if you have not reached age 59-1/2.
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due
Date?
Any excess contribution withdrawn after the tax return due date (including
any extensions) for the year for which the contribution was made will be subject
to the 6% excise tax. There will be an additional 6% excise tax for each year
the excess remains in your account.
Under limited circumstances, you may correct an excess contribution after
tax filing time by withdrawing the excess contribution (leaving the earnings in
the account). This withdrawal will not be includible in income nor will it be
subject to any premature withdrawal penalty if (1) your contributions to all
IRAs do not exceed $2,000 and (2) you did not take a deduction for the excess
amount (or you file an amended return (Form 1040X) which removes the excess
deduction).
How are Excess Contributions Treated if None of the Preceding Rules Apply?
Unless an excess contribution qualifies for the special treatment outlined
above, the excess contribution and any earnings on it withdrawn after tax filing
time will be includible in taxable income and may be subject to a 10% premature
withdrawal penalty. No deduction will be allowed for the excess contribution for
the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent
that you contribute less than your maximum amount. As the prior excess
contribution is reduced or eliminated, the 6% excise tax will become
correspondingly reduced or eliminated for subsequent tax years. Also, you may be
able to take an income tax deduction for the amount of excess that was reduced
or eliminated, depending on whether you would be able to take a deduction if you
had instead contributed the same amount.
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's
Retirement Plan into an IRA?
Almost all distributions from employer plans or 403(b) arrangements (for
employees of tax-exempt employers) are eligible for rollover to an IRA. The main
exceptions are
[bullet] payments over the lifetime or life expectancy of the participant
(or participant and a designated beneficiary),
[bullet] installment payments for a period of 10 years or more,
[bullet] required distributions (generally the rules require distributions
starting at age 70-1/2 or for certain employees starting at retirement
if later), and
[bullet] payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified retirement
plan as a result of, for example, termination of employment, plan
discontinuance, or retirement, all or part of the distribution may be
transferred directly into your IRA. This is a called a "direct rollover." Or,
you may receive the distribution and make a regular rollover to your IRA within
60 days. By making a direct rollover or a regular rollover, you can defer income
taxes on the amount rolled over until you subsequently make withdrawals from
your IRA.
The maximum amount you may roll over is the amount of employer
contributions and earnings distributed. You may not roll over any after-
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<PAGE>
tax employee contributions you made to the employer retirement plan. If you are
over age 70-1/2 and are required to take minimum distributions under the tax
laws, you may not roll over any amount required to be distributed to you under
the minimum distribution rules. Also, if you are receiving periodic payments
over your or your and your designated beneficiary's life expectancy or for a
period of at least 10 years, you may not roll over these payments. A regular
rollover to an IRA must be completed within 60 days after the distribution from
the employer retirement plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF
YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover.
Your plan or 403(b) sponsor is required to provide you with information about
direct and regular rollovers and withholding taxes before you receive your
distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax
advisor or the IRS if you have a question about rollovers.
Once I Have Rolled Over a Plan Distribution into an IRA, Can I Subsequently Roll
Over into another Employer's Qualified Retirement Plan?
Yes. Part or all of an eligible distribution received from a qualified plan
may be transferred to another qualified plan through the medium of an IRA.
However, the IRA must have no assets other than those which were previously
distributed to you from the qualified plan. Specifically, the IRA cannot contain
any regular IRA contributions. Also, the new qualified plan must accept
rollovers. Similar rules apply to rollover IRAs established with rollovers from
403(b) arrangements.
How Often Can I Make a Regular Rollover from my IRA to another IRA?
You may make a regular rollover from one IRA to another only once in any
365-day period. This rule applies to each individual IRA.
What Happens If I Combine Rollover Contributions With My Regular Contributions
In One IRA?
If you wish to make both a regular annual contribution and a rollover
contribution, you may wish to open two separate IRAs by completing two adoption
agreements and two sets of forms. You should consult a tax advisor before making
your regular contribution to the IRA you established with rollover contributions
(or make a rollover contribution to the IRA to which you make your regular
contributions). This is because combining your regular annual contributions and
rollover contributions originating from an employer plan distribution would
prohibit the future rollover of the assets of the IRA into another qualified
plan. If despite this, you still wish to combine a rollover contribution and the
IRA holding your regular contributions, you should establish the account as an
Accumulation IRA on the Adoption Agreement and make the contributions to that
account.
How Do Rollovers Affect my Contribution or Deduction Limits?
Rollover contributions, if properly made, do not count toward the maximum
contribution. Also, rollovers are not deductible and they do not affect your
deduction limits as described above.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your IRA.
Investments must be in one or more of the Fund(s) available from time to time as
listed in the Adoption Agreement for your IRA or in an investment selection form
included with your IRA Adoption Agreement. You direct the investment of your IRA
by giving your investment instructions to the Distributor or Service Company for
the Fund(s). Since you control the investment of your IRA, you are responsible
for any losses; neither the Custodian, the Distributor nor the Service Company
has any responsibility for any loss or diminution in value occasioned by your
exercise of investment control. Transactions for your IRA will generally be
effected at the applicable public offering price or net asset value for shares
of the Fund(s) involved next established after the Distributor or the Service
Company (whichever may apply) receives proper investment instructions from you;
consult the current prospectus for the Fund(s) involved for additional
information.
Before making any investment, read carefully the current prospectus for any
Fund you are considering as an investment for your IRA. The prospectus will
contain information about the Fund's investment objectives and policies, as well
as any minimum initial investment or minimum balance requirements and any sales,
redemption or other charges.
Because you control the selection of investments for your IRA and because
mutual fund shares fluctuate in value, the growth in value of your IRA cannot be
guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your IRA will be revoked if you engage in any of
the prohibited transactions listed in Section 4975 of the tax code. The fair
market value of your IRA will be includible in your taxable income in the year
in which such prohibited transaction takes place. The fair market value of your
IRA may also be subject to a 10% penalty tax as a premature withdrawal if you
have not yet reached the age of 59-1/2.
Any investment in a collectible (for example, rare stamps) by your IRA is
treated as a taxable withdrawal; the only exception involves certain types of
government-sponsored coins.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in
your IRA. Some examples of prohibited transactions are:
- Direct or indirect sale or exchange of property between you and your IRA.
- Transfer of any property from your IRA to yourself or from yourself to
your IRA.
Your IRA could lose its tax exempt status if you use all or part of your
interest in your IRA as security for a loan or borrow any money from your IRA.
Any portion of your IRA used as security for a loan will be taxed as ordinary
income in the year in which the money is borrowed. If you are under age 59-1/2,
this amount will also be subject to a 10% penalty tax as a premature
distribution.
16
<PAGE>
WITHDRAWALS
When can I make withdrawals from my IRA?
You may withdraw from your IRA at any time. However, withdrawals before age
59-1/2 may be subject to a 10% penalty tax in addition to regular income taxes
(see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the year
in which you reach 70-1/2, you must make minimum withdrawals in order to avoid
penalty taxes. The rule allowing certain employees to postpone distributions
from an employer qualified plan until actual retirement (even if this is after
age 70-1/2) does not apply to IRAs.
The minimum withdrawal amount is determined by dividing the balance in your
IRA (or IRAs) by your life expectancy or the combined life expectancy of you and
your designated beneficiary. The minimum withdrawal rules are complex. Consult
your tax advisor for assistance.
The penalty tax is 50% of the difference between the minimum withdrawal
amount and your actual withdrawals during a year. The IRS may waive or reduce
the penalty tax if you can show that your failure to make the required minimum
withdrawals was due to reasonable cause and you are taking reasonable steps to
remedy the problem.
How Are Withdrawals From My IRA Taxed?
Amounts withdrawn by you are includible in your gross income in the taxable
year that you receive them, and are taxable as ordinary income. Lump sum
withdrawals from an IRA are not eligible for averaging treatment currently
available to certain lump sum distributions from qualified employer retirement
plans.
Since the purpose of the IRA is to accumulate funds for retirement, your
receipt or use of any portion of your IRA before you attain age 59-1/2 generally
will be considered as an early withdrawal and subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
- The distribution was a result of your death or disability.
- The distribution is one of a scheduled series of substantially equal
periodic payments for your life or life expectancy (or the joint lives or
life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10%
penalty tax will apply. For example, if you begin receiving payments at
age 50 under a withdrawal program providing for substantially equal
payments over your life expectancy, and at age 58 you elect to receive
the remaining amount in your IRA in a lump-sum, the 10% penalty tax will
apply to the lump sum and to the amounts previously paid to you before
age 59-1/2.
- The distribution does not exceed the amount of your deductible medical
expenses for the year (generally speaking, medical expenses paid during a
year are deductible if they are greater than 7 1/2% of your adjusted
gross income for that year), or
- The distribution does not exceed the amount you paid for health insurance
coverage for yourself, your spouse and dependents. This exception applies
only if you have been unemployed and received federal or state
unemployment compensation payments for at least twelve weeks; this
exception applies to distributions during the year in which you received
the unemployment compensation and during the following year, but not to
any distributions received after you have been reemployed for at least 60
days.
In addition, certain taxpayers with very large accumulations in tax-favored
arrangements (including IRAs, 403(b) arrangements and employer qualified plans)
may be subject to a 15% penalty tax (in addition to regular income taxes) if
distributions during a year from all such arrangements exceed a certain amount.
This amount is $160,000 for 1997 (and is indexed for future cost-of-living
changes). Distributions from all tax-favored arrangements during a year are
counted in determining whether any distributions are above the floor amount and
are subject to the 15% penalty tax. There are special rules for grandfathered
amounts and for lump sum distributions from qualified plans. Under current law,
this 15% penalty tax will not apply during calendar years 1997, 1998 and 1999
(however, a related estate tax 15% penalty tax on certain excess amounts
remaining in tax-favored arrangements upon your death continues to apply during
these years). Consult your tax advisor for additional information on these
penalty tax rules.
How are Nondeductible Contributions Taxed When They are Withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will
be tax-free. However, if you made both deductible and nondeductible IRA
contributions, then each distribution will be treated as partly a return of your
nondeductible contributions (not taxable) and partly a distribution of
deductible contributions and earnings (taxable). The nontaxable amount is the
portion of the amount withdrawn which bears the same ratio as your total
nondeductible IRA contributions bear to the total balance of all your IRAs
(including rollover IRAs and SEPs).
For example, assume that you made the following IRA contributions:
Year Deductible Nondeductible
---- ---------- -------------
1993 $2,000
1994 $2,000
1995 $1,000 $1,000
1996 $1,000
--------- ------
$5,000 $2,000
In addition assume that your IRA has total investment earnings through 1997
of $1,000. During 1997 you withdraw $500. Your total account balance as of
12-31-97 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRAs $1,000
Less 1997 Withdrawal $ 500
------
Total Account Balance as of 12/31/97 $7,500
To determine the nontaxable portion of your 1997 withdrawal, the total 1997
withdrawal ($500) must be multiplied by a fraction. The numerator of the
fraction is the total of all nondeductible contributions
17
<PAGE>
remaining in the account before the 1997 withdrawal ($2,000). The denominator is
the total account balance as of 12-31-97 ($7,500) plus the 1997 withdrawal
($500) or $8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000
--------------------------- ------ x $500 = $125
Total Account Balance $8,000
Thus, $125 of the $500 withdrawal in 1997 will not be included in your
taxable income. The remaining $375 will be taxable for 1997. In addition, for
future calculations the remaining nondeductible contribution total will be
$2,000 minus $125, or $1,875.
A loss in your IRA investment may be deductible. You should consult your
tax advisor for further details on the appropriate calculation for this
deduction if applicable.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient on
the appropriate form. For reporting purposes, a direct transfer of assets to a
successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and
the amount of any rollover or regular contribution made during a calendar year,
as well as the tax year for which a contribution is made. Unless the Custodian
receives an indication from you to the contrary, it will treat any amount as a
contribution for the tax year in which it is received. It is most important that
a contribution between January and April 15th for the prior year be clearly
designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you
made an excess contribution, or you take a premature withdrawal, or you withdraw
less than the required minimum amount from your IRA.
You must also report each nondeductible contribution to the IRS by
designating it a nondeductible contribution on your tax return. Use Form 8606.
In addition, for any year in which you make a nondeductible contribution or take
a withdrawal, you must include additional information on your tax return. The
information required includes: (1) the amount of your nondeductible
contributions for that year; (2) the amount of withdrawals from IRAs in that
year; (3) the amount by which your total nondeductible contributions for all the
years exceed the total amount of your distributions previously excluded from
gross income; and (4) the total value of all your IRAs as of the end of the
year. If you fail to report any of this information, the IRS will assume that
all your contributions were deductible. This will result in the taxation of the
portion of your withdrawals that should be treated as a nontaxable return of
your nondeductible contributions.
Are IRA Withdrawals subject to Withholding?
Federal income tax will be withheld at a flat rate of 10% from any
withdrawal from your IRA, unless you elect not to have tax withheld. Withdrawals
from an IRA are not subject to the mandatory 20% income tax withholding that
applies to most distributions from qualified plans or 403(b) accounts that are
not directly rolled over to another plan or IRA.
Are the Earnings on my IRA Funds Taxed?
Any earnings on investments held in your IRA are generally exempt from
federal income taxes and will not be taxed until withdrawn by you, unless the
tax exempt status of your IRA is revoked.
ACCOUNT TERMINATION
You may terminate your IRA at any time after its establishment by sending a
complete withdrawal form, or a transfer authorization form, to:
STATE STREET BANK AND TRUST COMPANY
P.O. Box
Boston, MA
Your IRA with State Street Bank will terminate upon the first to occur of
the following:
- The date your properly executed withdrawal form (as described above)
withdrawing your total IRA balance is received and accepted by the
Custodian or, if later, the termination date specified in the withdrawal
form.
- The date the IRA ceases to qualify under the tax code. This will be
deemed a termination.
- The transfer of the IRA to another custodian/trustee.
- The rollover of the amounts in the IRA to another custodian/trustee.
Any outstanding fees must be received prior to such a termination of your
account.
The amount you receive from your IRA will be treated as a withdrawal, and
thus the rules relating to IRA withdrawals will apply. For example, if the IRA
is terminated before you reach age 59-1/2, the 10% early withdrawal penalty may
apply on the amount you receive.
IRA DOCUMENTS
The terms contained in Articles I to VII of the State Street Bank and Trust
Company Individual Retirement Custodial Account document have been promulgated
by the IRS in Form 5305-A for use in establishing an IRA custodial account that
meets the requirements of the tax laws for a valid IRA. This IRS approval
relates only to the form of Articles I to VII and is not an approval of the
merits of the IRA or of any investment permitted by the IRA.
[ADDRESS]
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<PAGE>
ORBITEX GROUP OF FUNDS
State Street Bank and Trust Company
Individual Retirement Custodial Account
Instructions for Opening Your IRA
1. Read carefully the IRA Disclosure Statement, the Individual Retirement
Custodial Account document, the Adoption Agreement, and the
prospectus(es) for any Fund(s) you are considering. Consult your lawyer
or other tax adviser if you have any questions about how opening an IRA
will affect your financial and tax situation.
2. Complete the Adoption Agreement
- Print the identifying information in Part 1 of the form.
- In Part 2, check the box that shows the type of IRA you are
opening.
If this is an Accumulation IRA (an IRA to which you expect to
make contributions each year), enclose a check in the amount
of your first contribution. Be sure to indicate whether this
is a contribution for last year or for the current year.
- In Part 3, indicate your investment choices.
- Sign and date the Adoption Agreement at the end.
3. If you are transferring assets directly from your existing IRA to this
IRA, complete the Transfer of IRA Assets Form.
4. Complete and sign the Designation of Beneficiary.
5. Enclose a separate check for $ _______________ payable to
_________________________. This is to pay the custodian fee for opening
the IRA and the first year's annual maintenance fee.
6. Check to be sure you have properly completed all necessary forms and
enclosed a check for the custodian's fees and a check for the first
contribution to your State Street Bank IRA (if applicable). Your IRA
cannot be accepted without the properly completed documents or the
custodian fees.
Send the completed forms and checks to:
[ADDRESS]
<PAGE>
ORBITEX GROUP OF FUNDS
INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT SUPPLEMENT
New laws have made changes to the rules governing your IRA. These
changes, which are effective January 1, 1997, are summarized below. Please keep
this summary with your IRA disclosure statement (the pamphlet summarizing the
rules governing your IRA).
1. Married IRA Owners -- New Contribution Limits
Under the old rules, for a married (filing jointly) couple
with only one spouse earning compensation, each spouse could have an IRA, but
the contributions to both IRAs for a year were limited to $2,250.
Under the new rules, if you are married (filing jointly) and
each spouse establishes an IRA, each spouse may contribute up to $2,000 to his
or her IRA for a year as long as the combined compensation of both spouses for
the year (as shown on your joint income tax return) is at least $4,000. If the
combined compensation of both spouses is less than $4,000, the higher
compensated spouses's IRA contribution may be any amount up to that spouse's
compensation, or $2,000 if less. The lower compensated spouse's IRA contribution
may be any amount up to that spouse's compensation plus any amount by which the
higher compensated spouse's compensation exceeds the higher compensated spouse's
IRA contribution.
2. IRA Withdrawals -- New Penalty-Free Withdrawals
Most withdrawals from an IRA before age 59-1/2 are subject to
a 10% penalty tax in addition to regular income taxes. In certain situations,
withdrawals before age 59-1/2 are not subject to the 10% penalty. The new rules
add two situations in which the penalty is not imposed.
First, withdrawals during a year are not subject to the 10%
penalty tax to the extent that the withdrawals do not exceed the amount of your
deductible medical expenses for the year. Generally speaking, medical expenses
paid during a year are deductible if they are greater than 7-1/2% of your
adjusted gross income for the year.
<PAGE>
Second, withdrawals are not subject to the 10% penalty if they
do not exceed the premiums you paid for health insurance coverage for yourself,
your spouse and dependents. This exception is available only if you have been
unemployed and received federal or state unemployment compensation for at least
12 weeks. Withdrawals during the year in which you received the unemployment
compensation or during the following year are eligible for this exception, but
not any withdrawals after you have been reemployed for at least 60 days.
3. IRA Withdrawals -- Excess Withdrawal Penalty Waived
One new rule affects individuals with very large balances in
their IRAs (and other tax-favored retirement plans). Under current tax rules,
there is a 15% penalty tax on distributions to you during a year from all IRAs
and other tax-favored retirement plans above a threshold amount. For 1997, the
threshold will be $160,000 (it is indexed annually for cost-of-living changes).
Under one of the new laws, the 15% penalty tax described in
the preceding paragraph will not apply to withdrawals from your IRA by you (or
to distributions to you from other tax-favored retirement plans) during calendar
years 1997, 1998 and 1999. However, a related 15% penalty tax on certain excess
amounts remaining in your IRAs or retirement plan accounts upon your death
continues to apply during these years. Consult your tax adviser to determine
whether it would be advantageous for you to make withdrawals from your IRA (or
receive distributions from other retirement plan accounts) during this
three-year period.
-2-
<PAGE>
ORBITEX GROUP OF FUNDS
IMPORTANT -- CHANGES TO IRA RULES
Dear IRA Owner:
Last summer, President Clinton signed two new laws that make changes to
the rules governing your Orbitex Group of Funds IRA. These changes, which are
effective starting January 1, 1997, are summarized below. Please keep this
summary with your IRA disclosure statement (the pamphlet describing the rules
governing your IRA that you received when you set up your IRA). [If you have any
questions, please call [name and/or telephone number for questions].]
1. Married IRA Owners -- New Contribution Limits
Under the old rules, for a married couple with only one spouse
earning compensation, each spouse could have an IRA, but the contributions to
both IRAs for a year were limited to $2,250.
Under the new rules, if you are married (filing jointly) and
each spouse establishes an IRA, each spouse may contribute up to $2,000 to his
or her IRA for a year as long as the combined compensation of both spouses for
the year (as shown on your joint income tax return) is at least $4,000. If the
combined compensation of both spouses is less than $4,000, the higher
compensated spouses's IRA contribution may be any amount up to that spouse's
compensation, or $2,000 if less. The lower compensated spouse's IRA contribution
may be any amount up to that spouse's compensation plus any amount by which the
higher compensated spouse's compensation exceeds the higher compensated spouse's
IRA contribution.
2. IRA Withdrawals -- New Penalty-Free Withdrawals
Most withdrawals from an IRA before age 59-1/2 are subject to
a 10% penalty tax in addition to regular income taxes. In certain situations,
withdrawals before age 59-1/2 are
<PAGE>
not subject to the 10% penalty. The new rules add two situations in which the
penalty is not imposed.
First, withdrawals during a year are not subject to the 10%
penalty tax to the extent that the withdrawals do not exceed the amount of your
deductible medical expenses for the year. Generally speaking, medical expenses
paid during a year are deductible if they are greater than 7-1/2% of your
adjusted gross income for the year.
Second, withdrawals are not subject to the 10% penalty if they
do not exceed the premiums you paid for health insurance coverage for yourself,
your spouse and dependents. This exception is available only if you have been
unemployed and received federal or state unemployment compensation for at least
12 weeks. Withdrawals during the year in which you received the unemployment
compensation or during the following year are eligible for this exception, but
not any withdrawals after you have been reemployed for at least 60 days.
3. IRA Withdrawals -- Excess Withdrawal Penalty Waived
One new rule affects individuals with very large balances in
their IRAs (and other tax-favored retirement plans). Under current tax rules,
there is a 15% penalty tax on distributions to you during a year from all IRAs
and other tax-favored retirement plans above a threshold amount. For 1997, the
threshold will be $160,000 (it is indexed annually for cost-of-living changes).
The 15% penalty tax described in the preceding paragraph will
not apply to withdrawals from your IRA by you (or to distributions to you from
other tax-favored retirement plans) during calendar years 1997, 1998 and 1999.
However, a related 15% penalty tax on certain excess amounts remaining in your
IRAs or retirement plan accounts upon your death continues to apply during these
years. Consult your tax adviser to determine whether it would be advantageous
for you to make withdrawals from your IRA (or receive distributions from other
retirement plan accounts) during this three-year period.
-2-
Exhibit 15(a)
Form of Distribution Plan and Agreement Pursuant to Rule 12b-1
<PAGE>
DISTRIBUTION PLAN AND AGREEMENT PURSUANT TO RULE 12B-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
PLAN AND AGREEMENT made as of the ______ day of ________________, 1997,
by and between Orbitex Group of Funds (the "Trust") and Funds Distributor, Inc.
("FDI").
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company
which offers for public sale separate series of shares of beneficial interest,
each corresponding to a distinct portfolio which may be further divided into
separate classes of shares (the "Shares"); and
WHEREAS, the Trust has entered into a Distribution Agreement (the
"Distribution Agreement") with FDI pursuant to which FDI has agreed to serve as
the Distributor of the Shares; and
WHEREAS, the Trust desires to adopt this Distribution Plan and
Agreement pursuant to Rule 12b-1 under the 1940 Act (the "Plan") on behalf of
its series with respect to the Shares of the Orbitex Strategic Natural Resources
Fund, Orbitex Info-Tech & Communications Fund, Orbitex Growth Fund, Orbitex
Asian High Yield Fund and Orbitex Asian Select Advisers Fund and of such other
series as may hereafter be designated (the "Funds") by the Trust's Board of
Trustees (the "Board"); and
WHEREAS, FDI desires to serve as Distributor of the Shares and to
provide, or arrange for the provision of distribution services pursuant to the
Plan;
NOW THEREFORE, the parties agree as follows:
1. A. Each Fund is authorized to pay to FDI, as compensation for FDI's
services under this Plan and Agreement, a fee at the rate of 0.30% on an
annualized basis (in the case of the Asian High Yield Fund) and 0.40% on an
annualized basis (in the case of the other Funds) of the average net assets of
the Fund. Such fees are to be paid by the Funds monthly, or at such other
intervals as the Board shall determine. Such fees shall be based upon the
applicable Fund's average daily net assets during the preceding month, and shall
be calculated and accrued daily.
B. Any Fund may pay fees to FDI at a lesser rate than the fees
specified in Section I.A. of this Plan and Agreement as agreed upon by the Board
and FDI and as approved in the manner specified in subsections (a) and (b) of
paragraph 3 of this Plan and Agreement.
2. FDI shall provide, or arrange for securities dealers or brokers,
administrators and others ("Recipients") with which FDI has entered Distribution
Sub-Agreements in the form attached hereto to provide, distribution services,
and to the extent that those services are provided by a Recipient, FDI shall pay
the Recipient a fee based on the net asset value of shares of the Fund held by
clients or customers of that Recipient. The distribution services shall include
assistance in the offering and sale of shares of the Funds and in other aspects
of the marketing of the shares to clients or prospective clients of the
respective Recipients; answering routine inquiries concerning a Fund; assisting
in the maintenance of accounts or sub-accounts in a Fund and in processing
purchase or redemption transactions; making a Fund's investment plans and
<PAGE>
shareholder services available; and providing such other information and
services to investors in shares of the Fund as FDI or the Trust, on behalf of a
Fund, may reasonably request. The distribution services shall also include any
advertising or marketing services provided by or arranged by FDI with respect to
the Funds.
3. This Plan and Agreement shall not take effect with respect to any
Fund unless it has been approved, together with any related agreements, by a
majority vote, cast in person at a meeting (or meetings) called for the purpose
of voting on such approval, of: (a) the Board; and (b) those Trustees of the
Trust who are not "interested persons" of the Trust and have no direct or
indirect financial interest in the operation of this Plan and Agreement or any
agreements related thereto (the "Independent Trustees").
4. This Plan and Agreement may continue in full force and effect with
respect to each Fund for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan and Agreement in
subsections (a) and (b) of paragraph 3.
5. FDI shall provide to the Board and the Board shall review, at least
quarterly, a written report of the amounts expended with respect to each Fund by
FDI under this Plan and Agreement and the purposes for which such expenditures
were made.
6. The Trust or any Fund may terminate this Plan and Agreement at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the affected Fund. FDI may terminate this Plan
and Agreement with respect to the Trust or any Fund, without payment of penalty,
upon sixty (60) days written notice to the Trust or the affected Fund.
Notwithstanding the foregoing, this Plan and Agreement shall terminate
automatically in the event of its assignment.
7. This Plan and Agreement may not be amended to increase materially
the amount of distribution fees to be paid by a Fund unless such amendment is
approved by a vote of a majority of the outstanding voting securities of the
affected Fund, and no material amendment to the other provisions of the Plan and
Agreement shall be made unless approved in the manner provided for approval and
annual renewal in subsections (a) and (b) of paragraph 3 hereof.
8. The amount of distribution fees payable by any Fund to FDI under
this Plan and Agreement and the amounts received by FDI under the Distribution
Agreement may be greater or lesser than the expenses actually incurred by FDI on
behalf of such Fund in serving as Distributor of the Shares. The distribution
fees with respect to a Fund will be payable by such Fund to FDI until either the
Plan and Agreement or the Distribution Agreement is terminated or not renewed
with respect to the Shares of that Fund. If either the Plan and Agreement or the
Distribution Agreement is terminated or not renewed with respect to the Shares
of any Fund, any distribution expenses incurred by FDI on behalf of the Fund
which are in excess of payments which FDI has received or accrued through the
termination date shall be the sole responsibility and liability of FDI, and are
not obligations of the Fund.
9. While this Plan and Agreement is in effect, the selection and
nomination of the Trustees who are not interested persons of the Trust shall be
made solely at the discretion of the Trustees who are not interested persons of
the Trust.
2
<PAGE>
10. As used in this Plan and Agreement, the terms "majority of the
outstanding voting securities," "assignment" and "interested person" shall have
the same meanings as those terms have in the 1940 Act.
11. The Trust shall preserve copies of this Plan and Agreement
(including any amendments thereto) and any related agreements and all reports
made pursuant to paragraph 5 hereof for a period of not less than six years from
the date thereof, the first two years in an easily accessible place.
12. The Trustees of the Trust and the shareholders of each Fund shall
not be liable for any obligations of the Trust or any Fund under this Plan and
Agreement, and FDI or any other person, in asserting any rights or claims under
this Plan, shall look only to the assets and property of the Trust or such Fund
in settlement of any such right or claim, and not to such Trustees or
shareholders.
IN WITNESS WHEREOF, the Trust and FDI have executed this Distribution
Plan and Agreement on the day and year set forth above.
ORBITEX GROUP OF FUNDS
Attest: __________________________________ By: _______________________
Secretary President
FUNDS DISTRIBUTOR, INC.
Attest: __________________________________ By: _______________________
Secretary President
3
Exhibit 15(b)
Form of Distribution Sub-Agreement
<PAGE>
DISTRIBUTION SUB-AGREEMENT
AGREEMENT by and between Funds Distributor, Inc. ("FDI") and
__________________ the ("Recipient").
WHEREAS, FDI has entered into an agreement with Orbitex Group of Funds
(the "Trust"), pursuant to which it acts as the exclusive distributor and
representative of the Trust in the offer and sale of shares of Orbitex Strategic
Natural Resources Fund, Orbitex Info-Tech & Communications Fund, Orbitex Growth
Fund, Orbitex Asian Select Advisers Fund and Orbitex Asian High Yield Fund and
of such other series as hereafter may be designated (each a "Fund," and together
the "Funds");
WHEREAS, the Trust has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Investment
Company Act") pursuant to which FDI is obligated to expend the distribution fee
received by it thereunder for compensation of Recipients for providing sales and
promotional activities and other services related to the distribution of Trust
shares; and
WHEREAS, the Recipient has entered into a Selected Dealers Agreement
with FDI and in connection therewith is willing to perform certain sales and
promotional activities and other services for the Trust's shareholders as set
forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1. The Recipient shall assist in the offering and sale of shares of the
Funds and in other aspects of the marketing of the shares to clients or
prospective clients of the Recipient; answer routine inquires concerning a Fund;
assist in the maintenance of accounts or sub-accounts in a Fund and in
processing purchase or redemption transactions; make a Fund's investment plans
and shareholder services available; and provide such other information and
services to investors in shares of the Funds as FDI or the Trust, on behalf of a
Fund, may reasonably request.
2. As compensation for its services performed under this Sub-Agreement,
FDI shall pay the Recipient a fee at the end of each calendar month at the
annual rate of % of average daily net asset value of the shareholder accounts
maintained by the Recipient. The Recipient represents that it will utilize such
compensation solely for activities related to the promotion and marketing of
shares of the Trust and for other services provided to the Trust's shareholders.
The Recipient shall reimburse FDI to the extent that the aggregate payments
received by the Recipient under this Sub-Agreement are not utilized for the
foregoing purpose.
3. This Sub-Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the continuance of the Plan.
1
<PAGE>
4. This Sub-Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination. This Sub-Agreement shall also terminate
upon the vote of a majority of the Trustees of the Trust who are not "interested
persons" of the Trust, as defined in the Investment Company Act, and have no
direct or indirect financial interest in the operation of the Plan or in this
Agreement, or by vote of a majority of the outstanding voting securities of the
Trust on not more than sixty days notice.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date set forth below.
FUNDS DISTRIBUTOR, INC.
By: ________________________________
(Authorized Signature)
By: ________________________________
(Authorized Signature)
Date: ____________, 1997.
2
Exhibit 19
Power of Attorney
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POWER OF ATTORNEY
The undersigned Trustee of Orbitex Group of Funds (the "Trust") hereby
appoints James L. Nelson his true and lawful attorney-in-fact with authority to
execute in the name of such Trustee on behalf of the Trust and to file with the
United States Securities & Exchange Commission, Commodity Futures Trading
Commission or any other federal or state regulatory body ("Regulatory Agency"),
on behalf of the Trust any and all regulatory materials necessary or advisable
to enable the Trust to comply with the Securities Act of 1933, as amended and/or
the Investment Company Act of 1940, as amended, and any other rules, regulations
and requirements of such Regulatory Agency. The powers of the aforesaid
attorney-in-fact are hereby expressly limited to the execution and filing of
such documents with the appropriate Regulatory Agency.
/s/ Ronald Altbach
------------------------------
Ronald Altbach
Date:
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of Orbitex Group of Funds (the "Trust") hereby
appoints James L. Nelson his true and lawful attorney-in-fact with authority to
execute in the name of such Trustee on behalf of the Trust and to file with the
United States Securities & Exchange Commission, Commodity Futures Trading
Commission or any other federal or state regulatory body ("Regulatory Agency"),
on behalf of the Trust any and all regulatory materials necessary or advisable
to enable the Trust to comply with the Securities Act of 1933, as amended and/or
the Investment Company Act of 1940, as amended, and any other rules, regulations
and requirements of such Regulatory Agency. The powers of the aforesaid
attorney-in-fact are hereby expressly limited to the execution and filing of
such documents with the appropriate Regulatory Agency.
/s/ Thomas Bachmann
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Thomas Bachmann
Date:
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POWER OF ATTORNEY
The undersigned Trustee of Orbitex Group of Funds (the "Trust") hereby
appoints James L. Nelson his true and lawful attorney-in-fact with authority to
execute in the name of such Trustee on behalf of the Trust and to file with the
United States Securities & Exchange Commission, Commodity Futures Trading
Commission or any other federal or state regulatory body ("Regulatory Agency"),
on behalf of the Trust any and all regulatory materials necessary or advisable
to enable the Trust to comply with the Securities Act of 1933, as amended and/or
the Investment Company Act of 1940, as amended, and any other rules, regulations
and requirements of such Regulatory Agency. The powers of the aforesaid
attorney-in-fact are hereby expressly limited to the execution and filing of
such documents with the appropriate Regulatory Agency.
/s/ Otto Felber
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Otto Felber
Date:
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POWER OF ATTORNEY
The undersigned Trustee of Orbitex Group of Funds (the "Trust") hereby
appoints James L. Nelson his true and lawful attorney-in-fact with authority to
execute in the name of such Trustee on behalf of the Trust and to file with the
United States Securities & Exchange Commission, Commodity Futures Trading
Commission or any other federal or state regulatory body ("Regulatory Agency"),
on behalf of the Trust any and all regulatory materials necessary or advisable
to enable the Trust to comply with the Securities Act of 1933, as amended and/or
the Investment Company Act of 1940, as amended, and any other rules, regulations
and requirements of such Regulatory Agency. The powers of the aforesaid
attorney-in-fact are hereby expressly limited to the execution and filing of
such documents with the appropriate Regulatory Agency.
/s/ Robert Raucci
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Robert Raucci
Date:
