As filed with the Securities and Exchange Commission on August 19, 1998
Registration Nos. 333-20635, 811-8037
-------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 4 / X /
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 6 / X /
(Check appropriate box or boxes)
-------------------------------------------
ORBITEX GROUP OF FUNDS
(Exact Name of Registrant as Specified in Charter)
410 Park Avenue, 18th Floor, New York, New York 10022
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
(212) 891-7900
----------------------------------
James L. Nelson
410 Park Avenue, 18th Floor,
New York, New York 10022
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Joseph J. McBrien, Esq. Leonard B. Mackey, Jr., Esq.
Vice President & Counsel Rogers & Wells
State Street Bank and Trust Company 200 Park Avenue
1776 Heritage Drive, AFB 4 New York, New York 10166
North Quincy, Massachusetts 02171
</TABLE>
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. It is proposed that this filing will
become effective: (check appropriate box)
[x] on August 21, 1998 pursuant to paragraph (a)(3) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on ____ days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ____ pursuant to paragraph (b) of Rule 485
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Form N-1A Item No. Caption in Prospectus
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Cover Page; The Funds at a Glance
3. Condensed Financial Information Financial Highlights
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
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 Policies Investment Restrictions; Description Securities, Other
Investment Policies and Risk Considerations
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Holders of Principal Holders of Securities
Securities
16. Investment Advisory and Other Services Investment Management and Other Services
17. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
18. Capital Stock and Other Securities Organization of the Trust
<PAGE>
<CAPTION>
Caption in Statement of
Form N-1A Item No. Additional Information
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<S> <C> <C>
19. Purchase, Redemption and Pricing of Securities Purchase and Redemption of Securities Being Offered;
Being Offered Determination of Net Asset
20. Tax Status Taxes
21. Underwriters Distribution of Shares
22. Calculation of Performance Data Performance Information About the Funds
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
ORBITEX GROUP OF FUNDS
410 Park Avenue
New York, New York 10022
PROSPECTUS
August 21, 1998
Orbitex Group of Funds (the "Trust") is a mutual fund that currently
consists of four 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. Each Fund offers two
classes of shares: a front-end load, Class A, and a contingent deferred sales
charge, Class B. Purchasers of Class A Shares pay a 4.75% sales charge for the
Orbitex Asian High Yield Fund and a 5.75% sales charge for all other Funds.
Purchasers of Class B shares may pay a contingent deferred sales charge upon
redemption. This charge declines from 5% in the first year of investment to 0%
after six years.
Orbitex Strategic Natural Resources Fund seeks capital growth through a
flexible policy of investing in common stocks 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 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 the Funds
that you should know before investing. It should be retained for future
reference. A Statement of Additional Information ("SAI"), about the Funds dated
August 21, 1998, 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
1
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<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
The Funds at a Glance
The Funds' Expenses
Financial Highlights
Investment Objectives, Strategies and Policies
Description of Securities, Other Investment
Policies and Risk Considerations
Investment Performance
Portfolio Turnover
Dividends, Distributions and Taxes
How to Purchase Shares
How to Redeem Shares
How to Exchange Shares
Shareholder Services
How Each Fund's Net Asset Value is Determined
How the Trust is Managed
Portfolio Transactions and Brokerage Practices
Organization of the Trust
Appendix
</TABLE>
No person has been authorized to give any information, or to make any
representations not contained in this Prospectus, or in the Trust's SAI
incorporated herein by reference, in connection with the offering made by this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Trust or Funds Distributor, Inc.
(the "Distributor"). This Prospectus does not constitute an offering by the
Trust or by the Distributor in any jurisdiction in which such offering may not
lawfully be made.
2
<PAGE>
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 four Funds: Orbitex Strategic Natural Resources
Fund, Orbitex Info-Tech & Communications Fund, Orbitex Growth 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. Additionally, each Fund offers two classes of shares: Class A
which has an initial sales charge and Class B which has a deferred sales charge.
Each Fund operates as a diversified investment company except for 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 the Funds. 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. Generally, Class A Shares of each Fund are
offered to investors 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 for the Class A and Class B Shares is $2,500 ($2,000 for
individual retirement accounts) and the minimum for subsequent investments is
$250. See "How to Purchase Shares."
Class B Shares of each Fund are offered to investors at net asset value
without any initial sales charge. However, there is a contingent deferred sales
charge ("CDSC") on shares sold within six years of buying them. This CDSC ranges
from 5% in the first year of share ownership to 1% in the sixth year of share
ownership. After the seventh year, Class B Shares automatically convert to Class
A Shares. The CDSC is based upon the lesser of the original purchase cost or the
market value of the shares at the time they are sold. The Class B Shares are
subject to a service and distribution fee of 1.00% of the average daily assets
of the Fund.
Shares may be redeemed at any time at the net asset value of a Fund
(minus any applicable deferred sales charge), 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.
3
<PAGE>
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, 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. This is a speculative
investment technique that could expose a Fund to significant risk of loss of
principal.
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.
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."
4
<PAGE>
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
class of shares of each Fund would be subject. Actual fees and expenses for each
class of shares of 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>
Shareholder
Transaction Strategic
Expenses for Natural Info-Tech &
Class A and Class Resources Communications Asian High
B Fund Fund Growth Fund Yield Fund
- ------------------- ----------------- ------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Maximum Sales
Load Imposed on
Purchases (as a % 5.75%1 5.75%1 5.75%1 4.75%1
of offering price) (Class A only) (Class A only) (Class A only) (Class A only)
Maximum Sales
Load Imposed on
Reinvested
Dividends None None None None
Maximum Deferred None((2)) None((2)) None((2)) None((2))
Sales Load (Class A) (Class A) (Class A) (Class A)
Imposed on
Redemptions (as a Years after Years after Years after Years after
% of lower of Purchase Purchase Purchase Purchase
-------- -------- -------- --------
original purchase 1st Year 1st Year 5.00% 1st Year 1st Year
price or 5.00% 2nd Year 4.00% 5.00% 5.00%
redemption 2nd Year 3rd Year 3.00% 2nd Year 2nd Year
proceeds) 4.00% 4th Year 3.00% 4.00% 4.00%
3rd Year 5th Year 2.00% 3rd Year 3rd Year
3.00% 6th Year 1.00% 3.00% 3.00%
4th Year After 6 None 4th Year 4th Year
3.00% (Class B only)3 3.00% 3.00%
5th Year 5th Year 5th Year
2.00% 2.00% 2.00%
6th Year 6th Year 6th Year
1.00% 1.00% 1.00%
After 6 After 6 After 6
None None None
(Class B only)3 (Class B (Class B
only)((3)) only)((3))
Redemption Fee((4)) None None None None
Exchange Fee None None None None
</TABLE>
- -------------------------
((1))Reduced for purchases of $50,000 or more by certain investors. See "How to
Purchase Shares - Initial Sales Charge."((2))Purchases of Class A Shares of $1
million or more by certain investors are not subject to any sales load at the
time of purchase, 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." ((3)) Class B Shares will automatically convert to Class
A Shares approximately eight years after purchase. See "How to Purchase Shares."
((4))A fee of $10.00 is charged by the Trust's transfer agent for each wire
redemption.
5
<PAGE>
<TABLE>
<CAPTION>
Strategic
Natural Info-Tech & Asian
Annual Fund Resources Communications Growth High Yield
Operating Expenses Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
(as a percentage of
average net assets)
Investment Advisory Fee
(after fee waivers) 0.86% 0.01% 0.00% 0.37%
12b-1 Fees 0.40% 0.40% 0.40% 0.30%
Other Expenses (after
expense reimbursements) 0.74% 1.59% 1.60% 1.33%
Total Fund Operating
Expenses (after fee
waivers and expense 2.00% 2.00% 2.00% 2.00%
reimbursements)
Class B Shares
(as a percentage of
average net assets)
Investment Advisory Fee
(after fee waivers) 0.66% 0.00% 0.00% 0.00%
12b-1 Fees 1.00% 1.00% 1.00% 1.00%
Other Expenses (after
expense reimbursements) 0.74% 1.40% 1.00% 1.00%
Total Fund Operating
Expenses (after fee
waivers and expense 2.40% 2.40% 2.00% 2.00%
reimbursements)
</TABLE>
Other Expenses are 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, net of waivers and custodial credits, to the extent
necessary to limit total fund operating expenses to 2.00%, 2.00%, and 2.00% for
Class A, 2.40%, 2.40%, and 2.00 for Class B of the Strategic Natural Resources
Fund, the Info-Tech & Communications Fund, and the Growth Fund, respectively,
subject to possible reimbursement by the Funds if such reimbursement can be
achieved within the foregoing expense limits. 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. Absent the waiver or
limitation of fees the total fund operating expenses would be as follows: 2.39%
and 2.99%, for the Strategic Natural Resources Fund's Class A and B Shares;
3.24% and 3.84%, for the Info-Tech & Communications Fund's Class A and B Shares;
and 5.37% and 5.97%, for the Growth Fund's Class A and B Shares. The fee waivers
and limitations are expected to be in effect during the Trust's current fiscal
year. From inception to June 15, 1998, the Adviser voluntarily waived its entire
advisory fee and reimbursed all expenses on the Class A Shares of the Asian High
Yield Fund exclusive of interest expense. Effective July 16, 1998 the Adviser
agreed to waive or limit its fees and pay certain operating expenses, net of
waivers and custodial credits, to the extent necessary to limit total fund
operating expenses to 1.00%. This voluntary waiver remains in effect and is
applicable to both Class A and Class B Shares. It is renewable in 30 day
intervals at the Adviser's discretion. All waivers and limitations of fees are
subject to possible reimbursement by the Asian High Yield Fund if such
reimbursement can be achieved within the foregoing expense limits. The total
amount of reimbursement to which the adviser may be entitled in any year will be
equal to the total sum of all fees waived and/or assumed by the adviser during
any of the two previous years, less any reimbursement amount previously paid to
it. Absent the waiver or limitation of fees the investment advisory fee for each
class is 1.25%, and total fund operating expenses for the Class A and Class B
Shares would have been 2.88% and 3.58%, respectively. See "How the Trust is
Managed - Adviser" for further information on fees and expenses.
6
<PAGE>
B. The fee waivers and limitations are expected to be in effect during the
Trust's current fiscal year. From inception to June 15, 1998, the Adviser
voluntarily waived its entire advisory fee and reimbursed all expenses on the
Class A Shares of the Asian High Yield Fund exclusive of interest expense.
Effective July 16, 1998 the Adviser agreed to waive or limit its fees and pay
certain operating expenses to the extent necessary to limit total fund operating
expenses to 1.00%. This voluntary waiver is renewable in 30 day intervals at the
Adviser's discretion. The Adviser has voluntarily agreed to waive its fees and
reimburse certain expenses to the extent necessary to keep total operating
expenses for the Class A and Class B Shares to not more than 2.00% and 3.00%,
respectively, of average net assets on an annual basis. All waivers and
limitations of fees are subject to possible reimbursement by the Asian High
Yield Fund if such reimbursement can be achieved within the foregoing expense
limits. The total amount of reimbursement to which the adviser may be entitled
in any year will be equal to the total sum of all fees waived and/or assumed by
the adviser during any of the two previous years, less any reimbursement amount
previously paid to it. Absent the waiver or limitation of fees the investment
advisory fee for all classes is 1.25%, and total fund operating expenses for the
Class A and Class B Shares would have been 2.41% and 3.11%, respectively. See "
How the Trust is managed - Adviser" for further information on fees and
expenses.
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.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
- ------------------------------------ -------- ----------- ---------- -----------
Fund 1 Year 3 Years 1 Year 3 Years
- ------------------------------------ -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Strategic Natural Resources $77 $118 $76 $108
Info-Tech & Communications $77 $118 $76 $108
Growth $77 $118 $72 $96
Asian High Yield $67 $108 $72 $96
</TABLE>
You would pay the following expenses on the same investment, assuming no
redemption:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
- ------------------------------------ -------- ----------- ---------- -----------
Fund 1 Year 3 Years 1 Year 3 Years
- ------------------------------------ -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Strategic Natural Resources $77 $118 $25 $76
Info-Tech & Communications $77 $118 $25 $76
Growth $77 $118 $21 $63
Asian High Yield $67 $108 $20 $63
</TABLE>
The Examples above for the Class A Shares assumes 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 of Class A Shares 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 lesser 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 solely for illustrative purposes.
7
<PAGE>
FINANCIAL HIGHLIGHTS
This information is part of the Trust's financial statements which are
included in the SAI. It should be read in conjunction with the financial
statements and notes thereto. The information applies only to the Class A Shares
as there were no Class B Shares outstanding for the period ended April 30, 1998.
The information is based on data contained in the financial statements.* Further
performance information is contained in the annual report which may be obtained
without charge. See "Shareholder Services - Shareholder Inquiries and Services
Offered."
For the period ended April 30, 1998 (a)
Selected Data based on a share outstanding throughout the period indicated.
<TABLE>
<CAPTION>
Strategic Info-Tech & Asian
Natural Communications Growth High
Resources Fund Fund Fund Yield Fund
---------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period................ $15.00 $15.00 $15.00 $12.00
---------------- ----------------- ----------- -----------
Income (loss) from investment operations:
Net investment income............................... 0.38 (d) 0.00 0.45
0.26(d)
Net realized and unrealized gain (loss) on
investments 1.22 4.62 2.67 (1.15)
and foreign currency related transactions...........
---------------- ----------------- ----------- -----------
Total income (loss) from investment operations...... 1.60 4.62 2.93 (0.70)
---------------- ----------------- ----------- -----------
Less distributions from net investment income....... (0.03) - - (0.37)
Less distributions in excess of capital gains....... (0.03) - - -
---------------- ----------------- ----------- -----------
Total distributions from net investment income
and net capital gains............................... (0.06) - - (0.37)
================ ================= =========== ===========
Net asset value, end of period...................... $16.54 $19.62 $17.93 $10.93
================ ================= =========== ===========
Total Return (b).................................... 10.74% 30.80% 19.53% (5.71)%
================ ================= =========== ===========
Ratios and Supplemental Data:
Net assets, end of period (in 000's)................ $5,698 $2,440 $891 $3,767
Ratio of expenses to average net assets
(including interest expense) (c).................... 2.40% 2.40% 1.60% 0.14%
Ratio of expenses to average net assets (including
interest expense and custodial credits) (c)......... 2.45% 2.88% 2.11% 0.22%
Ratio of expenses to average net assets without
expenses 9.27% 39.06% 50.13% 12.47%
waived, reimbursed and/or reduced by custodial
credits (c).........................................
Ratio of net investment income (loss) to average
net assets (c)...................................... 6.12% (d) (1.27)% 4.41% 8.65% (d)
Portfolio turnover rate............................. 519% 76% 448% 173%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
(a) The commencement of investment operations was October 23, 1997 for
Strategic Natural Resources Fund, October 22, 1997 for Info-Tech &
Communications Fund and Growth Fund and October 20, 1997 for Asian High
Yield Fund.
(b) Total returns are historical and assume changes in share price,
reinvestment of dividends and capital gains distributions, and assume no
sales charge. Had the Advisor, Administrator and Custodian not absorbed a
portion of the expenses, total returns would have been lower. Periods less
than one year are not annualized.
(c) Annualized for periods less than one year.
(d) Net investment income per share and the net investment income ratio would
have been lower without a certain investment strategy followed by the
Advisor during the current fiscal year.
(*) The Financial Statements dated April 30, 1998, include the Asian Select
Advisors Fund which ceased operations on August 31, 1998.
9
<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
sub-advisers, 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 Capital growth through a flexible policy Growth-oriented individuals who
Resources Fund of investing in common stocks of see strong economic trends as an
Managed by Orbitex companies engaged in natural resource indicator of natural resource
Management, Inc. industries and industries supportive to demand.
natural resource industries.
Orbitex Info-Tech & Superior long-term capital growth through Growth oriented investors who
Communications Fund selective investment in communication, want to capitalize on
Managed by Orbitex information, and related technology opportunities in global
Management, Inc. companies. telecommunications and
information industries.
Orbitex Growth Fund Long-term growth of capital through Long-term investors interested in
Managed by Orbitex investment in securities of companies growth opportunities in the U.S.
Management, Inc. that offer potential for growth. stock market.
Orbitex Asian High Yield High current income through investment in Individuals seeking high income
Fund securities of issuers based in Asia. The from a portion of their bond
Managed by Orbitex Fund will invest in high-yield, high-risk portfolios and who can accept the
Management, Inc. debt obligations. risks of international investing.
</TABLE>
10
<PAGE>
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.
Set forth below is a chart illustrating the results of hypothetical $10,000
investments in certain market sectors. This information is provided for your
information to illustrate how these sectors have performed in the past. The
performance of the Funds may vary significantly from the performance described
below.
[GRAPHIC OMITTED]
Index Performance (Results of a Hypothetical $10,000 Investment)
Figure 1
<TABLE>
<CAPTION>
Average Annual Returns
(for periods ended 6/30/98) 1 year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Lipper Emerging Market Debt Funds Category (1.25) 21.19 12.57 N/A
Lipper Natural Resources Funds Category (10.98) 9.24 7.72 8.15
Standard & Poor's 500 Index 30.17 30.23 23.06 18.54
Lipper Science and Technology Index 18.73 17.37 19.70 17.20
</TABLE>
All of the Indexes noted above are unmanaged indexes whereas the Funds are
actively managed. The performance of these indexes does not reflect sales
charges or other expenses associated with investment in the Funds; direct
investment in the indexes is not possible. Index performance is not intended to
represent the future performance of any Orbitex Fund. 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.
11
<PAGE>
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 and companies supportive to
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 highly speculative 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.
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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 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 growth in global communications and 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. In addition, communications technology is
enabling young entrepreneurial companies to bring new ideas to the market in
competition with large more established companies. The opportunity to capitalize
on these trends is to provide small amounts of capital to private, early stage
communications companies. Hence, the Fund may invest up to 5% of its total
assets (at time of purchase) in private companies the Adviser believes will
eventually become publicly traded entities and create the potential for
significant capital gains. The Fund risks not being able to sell such illiquid
securities at the time and price that it would like. Consequently, the Fund may
have to lower the price, sell substitute securities or forego an investment
opportunity, each of which might adversely affect the Fund.
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.
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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.
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 begins to perceive 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 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.
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The Fund expects to focus on issuers based in developing Asian
countries including Bangladesh, Cambodia, the People's Republic of 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.
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 requirements under the Internal Revenue Code of 1986, as amended
(the "Internal
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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.
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.
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 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 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.
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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.
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/or 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.
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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 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 attempts 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 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 33 1/3% of the market value of its assets, less liabilities other
than such borrowing. 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 specific industries
and the focus of the Asian High Yield Fund on a specific geographical region, 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 or region in which it focuses. These Funds should not
be considered as a complete investment program. Some of the risks associated
with investment concentration are discussed immediately below.
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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 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.
Special Risks Associated with the Asian High Yield Fund. Despite past
impressive economic growth experienced by Asia's emerging economies, currency
and economic concerns have recently roiled these markets. Over the summer of
1997, a plunge in Thailand's currency set off a wave of currency devaluations
throughout Asia. The Thai crisis was brought on by the country's failure to take
steps to curb its current account deficit, reduce short-term foreign borrowing
and strengthen its troubled banking industry, which was burdened by speculative
property loans. Most of the area's stock markets tumbled in reaction to these
events. Investors were heavy sellers as they became increasingly concerned that
other countries in the region, faced with similar problems, would have to allow
their currencies to weaken further
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or take steps that would choke off economic growth and erode company profits.
For U.S. investors, the impact of the market declines were further exacerbated
by the effect of the decline in the value of their local currencies versus the
U.S. dollar. There is significant potential for continuing economic and
political turmoil in the Pacific Basin and Southeast Asia. Such turmoil could
have a negative effect on the share price of the Fund.
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.
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 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 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 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
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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 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 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 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 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.
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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 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 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 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 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.
Gains and losses on "derivatives" transactions depend on the 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
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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.
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 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
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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 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.
Certain restricted securities may be resold to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933. The 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
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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 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 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
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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 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.
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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 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, that 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.
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Further information on each Fund's performance calculations is described
in the SAI under "Performance Information About The Funds".
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 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 not exceed 150%
for the Funds. 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.
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
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price for the shares and then may receive a portion of the price back as a
taxable distribution. If a 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.
Distributions with respect to each class of shares will be calculated in
the same manner on the same day and will be in the same amount except that the
different distribution and service fees and administrative expenses relating to
each class of shares will be borne exclusively by the respective class of
shares. Generally, distributions with respect to a class of shares subject to a
higher distribution or service fee will be lower than for a class of shares
subject to a lower distribution or service fee.
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 backup 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 30% 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 also 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 advisors concerning the
effect of Federal income taxes in their individual circumstances.
HOW TO PURCHASE SHARES
The Funds offer two classes of shares: Class A Shares having a front-end
load and Class B shares having a contingent deferred sales charge. The main
difference between the two classes of shares lies in the applicable sales
charges, if any, borne by each class. Each class represents an interest in the
same
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portfolio of securities and each has the same rights, except that Class A and
Class B Shareholders have exclusive voting rights with respect to the Funds'
Distribution Plans and Agreements pursuant to Rule 12b-1 under the Investment
Company Act of 1940.
This flexibility in sales charge structure allows investors to choose the
class most beneficial to them which will depend upon the amount of the purchase,
the length of time that they expect to hold the shares and other relevant
circumstances. Your financial consultant can assist you in determining which
class is best suited for you.
CLASS A SHARES
Class A Shares are generally available to investors making a minimum
initial investment of $2,500 ($2,000 for individual retirement accounts) per
Fund. The minimum for subsequent investments is $250. Such minimum initial
investment amounts may, in certain cases, be waived or lowered by the Trust or
the Adviser.
Initial Sales Charge for Class A Shares. The public offering price of
Class A Shares is the next determined per share net asset value of a Fund,
following receipt of an order in proper form by the transfer agent 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 Class A Shares of 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 Class A Shares of 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:
30
<PAGE>
<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%
$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>
- ----------------------
*No initial sales charge applies on investments in Class A Shares by residents
of the United States of $1 million or more, but a contingent deferred sales
charge of 1% is imposed on certain redemptions of those Class A Shares 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 by 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.
Class A 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 reallow up to the entire
initial sales charge to Selling Group Members. Selling Group Members to whom
substantially the entire sales charge is reallowed 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
of Class A Shares 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 in Class A Shares 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 Class A Shares of a Fund
with prior purchases of Class A 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 Class A Shares already owned, the investor must ask the
Distributor for such entitlement at the time of
31
<PAGE>
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 Advisor or the Distributor; the immediate family members of any such person;
any trust or 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; (10) purchases of Class A Shares by clients of certain securities
dealers offering programs in which the client pays a separate fee to an advisor
providing financial management or consulting services, including WRAP fee
programs; (11) purchases of Class A Shares by certain fee paid investment
advisers purchasing on behalf of their clients; and (12) purchases of Class A
Shares made through certain fee-waived programs sponsored by third parties. The
securities dealers offering WRAP fees or similar programs may charge a separate
fee for purchases and redemptions of Class A Shares. Neither the Fund, the
Advisor, nor the Distributor receives any part of the fees charged clients of
such securities dealers or financial advisors. To qualify for the purchase of
such Class A Shares, Fund Employees and other persons listed in section (2) must
provide the Transfer Agent with a letter stating that the purchase is for their
own investment purposes only and that the shares will not be resold except to
the Funds.
CLASS B SHARES
Class B Shares are generally available to investors making a minimum
initial investment of $2,500 individual retirement accounts) per Fund. The
minimum for subsequent investments is $250. Such minimum initial investment
amounts may, in certain cases, be waived or lowered by the Trust. The public
offering price of Class B Shares is the next determined net asset value of a
Fund following receipt of an order in proper form by the transfer agent.
Although there is no sales charge imposed at the time of purchase, there may be
a contingent deferred sales charge on shares which are sold within six years of
their purchase. The Class B Shares are also subject to a 12b-1 fee of 1.00% on
an annualized basis. This fee facilitates the ability of the Fund to sell the
Class B Shares without an initial sales charge being deducted at the time of
purchase. Class B Shares will automatically convert into Class A Shares after
approximately seven years. (See "How To Redeem Shares Contingent Deferred Sales
Charge" below)
[bullet] Rule 12b-1 Plans. Class A and Class B have separate
distribution plans or "Rule 12b-1 Plans" pursuant to which they may pay or
reimburse the distributor, Funds Distributor, Inc. ("FDI") for the expenses of
activities primarily intended to sell shares of the class ("12b-1" refers to the
Federal Securities regulation authorizing fees of this type). These activities
may include, among others, assistance in the offering and sale of shares of the
Funds and in other aspects of the marketing
32
<PAGE>
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 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
determine. The Distributor may use the 12b-1 fee for, among other things, making
payments for distribution services rendered by other broker-dealers and with
regard to the Class B Shares to pay interest and principal where such payments
have been financed. The distribution services shall also include any advertising
or marketing services provided by or arranged by FDI with respect to the funds.
Payments by a fund under the Class A plan may not exceed 0.30% (in the case of
the Asian High Yield Fund) and .40% (in the case of the other Funds) on an
annualized basis of the average net assets attributable to Class A Shares of the
Fund. Payments by a Fund under the Class B plan may not exceed 1.00% on a
annualized basis of the average net assets attributable to Class B Shares of the
Fund.
Opening an Account. You may make an initial purchase of each class 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.
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.
The Distributor or the Adviser may, at their own expense, provide
promotional incentives to broker-dealers who have sales agreements with the
Distributor or the Adviser in connection with sales of shares of the Funds. In
some instances, these incentives may be made available only to certain
broker-dealers or investment executives who have sold or may sell significant
amounts of such shares.
Purchases By Mail. You may purchase shares of each class 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 02266-8069.
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 and Trust Company, ABA No. 011000028, 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 and Trust Company, ABA No. 011000028, Attn: Custody
& Shareholder Services, Credit: Name of Fund, DDA No. 9905-295-3, FBO:
Shareholder Name, Name of Fund, Shareholder Account Number.
33
<PAGE>
Subsequent Purchases. The minimum subsequent investment for Class A and
Class B Shares is $250 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 $250 or more for Class A and Class B Shares 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
Trust. The public offering price of a Fund is the per share net asset value of
that Fund next determined following receipt of an order in proper form by the
transfer agent, 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 in proper form 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.)
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 02266-8069. 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.
34
<PAGE>
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 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.
35
<PAGE>
Contingent Deferred Sales Charge. Class B Shares are offered at their
net asset value per share, without any initial sales charge. However, there is a
contingent deferred sales charge ("CDSC") on shares which are sold within six
years of their purchase. There will be no CDSC on shares acquired through
reinvestment of dividends. The CDSC will be based on the original purchase cost
or the current market value of the shares being sold, whichever is less. When
you redeem shares, we will assure that you are redeeming first shares
representing reinvestment of dividends and capital gains distributions, then any
appreciation on shares redeemed, and then remaining shares held by you for the
longest period of time. The Class B CDSC is paid to the Distributor to reimburse
expenses incurred in providing distribution-related services to the Fund in
connection with the sale of Class B Shares. Although Class B shares are sold
without an initial sales charge, the Distributor normally pays a sales
commission of 4.00% of the purchase price of Class B shares to the dealer from
its own resources at the time of the sale. The Distributor has assigned its
right to receive any Class B CDSC, to an unaffiliated third party that provides
funding for up-front sales commission payments. The CDSC for Class B Shares is
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years After Purchase Contingent Deferred Sales Charge on Shares Being Sold
- -----------------------------------------------------------------------------------------------
<S> <C>
1st Year 5.00%
2nd Year 4.00%
3rd Year 3.00%
4th Year 3.00%
5th Year 2.00%
6th Year 1.00%
After 6 Years None
- -----------------------------------------------------------------------------------------------
</TABLE>
Class B Shares will automatically be converted to Class A Shares after
seven years. Class B Shares are also subject to a distribution fee (as provided
for by the Distribution Plan and Agreement pursuant to 12b-1 under the
Investment Company Act of 1940) of 1.00% of the average daily net assets of the
Fund attributable to Class B shares of the Fund. Class A shares are subject to a
distribution fee 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.
Waiver of Contingent Deferred Sales Charge-B Shares. The CDSC will be
waived upon redemptions of shares made under the following circumstances:
[bullet] redemptions made within one year after death of a shareholder
or registered joint owner
[bullet] redemptions made to facilitate minimum required distributions
made from an IRA or other retirement plan account after age
70-1/2
[bullet] involuntary redemptions made by the Fund
Waiver of Contingent Deferred Sales Charge-A Shares. In order to
recover commissions paid to Selling Group Members, a contingent deferred sales
charge of 1% applies to certain redemptions of Class A Shares made within the
first year after investing with respect to Class A 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.
36
<PAGE>
The contingent deferred sales charge applicable to certain redemptions
of Class A Shares 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.
CONVERSION FEATURE- CLASS B SHARES
Class B shares will automatically be converted to Class A shares after
seven years. This conversion feature relieves Class B shareholders who have
owned their shares for more than seven years of the higher asset-based
distribution charge that applies to Class B shares under the Class B
Distribution and Service Plan described above. The conversion is based on the
relative NAV of the two classes, and no sales load or other charge is imposed.
At the time of conversion, a portion of the Class B shares purchased through the
reinvestment of dividends or capital gains ("Dividend Shares") will also convert
to Class A shares. The portion of Dividend Shares that will convert is
determined by the ratio of your converting Class B non-Dividend Shares to your
total Class B non-Dividend Shares. Under Section 1036 of the Internal Revenue
Code, the automatic conversion of Class B shares will not result in a gain or
loss to the Fund or to affected shareholders.
Since the Fund tracks amount paid rather then the number of shares
bought on each purchase of Class B shares, the number of Class B shares eligible
to convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class
B shares in your account on any conversion date are the result of multiple
purchases at different net values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approxiamtely seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was a
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (i.e., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares
than Class B shares, the per share net asset value of the Class A shares may be
higher than that of the Class B shares at the time of conversion. Thus, although
the aggregate dollar value will be the same, you may receive fewer Class A
Shares than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for
conversions, all payments for Class B shares during a month will be deemed to
have been made on the last day of the month, or for Class B shares acquired
through exchange, or a series of exchanges, on the last day of the month in
which the original payment for purchases of such Class B shares was made. Class
B shares acquired
37
<PAGE>
through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A and Class B shares will not
constitute "preferential dividends" under the Internal Revenue Code and (ii)
that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares will continue to be subject, possibly indefinitely, to their higher
annual distribution and service fee.
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
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 class of shares of each Fund may exchange their
shares for shares in the same class of shares of another 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
of Class A or Class B Shares by exchange, the Class A or Class B Shares being
exchanged must have a value of at least $2,500. All subsequent amounts of Class
A or Class B Shares exchanged must be $250 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
sixty (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 of the same
class 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.
38
<PAGE>
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
02266-8069. 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.
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 of the same class 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.
39
<PAGE>
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.
HOW EACH FUND'S NET ASSET VALUE IS DETERMINED
The net asset value per share of a Fund will be determined for each
class of shares. The net asset value per share of a given class of shares of a
Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares in conformance with the provisions of the
plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act, and
dividing the result by the number of shares of such class outstanding. 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. The net asset value per share of the different classes of shares are
expected to be substantially the same; from time to time, however, the per share
net asset value of the different classes of shares may differ.
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 mean between the closing bid and closing asking prices. Debt
securities with remaining maturity of 61 days or more are valued on the basis of
dealer supplied quotations or by a pricing system selected by the Adviser and
approved by the Board of Trustees of the Trust. Short-term debt investments with
remaining maturity of 60 days or less 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.
40
<PAGE>
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"), 410 Park Avenue, New York, New York 10022. 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. 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. 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, the Growth Fund, and the Asian High Yield 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.
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, 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, net of waivers and
custodial credits, (expressed as a percentage of average net assets on an annual
basis) to 2.00%, 2.00%, and 2.00% for Class A and 2.40%, 2.40%, and 2.00% for
Class B of the Strategic Natural Resources Fund, the Info-Tech & Communications
Fund, and the Growth Fund, respectively, subject to possible reimbursement by
the Funds if such reimbursement can be achieved within the foregoing expense
limits. 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 by it. This waiver is expected to be in effect during the
Trust's current fiscal year. From inception to June 15, 1998, the Adviser
voluntarily waived its entire advisory fee and reimbursed all expenses on the
Class A Shares of the Asian High Yield Fund exclusive of interest expense.
Effective June 16, 1998, the Adviser agreed to waive or limit its fees and pay
certain operating expenses to the extent necessary to limit total fund operating
expenses to 1.00%. This voluntary waiver remains in effect and is applicable to
both Class A and Class B Shares. It is renewable in 30 day intervals at the
Adviser's discretion.
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
41
<PAGE>
ratio for the Class A Shares were less than 2.00% in the case of the Strategic
Natural Resources Fund, the Info-Tech & Communications Fund, the Growth Fund,
the Asian High Yield Fund and for the Class B Shares less than 2.40%, 2.40%,
2.00% and 2.00% for the Strategic Natural Resources Fund, the Info-Tech &
Communications Fund, the Growth 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.
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 are substantially similar to those of the Strategic Natural
Resources Fund.
The 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 the Strategic Natural Resources Fund, during
its initial period of operation, incurred expenses at an annualized rate of
2.11% of its average daily net assets. Accordingly, had the Prior Fund been
subject to fees and expenses similar to those 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.
<TABLE>
<CAPTION>
Average Annual Total Return
for the periods noted through May 31, 1997
June 1, 1996-May 31, 1997 April 1, 1995-May 31, 1997
<S> <C> <C>
Prior Fund 22.64 23.33
Lipper Average 13.48 21.38
</TABLE>
42
<PAGE>
Info-Tech and Communications Fund. Craig W. Ellis is the portfolio
manager for the Info-Tech and Communications Fund. Mr. Ellis joined Orbitex
Management, Inc. in 1998. Formerly he was with Alliance Capital Management
Corporation where from 1997 to 1998 he was a senior vice president responsible
for the firm's investments in the global communications technology area. Prior
to joining Alliance, Mr. Ellis was a managing director at Wheat First Union
where he served as a telecommunications services analyst.
Growth Fund. Courtney D. Smith is the portfolio manager for 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 High Yield Fund. The Asian High Yield Fund is managed by a team
of three portfolio managers. Bashar N. Azzouz is a portfolio manager for the
Asian High Yield Fund. Prior to joining Orbitex Management, Inc. in 1997, Mr.
Azzouz was employed at various banking institutions as Vice President and
Director in the foreign exchange and options area, namely Swiss Bank Corp. and
Societe Generale. From 1987 to 1992, Mr. Azzouz worked as a trader for various
financial organizations including Tudor Investment Corporation, a U.S. hedge
fund management company.
Anya Page is a portfolio manager of the Asian High Yield Fund. Prior to
joining Orbitex Management, Inc. in 1998, Ms. Page worked as a fund manager for
credit Suisse Asset Management Limited since 1993. While at Credit Suisse, she
functioned as lead Manager for the Asia Pacific Ex-Japan unit Trust and the Asia
Pacific debt Portfolio.
Courtney D. Smith is a portfolio manager for the Asian High Yield Fund.
Mr. Smith joined Orbitex Management, Inc. in 1996. Formerly, he was President
and Chief Investment Officer of Pinnacle Capital Management.
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.
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-
43
<PAGE>
dealer registered with the SEC and is a member of the National Association of
Securities Dealers, Inc. In accordance with separate Distribution Plans and
Agreements Pursuant to Rule 12b-1 the Class A shares and the Class B Shares of
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 Plans and Agreements permit payments to be made by the
Class A Shares and the Class B Shares of each Fund to the Distributor to
compensate the Distributor for its activities in providing these services to
investors.
The Rule 12b-1 Plans and Agreements permit payments to be made by the
Class A and Class B Shares of 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 Plans and Agreements
provide for payment of a fee to the Distributor at an annualized rate of 0.30%
of the average daily net assets attributable to the Class A shares of the Asian
High Yield Fund and 0.40% of the average daily net assets attributable to the
Class A Shares of each of the other Funds. The Class B shares Rule 12b-1 Plans
and Agreements provide for payment of a fee to the distributor at an annualized
rate of 1.00% of the average daily net assets attributable to the Class B Shares
of each of the Funds. The Rule 12b-1 Plans and Agreements will continue in
effect, if not sooner terminated in accordance with their terms, for successive
one-year periods, provided that their 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 Plans and Agreements. For further
information regarding the Rule 12b-1 Plans and Agreements, 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.
Year 2000. The Funds' operations depend on the seamless functioning of
computer systems in the financial service industry, including those of the
Adviser, the Administrator, the Custodian and the Transfer Agent. Many computer
software systems in use today cannot properly process date-related information
after December 31, 1999 because of the method by which dates are encoded and
calculated. This failure, commonly referred to as the "Year 2000 Issue," could
adversely affect the handling of securities trades, pricing and account
servicing for the Funds. The Adviser has made compliance with the Year 2000
Issue a high priority and is taking steps that it believes are reasonably
designed to address the Year 2000 Issue with respect to its computer systems.
The Adviser has also been informed that comparable steps are being taken by the
Funds' other major service providers. The Adviser does not currently anticipate
that the Year 2000 Issue will have a material impact on its ability to continue
to fulfill its duties as investment adviser.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Allocations of portfolio transactions for the Funds, including their
frequency, to various brokers is determined by the Adviser in its 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 may also consider sales of the Funds'
shares and the brokerage and research services provided as a factor in the
selection of broker-dealers, subject to the policy of obtaining
44
<PAGE>
best price and execution. For further information regarding the allocation of
portfolio transactions and brokerage, see "Brokerage Allocation and other
practices" in the SAI.
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 four 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.
As of the date of this Prospectus, the Trustees have authorized the
issuance of two classes of shares, designated as Class A and Class B. The shares
of each class represent an interest in the same portfolio of investments of the
Fund. Each class has equal rights as to voting, redemption, dividends and
liquidation, except that each class bears different distribution and transfer
agent fees and may bear other expenses properly attributable to the particular
class. Class A and Class B shareholders have exclusive voting rights with
respect to the Rule 12b-1 distribution plans adopted by holders of those shares
in connection with the distribution of shares.
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.
45
<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.
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<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
sub-advisers, 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 common stock of strong economic trends as an indicator of
Managed by Orbitex Management, Inc. companies engaged in natural resource natural resource demand.
industries and industries supportive to
natural resource industries.
Orbitex Info-Tech & Communications Fund Superior long-term capital growth Growth oriented investors who want to
Managed by Orbitex Management, Inc. through selective investment in capitalize on opportunities in global
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 High Yield Fund High current income through investment Individuals seeking high income from a
Managed by Orbitex Management, Inc. in securities of issuers based in Asia. portion of their bond portfolios and who
The Fund will invest in high-yield, can accept the risks of international
high-risk debt obligations. 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. Set forth below is a chart
illustrating the results of hypothetical $10,000 investments in certain market
sectors. This information is provided for your information to illustrate how
these sectors have performed in the past. The performance of the Funds may vary
significantly from the performance described below.
47
<PAGE>
Index Performance (Results of a Hypothetical $10,000
Investment)
[line chart]
<TABLE>
<CAPTION>
Average Annual Returns
(for periods ended 6/30/98) 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C>
Lipper Emerging Market Debt Funds Category (1.25) 21.19 12.57 N/A
Lipper Natural Resources Funds Category (10.98) 9.24 7.72 8.15
MSCI Asia Ex-Japan Index 30.17 30.23 23.06 18.54
Standard & Poor's 500 Index 18.73 17.37 19.70 17.20
Lipper Science and Technology Index
</TABLE>
All of the Indexes noted above are unmanaged indexes whereas the Funds are
actively managed. The performance of these indexes does not reflect sales
charges or other expenses associated with investment in the Funds.; 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.
48
<PAGE>
PART B
ORBITEX GROUP OF FUNDS
410 Park Avenue
New York, New York 10022
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 August 21, 1998, which may be obtained by telephoning 1-888-ORBITEX and
asking about the Trust.
The date of this Statement of Additional Information is August 21, 1998.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
General Information and History
Investment Restrictions
Description of Securities, Other Investment Policies and Risk Considerations
Management of the Trust
Principal Holders of Securities
Investment Management and Other Services
Administrator
Custodian
Transfer Agent Services
Distribution of Shares
Brokerage Allocation and Other Practices
Purchase and Redemption of Securities Being Offered
Shareholder Services
Determination of Net Asset Value
Taxes
Organization of the Trust
Performance Information About the Funds
Independent Accountants
Legal Matters
Financial Statements
</TABLE>
B-1
<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 four portfolios, Orbitex Strategic
Natural Resources Fund ("Strategic Natural Resources Fund"), Orbitex Info-Tech &
Communications Fund ("Info-Tech & Communications Fund"), Orbitex Growth Fund
("Growth 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 offers two
classes of shares: a front-end load Class A and a contingent deferred sales
charge Class B.
Each Fund is managed by Orbitex Management, Inc. (the "Adviser"), which
directs the day-to-day operations and the investment of assets of each Fund.
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 securities" 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 purposes 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
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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.
(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.
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(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.
With respect to investment restriction No. 4 above, the Adviser, as a
matter of policy, under normal circumstances, will limit the investment of the
Info-Tech and Communications Fund to a maximum of 5% of the total assets (at the
time of purchase) in private, early stage communications companies.
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).
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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 businesses 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.
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.
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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.
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
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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.
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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
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.
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SPECIAL CONSIDERATIONS AFFECTING THE PACIFIC BASIN AND
SOUTHEAST ASIA
Asia has undergone an impressive economic transformation in the past
decade. Many developing economies, utilizing massive foreign investments,
established themselves as inexpensive producers of manufactured and
re-manufactured consumer goods for export. As household incomes rose, birth was
given to rising middle classes, stimulating domestic consumption. More recently,
large projects in infrastructure and energy resource development have been
undertaken, again utilizing cheap labor, foreign investment, and a business
friendly regulatory environment. During the course of development, governments,
which are democratic, at least in a formal sense, fought to maintain the
stability and control necessary to attract investment and provide labor.
Subsequently, Asian countries today are coming under increasing pressure from
western governments regarding human rights practices.
Since the summer of 1997, the region has experienced economic turmoil.
Hit by losses in Southeast Asia, the total GDP in the Asia-Pacific region is
estimated to grow by only 4% in 1998, plunging from 6.1% in 1997 and 7.5% in
1996. However, experts expect a rebound near the end of 1998.
Manufacturing exports declined significantly in 1996 and 1997, due to
drops in demand, increased competition, and also strong U.S. dollar performance.
This is particularly true of electronics, a critical industry for several Asian
economies. Declines in exports reveal how much of the recent growth in these
countries is dependent on their trading partners. Many Asian exports are priced
in dollars, while the majority of its imports are paid for in local currencies.
A stable exchange rate between the dollar and other Asian currencies is
important to Asian trade balances.
Despite the impressive economic growth experienced by Asia's emerging
economies, currency and economic concerns have recently roiled these markets.
Over the summer of 1997, a plunge in Thailand's currency set off a wave of
currency depreciations throughout South and Southeast Asia. The Thai crisis was
brought on by the country's failure to take steps to curb its current-account
deficit, reduce short-term foreign borrowing and strengthen its troubled banking
industry, which was burdened by speculative property loans. Most of the area's
stock markets tumbled in reaction to these events. Investors were heavy sellers
as they became increasingly concerned that other countries in the region, faced
with similar problems, would have to allow their currencies to weaken further or
take steps that would choke off economic growth and erode company profits. For
U.S. investors, the impact of the market declines were further exacerbated by
the effect of the decline in the value of their local currencies versus the U.S.
dollar as well as decreased demand for U.S. goods and services. There is
significant potential for continuing economic and political turmoil in the
Pacific Basin and Southeast Asia. Such turmoil could have a negative effect on
the share prices of the Funds; particularly Orbitex Asian High Yield Fund.
CHINA AND HONG KONG. China is one of the world's last remaining
communist systems, and the only one that appears poised to endure due to its
measured embrace of capitalist institutions. It is the world's most populous
nation, with 1.3 billion people (about 20 percent of the world's population)
creating a work force of 630 million.
Recent economic growth has exceeded population growth, improving the
overall standard of living; however, development is progressing
disproportionately faster in coastal and urban areas
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(including several duty-free "special economic zones" in which foreign
businesses receive tax, investment, and other incentives). Large state-owned
companies dominate the economy. An estimated 40% of these operate at a loss, and
their reform is now a high priority for China's leadership. At the 15th Party
Congress in September 1997, China announced plans to speed up privatization of
state-owned enterprises. Other priorities include restructuring the banking
sector and cutting government bureaucracy.
China has set a target of 8% economic growth for 1998, which would
allow it to pursue reform of state-owned enterprises without an excessive
increase in unemployment. Toward this end, a 3-year, $750 billion infrastructure
development program was announced in April 1998. Many private economists expect
1998 economic growth to be below the 8% target (closer to 7%), largely due to
the impact of the current economic crisis elsewhere in Asia. Although the Asian
crisis has affected the market for China's exports, China's centralized economy
has averted a similar crisis and the country's leaders have pledged not to
devalue the Chinese currency (yuan).
China's economic progress is proceeding with significant foreign
assistance. Major investors include Japan, the United States, Singapore, and
Taiwan. Foreign direct investment soared from $2.3 billion in 1987 to $43
billion in 1997. Since 1992, China has been the largest recipient of World Bank
loans (totaling $28.5 billion). In fiscal year 1997, this amounted to $2.8
billion, and another $2.5 billion is pledged for 1998. Alleviation of
infrastructure bottlenecks is a major priority of World Bank funding.
The United States and China are major trading partners, and have taken
recent steps to enhance diplomatic relations as well. In October 1997, President
Jiang Zemin visited the United States for the first state visit by a Chinese
leader in 12 years, and President Clinton visited newly elected Chinese
president Zhu Ronjia (elected March 1998) in China in June 1998. At the October
1997 summit, President Clinton announced his approval for the sale of U.S.
nuclear reactors to China (in return for China's promise not to supply nuclear
technology and missiles to Iran), and Secretary of Energy Federico Pena signed a
document relating to environmental and energy cooperation. According to industry
estimates, the nuclear agreement alone will allow U.S. companies to compete for
up to $60 billion in Chinese nuclear power development over the next 20 years.
Despite this progress, the United States has serious concerns about
issues such as human rights, nuclear proliferation and arms sales, trade
barriers, and intellectual property rights. In addition, China's bid for
membership in the World Trade Organization has been stymied by demands from the
United States and other member countries for more access to China's domestic
markets.
Regional tensions continue to raise concerns for China. These include
ongoing disputes with Taiwan (which China considers a renegade province) and
territorial disputes over potentially hydrocarbon-rich areas of the South China
Sea (also claimed by Vietnam, the Philippines, Brunei, Malaysia, and Taiwan) and
the East China Sea (also claimed by Japan).
China has two stock exchanges that are set up to accommodate foreign
investment, in Shenzhen and in Shanghai. In both cases, foreign trading is
limited to a special class of shares (Class B) which was created for that
purpose. Only foreign investors may own Class B shares, but the government must
approve sales of Class B shares among foreign investors. As of December
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1996, there were 42 companies with Class B shares on the two exchanges, for a
total Class B market capitalization of U.S. $4.7 billion.
Hong Kong has a bustling free market economy with few tariffs or
non-tariff barriers. Natural resources are limited, and food and raw materials
must be imported. Manufacturing and construction account for about 18% of GDP.
Goods and services exports account for about 50% of GDP. Real GDP growth
averaged a remarkable 8% in 1987-88, slowed to 3.0% in 1989-90, and picked up to
4.2% in 1991, 5.0% in 1992, 5.2% in 1993, 5.5% in 1994, and 5.0% in 1995.
Unemployment, which has been declining since the mid-1980s, edged up from 2% to
3.5% in 1995. Notwithstanding, a shortage of labor continues to put upward
pressure on prices and the cost of living. Prospects for 1998 remain optimistic
so long as major trading partners continue to be reasonably prosperous and so
long as investors feel China will continue to support free market practices.
AUSTRALIA. Australia is a 3 million sq. mile continent (about the size
of the 48 continental United States) with a predominantly European ethnic
population of 18.2 million people. A member of the British Commonwealth, its
government is a democratic, federal-state system. The country has a western
style capitalist economy with a work force of 9.2 million that is concentrated
in services, mining, and agriculture. Australia's natural resources are bauxite,
coal, iron ore, copper, tin, silver, uranium, nickel, tungsten, mineral sands,
lead, zinc, diamonds, natural gas, and oil. Primary trading partners are the US,
Japan, South Korea, New Zealand, UK and Germany. Imports revolve around
machinery and high technology equipment, while exports are heavy in the
agricultural and mineral products, making them sensitive to world commodity
prices. Historically, Australia's strong points were its agricultural and mining
sectors. While this is still true to a large extent, the government managed to
boost its manufacturing sector by undertaking protective measures in the 1970's
and early 1980's.
In 1997, Australia once again posted positive economic numbers,
continuing the country's lengthy string of economic growth. The real gross
domestic product (GDP) growth rate for 1997 was 2.9%. In addition, Australia's
labor market has broken out of a two-year slump. After losing almost 21,000 jobs
over the first eight months of 1997, approximately 145,000 new jobs were created
during the last three months of 1997, fueled in part by a boost in the
construction sector in preparation for the Sydney 2000 Olympic Games.
Australia's unemployment rate had been rising steadily for the last several
years, but leveled off in 1997 at 8.8%. Unemployment is projected to begin
falling in 1998, and continue to fall through 2000. However, Asia is an
important export market for Australian goods and the current Asian economic
crisis is projected to slow the Australian economy. For its 1998/1999 budget,
the government cut its economic growth forecast from 3.75% to 3%.
Australia's conservative government, led by Prime Minister John Howard,
may be headed toward early parliamentary elections over land rights for
Aborigines. (Australia's next regular election is scheduled for March 1999.) The
current controversy is over Howard's bill providing Aborigines with more rights
to government land leased to farmers. Elections could be called as early as
October 1998.
Additionally, Australia's government will need to find ways to reduce
greenhouse gas emissions as required by the Kyoto protocol, which Australia
signed in April 1998. The Kyoto protocol is an agreement among 150 industrial
nations to roll back greenhouse gas emissions to below 1990 levels by 2008-2012.
Achieving the reductions will be a challenge for Australia since
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fossil fuels account for 94% of the country's energy consumption. Also,
Australia is the world's leading coal exporter. Australia has two wind farms to
demonstrate the use of renewable energy sources, and some are calling for
investigations into the use of nuclear power as an alternative energy source.
INDONESIA. Indonesia is a country that encompasses over 17,000 islands
on which live 195 million people. It is a mixed economy that balances free
enterprise with significant government intervention. After many years of strong
economic growth and expansion, Indonesia is now in the midst of an economic
crisis that befell southeast Asia in mid-1997. According to U.S. government
estimates, the gross domestic product (GDP) growth rate estimate for 1997 is 5%,
down three points from 1996. For 1998, the GDP growth rate is projected to be
- -5.5%, with predictions that if economic reforms are not implemented, GDP could
fall by as much as 9%-10% annually during 1998 and 1999. Although the 1997
inflation rate is estimated at a relatively modest 6.6%, it is expected to
increase to 23.3% in 1998.
The Asian economic crisis reached Indonesia in the fall of 1997. In
October 1997, Jakarta turned to the International Monetary Fund (IMF) for
assistance in an attempt to restore confidence in Indonesia's economy. The
country was granted an IMF-led reform package worth $43 billion that called for
significant structural reforms of Indonesia's economy. However, concerns over
President Suharto's health emerged in December 1997, exacerbating the situation.
The county's currency has continued its decline since then and has yet to
stabilize.
Despite commitments to the IMF package, President Suharto issued an
expansionary budget for 1998-1999 in early January 1998. The budget assumed a
GDP growth rate of 4% and an inflation rate of 9%. It did not contain policy
initiatives to reform the economy specified by the IMF, and would have run up
large deficits. The IMF reacted by announcing that it would withhold the package
if economic reforms were not initiated. President Suharto then signed a new
agreement with the IMF that included more realistic 1998-1999 budget projections
for GDP growth rates, inflation rates and exchange rates. In addition, the
agreement called for cuts in fuel subsidies, bank mergers to improve efficiency
in the banking sector, and commitments from the government not to provide aid to
the heavily indebted private sector. However, President Suharto began backing
away from the IMF once again when he dismissed the governor of the central bank
on February 17, 1998. Furthermore, he revealed a new plan for restoring the
economy through pegging the rupiah to the dollar by means of a currency board.
The IMF again announced that it would withhold its loans if President Suharto
decided to implement this new plan.
With the economic turmoil continuing, Indonesia has faced social and
political problems as well. Prices for food and other necessities have been
skyrocketing. A recent report indicates that 2.4 million people have already
lost their jobs, and the country is in the midst of a severe drought. Given that
Indonesia has experienced social unrest and riots in the past, international
observers fear that widespread violence and rioting could be forthcoming. Some
localized protests and riots have already occurred and at least five people have
died. Moreover, reports indicate that some Chinese entrepreneurs, who are small
in number but own much of Indonesia's wealth and are often the targets of
protests, have made arrangements to leave the country. If they do leave, the
capital flight could make the economic crisis even worse.
The Indonesian government is strongly authoritarian. Treatment of
political opponents, workers and ethnic minorities has put Indonesia in the
world spotlight with criticism of its human rights practices. One source of
outspoken popular discontent is the glaring discrepancy in income
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distribution, particularly across ethnic lines. World attention to the problems
in Indonesia has given support to various human rights issues, but it does not
seem to have had much impact on the government in the past. Indonesia has
managed to avoid a bloodbath by the sudden resignation of longtime President
Suharto in favor of his deputy, Yusuf Habibie. It is unclear whether Suharto's
resignation will ultimately result in significant democratization of the
political process in Indonesia or if it merely represents a political sleight of
hand intended to deflect the sharp point of domestic and international
criticism. In theory, Habibie could continue in power for the rest of Suharto's
mandate which expires in 2003. However, Habibie has already pledged to hold
elections within the year. Much will depend upon whether the army and the
political and business elite with close ties to Suharto, will perceive their
appropriate role to the be the shoring up of the status quo or the management of
change.
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As economic policies have historically been crafted to benefit
Suharto's supporters in the business community, any deviation from Suharto's
position would likely impact the economy. Additionally, a key ingredient to
Indonesia's success has been its ability to contain social unrest. Maintaining
this control, especially in the face of recently escalated tensions and
political uncertainty, is an important anchor for economic performance. Proof of
this is the Jakarta Stock Exchange's volatile reaction to riots in July 1995.
The IMF has organized a massive bail-out program in an effort to bolster the
Indonesian economy. The new austerity program being imposed by the IMF could
result in even great pressures on the Government. The political and economic
events unfolding in Indonesia are likely to result in a volatile economy with
the potential for significant fluctuation in stock and bond prices in the
foreseeable future.
MALAYSIA. After many years of strong economic growth, Malaysia is
currently feeling the effects of the economic crisis that befell southeast Asia
in mid-1997. From July 1997 to January 1998, Malaysia's currency, the ringgit
(RM), lost approximately 40% of its value against the U.S. dollar. Although
Malaysia is not enduring negative gross domestic product (GDP) growth rates like
its neighbors Indonesia and Thailand, the country is experiencing a significant
slowdown in GDP growth. The GDP growth rate for 1997 was 6.8%, down from 8.2% in
1996 and 9.6% in 1995. However, according to U.S. government estimates the
growth rate is projected to fall to 2.0% in 1998 and 3.0% in 1999. In addition,
inflation is projected to be on the rise from 2.7% in 1997 to an estimated 5.5%
for 1998.
Malaysia's recent economic slowdown has forced the government to
postpone or cancel a number of domestic infrastructure projects and suspend new
Malaysian overseas investment. To combat its economic problems, Malaysia
recently initiated an economic reform package, but has not turned to
international organizations like the International Monetary Fund or the World
Bank for assistance. The government increased 1998 federal budget cuts from just
a few percentage points to 18%, and reduced its forecast for economic growth for
1998. Government officials' salaries are to be cut by as much as 10%. Moreover,
the government will continue to tighten its monetary policies, restrict bank
credits and reform its finance industry by consolidating finance companies and
banking groups. Government officials expect these reforms to cause some social
tensions due to potential rising unemployment, interest rates, and inflation,
but acknowledge that the reforms are necessary to get Malaysia's economy back on
track.
The political situation in Malaysia is stable and could possibly remain
so up to and including the next election in the year 2000.
SINGAPORE. Since achieving independence from the British in 1965,
Singapore has repeatedly elected the People's Action Party (PAP) as their
government. It is a party that is so consistent it has only offered up two prime
ministers in this 32-year period. Elections in January 1997 returned the PAP to
power, signaling satisfaction with their policy of close coordination with the
private sector to stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms. While the
combination of consistent leadership and interventionist policies is sometimes
seen as impeding civil liberties and laissez-faire economics, it has produced an
attractive investment environment.
The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size. Its
strongest sector is manufacturing, particularly of electronics, machinery and
petroleum and chemical products. They produce 45% of the world's computer disk
drives. Major trading partners are Japan, Malaysia and the US.
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The latest economic figures confirm that growth momentum in Singapore
has indeed slowed significantly. GDP growth moderated to 5.9 per cent in the
first quarter of 1998, from 7.8 per cent in 1997. The manufacturing sector has
slowed down, due to weaker global demand and the regional economic crisis. The
outlook for the worldwide electronics industry has turned less sanguine.
Producers are cautious about demand and wary about rising inventories. The
commerce sector continues to be affected by the decline in entrepot trade,
slower tourist arrivals and weaker domestic consumer spending. This has in turn
affected the transport and communications sector.
The financial services sector has also slowed considerably as activity
in the Asian Dollar Market and foreign exchange market remains weak, and
domestic bank lending continues to slacken. The construction sector is still
supported by the healthy pipeline of major public sector projects, although
private construction activity has slowed down drastically.
The Composite Leading Index, which leads economic activity by about
three quarters, has continued to fall since the fourth quarter of 1997. The
latest survey of business expectations in March 1998 also showed that the
outlook for most sectors had deteriorated, especially the commerce and services
sectors which are more exposed to the region. The trade figures confirm the
growth estimates and trade performance has been weak.
Given the pessimistic external environment and domestic sentiments,
experts expect economic growth in the second half of the year to remain very
weak, and possibly even become negative. However, for the full year of 1998, a
positive growth is expected.
SOUTH KOREA. South Korea is one of the more spectacular economic
stories of the post war period. Coming out of a civil war in the mid-1950's the
country found itself with a destroyed economy and boundaries that excluded most
of the peninsula's mineral and industrial resources. It proceeded over the next
40 years to create a society that includes a highly skilled and educated labor
force and an economy that exploited the large amounts of foreign aid given to it
by the US and other countries. Exports of labor intensive products such as
textiles initially drove the economy, to be replaced later by heavy industries
such as automobiles.
Hostile relations with North Korea dictate large expenditures on the
military, and political uncertainty and potential famine in the north has put
the south on high alert. Any kind of significant military effort could have
multiple effects, both positive and negative, on the economy. South Korea's lack
of natural resources put a premium on imported energy products, making the
economy very sensitive to oil prices.
Under the leadership of Kim Young Sam, whose term of office expired in
February 1998 and was ineligible to run for re-election, and now Kim Dae-jung,
South Korea is implementing financial reforms and liberalizing its economy under
the banner of "segyehwa" (globalization and internationalization). As a result,
South Korea lifted its ban on direct trade and investment in North Korea in
1994, and as of September 1997 had authorized 26 companies to do business or
invest in North Korea. In October 1997, South Korea signed an aviation agreement
that will allow commercial flights over North Korea beginning in February 1998.
Although South Korea is considered one of the world's biggest emerging
markets, its economic growth has slowed from nearly 9 percent in 1995 to a
projected 5.5 percent in 1997. The restructuring of large companies and
financial institutions has led to labor actions, declarations of
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bankruptcy by some of the largest conglomerates in the economy, and government
aid for ailing financial institutions. The country's currency value and stock
market have also been affected by a financial crisis wreaking havoc on economies
throughout southeast Asia. Priorities include restoring the country's economic
health and global competitiveness, while continuing to reform the corporate and
bureaucratic structure.
South Korea became the 29th member of the Organization for Economic
Cooperation and Development (OECD) in December 1996, and is also a member of the
World Trade Organization (WTO) and APEC (Asia Pacific Economic Cooperation). In
its financial liberalization plan submitted to the OECD, South Korea promises to
fully open its stock market to foreign investors by 2000 (the current limit of
23 percent foreign is expected to be raised to 26 percent in late 1997). Foreign
investment in local conglomerates (known as "chaebols") and long-term corporate
bonds of small companies is also planned. The United States and Japan already
are major investors in South Korea.
The United States is South Korea's most important trading partner,
providing 22 percent of South Korea's imports and purchasing 17 percent of its
exports in 1996 (more than any other country). However, this relationship has
become strained over barriers to U.S. automobile exports. In October 1997, U.S.
Trade Representative Charlene Barshefsky formally designated South Korea as a
"priority" foreign country subject to review. This opens up the possibility of
future sanctions under U.S. trade law.
South Korea's relations with North Korea are highly limited by ongoing
tensions, and consist primarily of security-related initiatives.
On a positive note, the country's trade balance has improved over the
past 6 months, and the current account deficit is now projected to be only about
half the size of the 1996 deficit. South Korea's strong domestic sectors are
electronics, textiles and industrial machinery. Exports revolve around
electronics, textiles, automobiles, steel and footwear, while imports focus on
oil, food, chemicals and metals.
THAILAND. After nearly a decade of strong economic growth and
expansion, Thailand is currently in the midst of an economic crisis. It began in
early July 1997 after the Thai government floated its currency, resulting in an
immediate decline in its value. The depreciation of the Thai baht helped push
the Thai economy into a severe recession which quickly spread to other nations
of Southeast Asia. On January 12, 1998, the baht hit a record low of Bt 56.45/US
dollar, and from July 1997 to February 1998 it lost more than 50% of its value
against the US dollar. Thailand's real gross domestic product (GDP) growth rate
for 1997 was -0.5%, down from 6.0% in 1996 and 8.7% in 1995. Negative growth is
projected to continue in 1998 at -3.5%. In addition, inflation is expected rise
sharply from 5.6% in 1997 to an estimated 12.5% in 1998.
Following the fall in the baht, the Thai government looked abroad for
financial assistance and enacted reforms to prevent a similar situation in the
future. In August 1997, the International Monetary Fund (IMF) granted Thailand a
$17.2 billion package designed to help the country institute economic reforms
and get the economy back on track. In December 1997, Thailand received an
additional $350 million from the Asian Development Bank. These additional funds
will be used to strengthen the laws, regulation and supervision of Thailand's
Securities and Exchange Commission. In January 1998, the Thai government
approved a plan that attempts to minimize the
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chances of exporters holding onto their foreign currencies for speculative
purposes. It is designed to bring the funds into the Thai banking system
quicker. The plan reduces the period for possession of foreign currencies by
exporters from 15 days to seven days.
With encouragement from the IMF, the Thai government has stepped up its
efforts to privatize the state-run Petroleum Authority of Thailand (PTT) placing
the plans for privatization on the "fast track." The government is considering
two methods for the privatization of PTT. The first would transform PTT into a
holding company and list it on the Stock Exchange of Thailand (SET). This would
enable investors to invest in all of PTT businesses and subsidiaries. Over time,
the holding company would gradually sell off its holdings in the subsidiaries.
In the second method, PTT would separate its subsidiaries and allow them to
independently seek listings on the SET. Under this method, investors would have
the opportunity to invest in only those businesses that they saw as profitable.
The government aims to raise up to $14 billion through the privatization process
over the next three years. The money will help ease budgetary pressures as the
country tries to rebound from its current economic situation. The government
hopes to have a privatization plan in place by the fourth quarter of 1998.
INDIA. In May 1998, India conducted a series of nuclear tests, which
prompted the imposition of economic sanctions by the United States and Japan and
the suspension or termination of bilateral assistance by other countries. The
tests raised concerns about regional security, which were heightened later in
the month when India's neighbor and rival, Pakistan, conducted nuclear tests of
its own. In June 1998, the United Nations Security Council unanimously passed a
resolution urging India and Pakistan to halt their nuclear weapons programs.
India has an ongoing border dispute with Pakistan over Jammu and Kashmir, and
neither country is a party to the Comprehensive Test Ban Treaty or the Nuclear
Non-Proliferation Treaty. India also perceives a threat from China, which has
provided technical, financial, and military assistance to Pakistan. India's
nuclear testing breaks a self-imposed 24-year moratorium.
Despite the negative reaction abroad, India's nuclear testing greatly
boosted the popularity (at least initially) of its government, a coalition
assembled by the Bharatiya Janata Party (BHP, India's Hindu nationalist party)
following elections in February 1998. As outlined in its annual budget (released
in June 1998), the government intends to proceed with its ambitious plans for
infrastructure development (including energy, especially electric power
projects) despite any hardships resulting from the imposition of sanctions
following the nuclear tests. This reflects the government's policy of
"swedeshi", which seeks greater self-reliance for India. The budget proposes the
sale of the government stake in Indian Oil Company (IOC) and Gas Authority of
India Limited (GAIL). It also calls for a reduction in the import tariff on
crude oil, and an increase in the import tariff on all oil products except
naphtha and kerosene (which will protect domestic refiners).
U.S. sanctions were imposed by President Clinton on May 13, 1998.
Additional sanctions were imposed by the Secretary of State. The U.S. sanctions
halt all foreign aid except for humanitarian purposes, ban sales of military
goods and certain types of technology to India, prohibit U.S. banks from lending
to India's government, and prohibit new loans and loan guarantees from agencies
such as the Export-Import Bank and the Overseas Private Investment Corporation
(OPIC). The sanctions also require the United States to oppose multilateral
assistance by organizations such as the World Bank and the International
Monetary Fund.
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The Export-Import Bank estimates the sanctions will immediately affect
$500 million of U.S. exports to India in pending transactions, and potentially
another $3.5 billion in the longer term. OPIC had been expected to provide $300
million annually. The World Bank has $15 billion in outstanding credits to India
and planned to extend $3 billion more this year. On May 27, 1998, U.S.
opposition forced the delay of $865 million in World Bank loans for an electric
power grid, small hydroelectric generators, and road construction.
Sanctions are expected to slow economic growth and infrastructure
development in India; however, funding commitments received prior to the
imposition of sanctions are expected to be honored. India has targeted a
6.5%-7.0% GDP growth rate for the fiscal year ending March 31, 1999. Many
private economists predict growth will average closer to 4%.
Since 1991, India has pursued economic reforms to stimulate the economy
and spur private (including foreign) investment. The proposed budget for the
fiscal year ending March 31, 1999, envisages a doubling of foreign investment,
from the previous year's level of $3.1 billion. U.S. companies have been major
investors in India, as have companies from the United Kingdom, Germany, and
Japan. It is too soon to determine the extent to which sanctions, which do not
apply to private investment, will affect these relationships. Prior to recent
events, the U.S. Department of Commerce identified major opportunities for U.S.
private energy investment in electric power generation, coal washeries, coalbed
methane projects, and equipment for India's mining, oil, and gas industries. In
1997, U.S. exports to India included more than $300 million in electric power
generation goods and services and about $105 million in oil and gas field
equipment and supplies. Enron's $2.5 billion Dabhol power plant, which is under
construction, is the largest foreign investment in India.
PAKISTAN. On May 28, 1998, Pakistan announced that it had carried out
underground tests of five nuclear devices. These tests came slightly more than 2
weeks after India carried out 5 nuclear tests of its own, and after many
warnings by Pakistani officials that they would respond to India (the two
countries have fought 3 wars). In addition, Pakistan's President Rafiq Tarar
declared a state of emergency, citing "threat by external aggression to the
security of Pakistan." The United States had been attempting to persuade
Pakistan not to test (and to head off a potential nuclear arms race in South
Asia) by offering potential economic and military benefits, but this effort did
not succeed. Pakistan already had been subject to limited U.S. sanctions since
1990 under the Pressler Amendment, when $650 million in military and
humanitarian aid had been cut off as a result of an inability by the President
to certify that Pakistan did not possess a nuclear device.
As was the case following India's nuclear tests, President Clinton
announced that the United States would impose sanctions on Pakistan. These
sanctions, among other things, could stem the flow of financial assistance into
Pakistan, potentially causing severe harm to the Pakistani economy. With $37
billion in foreign debt (more than half of the country's total Gross Domestic
Product, or GDP), a monthly trade deficit of $150 million, foreign exchange
reserves of only $1.3 billion, and interest payments of $200-$500 million due
each month, Pakistan can ill afford any suspension or cutoff in international
assistance. Overall, Pakistan is considered far more vulnerable to economic
sanctions than India.
In October 1997, the International Monetary Fund (IMF) had agreed to
lend Pakistan $1.52 billion -- including $935 million under an enhanced,
low-interest-rate, enhanced structural adjustment facility (ESAF) -- over three
years as part of an economic reform program. (The first $208 million tranche was
released in October 1997.) The IMF money is considered important not
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only on its own account but also because it facilitates Pakistan's ability to
borrow from commercial sources by increasing the country's financial
credibility. Without the IMF, some economists believe foreign lenders could call
in their loans, leading to a crisis of confidence in Pakistan's economy and a
run on the country's freely-convertible currency, the rupee. Pakistan also
receives money from other international lending organizations, including the
World Bank. Following Pakistan's nuclear tests, IMF and World Bank assistance
are now thrown into question, with the United States now saying it will oppose
international lending to Pakistan.
A cutoff in foreign assistance would hit Pakistan just as the country's
economy appeared to be moving ahead after two years of serious balance of
payments and fiscal problems. Prior to the nuclear tests, Pakistan's economy
according to U.S. government estimates had been expected to grow by as much as
5.4% in 1998 (up from 1% in fiscal year 1997), with inflation at 8.5% (down from
13%-15% in recent years). Furthermore, Pakistan's fiscal deficit had been
expected to decline to about 5.2% of GDP, compared to 6.3% in the last fiscal
year. In the aftermath of its nuclear tests, Pakistan's economy could now suffer
greatly.
Economic reform (especially of the country's banking and financial
sector), reducing current account and fiscal deficits, meeting external debt
obligations, reforming the tax system, curtailing corruption, and minimizing
political and social unrest have been the main domestic priorities for the
Pakistan Muslim League government of Prime Minister Nawaz Sharif since it took
power in February 1997. Pakistan's current Five Year Plan emphasizes
privatization and incentives for private sector investment (including increased
foreign participation), particularly in the electric power and natural gas
industries.
Reform efforts have been frustrated by long-standing economic
vulnerabilities -- including high levels of debt service and defense spending,
dependence on cotton-based exports, a large and rapidly growing population, and
a small tax base. Concerns for private investors include inadequate and
deteriorating infrastructure, low levels of literacy, and increasing sectarian,
ethnic, and tribal violence.
BANGLADESH. Despite sustained domestic and international efforts to
improve economic and demographic prospects, Bangladesh remains one of the
world's poorest, most densely populated, and least developed nations. Annual GDP
growth has averaged over 4% in recent years from a low base. Its economy is
overwhelmingly agricultural, with the cultivation of rice the single most
important activity in the economy. Major impediments to growth include frequent
cyclones and floods, the inefficiency of state-owned enterprises, a rapidly
growing labor force that cannot be absorbed by agriculture, delays in exploiting
energy resources (natural gas), inadequate power supplies, and, most recently,
political disturbances. In 1995, progress on Bangladesh's development agenda has
been slowed by frequent political unrest before and after national elections in
early 1996. Opposition parties have challenged the government's authority by
resigning from Parliament and sponsoring numerous countrywide strikes that have
crippled transport, hindered business activity, and threatened to slow economic
growth in 1996.
SRI LANKA. The economy of Sri Lanka is dominated by the fast-growing
apparel industry which has surpassed agriculture as the main source of export
earnings. However, Sri Lanka, like many of the small South Asian countries, is
faced with the problems of reducing poverty and illiteracy and improving
infrastructure and economic growth. The economy has been plagued by high rates
of unemployment since the late 1970s. Economic growth accelerated in 1991-94 as
domestic conditions began to improve and conditions for foreign investment
brightened. In 1995, however,
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the government's emphasis on populist measures and its preoccupation with the
stepped-up Tamil insurgency have clouded Sri Lanka's economic prospects and
discouraged foreign investors. A further problem for 1998 is the need to curb
government overspending. Finally, because of Sri Lanka's small and relatively
less diversified economy and public markets, it is susceptible to external
economic shocks, which may result in currency declines.
SPECIAL CONSIDERATIONS AFFECTING CANADA
Canada is one of the richest nations in the world in terms of natural
resources. Within this sector particularly strong commodities are forest
products, mining and metals products, and agricultural products such as grains.
Additionally, energy related products such as oil, gas and hydroelectricity are
important components of their economy. Accordingly, the Canadian stock market is
strongly represented by such basic materials stocks, and movements in the supply
and demand of industrial materials, agriculture, and energy, both domestically
and internationally, can have a strong effect on market performance.
Canada is a confederation of 10 provinces with a parliamentary system
of government. The area, the world's second largest nation by landmass, is
inhabited by 30.2 million people, most of whom are decedents of France, the
United Kingdom and indigenous peoples. The country has a work force of over 18
million, spread out over a variety of industries from trade, manufacturing, and
mining to finance, construction and government. As an affluent, high-tech
industrial society, Canada today closely resembles the United States in per
capita output, market-oriented economic system, and pattern of production. Since
World War II, the impressive growth of the manufacturing, mining, and service
sectors has transformed the nation from a largely rural economy into one
primarily industrial and urban. Canada started the 1990s in recession, and real
rates of growth have only averaged 1.1% so far this decade. Because of slower
growth, Canada still faces high unemployment - especially in Quebec and the
Maritime Provinces - and a large public sector debt. The continuing
constitutional impasse between English - and French - speaking areas is raising
the possibility of a split in the confederation, making foreign investors
somewhat edgy.
The United States is Canada's biggest trading partner, representing
over 75% of total trade. Strong export industries are energy, mining and forest
products. Canada is the largest energy supplier to the US. Main imports are
industrial machinery and chemicals. The U.S. is also Canada's largest foreign
investor, responsible for 71% of all FDI in Canada (worth approximately $87
billion). Main targets for investment are metals and mining industries, energy,
and finance.
On June 2, 1997, Canadians voted in early elections called by Prime
Minister Chretien. The result of these elections was that Chretien's Liberal
party won a narrow majority (155-146) in the House of Commons, despite losing 20
seats. In October 1995, the separatist opposition party Bloc Qubecois led a
referendum on sovereignty for the predominantly French-speaking Canadian
province of Quebec. In an extremely narrow vote that revealed deep cultural and
political divisions within the country, Quebec citizens opted -- by only 1.2% --
to keep their province a part of Canada. Quebec's Premier Lucien Bouchard has
promised another referendum on this issue following a provincial election in
1998. The Bloc Quebecois, although losing five seats in the June nationwide
elections, remains a significant opposition party (along with the Reform party).
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Economically, after experiencing only slow growth throughout the
1990's, Canada's economy accelerated rapidly in 1997, reaching an annual 3.6%
real GDP growth rate. Unemployment, which had stubbornly remained near or above
10% between 1990 and 1996, fell to 8.9% in October 1997, with inflation
remaining under 2%. Interest rates also remain low, having fallen sharply since
1995. In addition, retail sales have expanded strongly since 1995. In addition,
retail sales have expanded strongly in 1997 (at least through October), with
manufacturers operating at over 86% of capacity in the first quarter of the
year. Meanwhile, the country's current account has shifted from surplus into
deficit as strong domestic consumer demand has caused imports to jump. Finally,
the strong economy, combined with lower interest rates and Prime Minister Jean
Chretien's deficit-cutting policies, has resulted in sharp drops in the federal
deficit (to 1.1% of GDP), and in forecasts of a balanced budget in the near
future. Canada's budget has been in deficit for the past 27 years.
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During the first two quarters of 1998, the Canadian dollar continued
under downward pressure falling to record low levels. The original catalyst was
the downturn in East Asia and attendant weakening in commodity prices. This has
contributed to a deterioration in Canada's merchandise trade balance. However,
the dollar's depreciation in July and August of 1998 has been more attributable
to an unexpected weakening in activity in other areas of the economy, reducing
the likelihood of an interest rate hike by the Bank of Canada.
Though some of the weak economic data for 1998 can be attributed to
various special factors, the data does suggest that the current levels of
interest rates and the dollar are consistent with a slightly lower underlying
trend growth rate for the economy.
In spite of the downward revision to growth, the pace of activity is
sufficiently strong to continue to absorb existing unused capacity. Thus, the
unemployment rate is expected to show further declines over the forecast period,
dropping to 8.0% by the end of next year. In this environment, Canadians
continue to expect the Bank of Canada to gradually reduce the amount of stimulus
in the system through 1999. However, with growth projected to be more moderate,
the pace of tightening is expected to be slower.
The recent weakening in the Canadian dollar during the summer of 1998
has prompted calls for higher interest rates to defend the currency. The Bank of
Canada's stated policy target is to keep inflation within a band of 1% to 3%.
With recent inflation numbers suggesting that the main risk is for inflation to
drop below this target, experts do not believe the Bank of Canada will raise
interest rates.
The most recent consumer price index data for June 1998 indicated that
the underlying inflationary trend is currently below the Bank's target band.
Though the overall Consumer Price Index ("CPI") rose 1.0% on a year-over-year
basis, the underlying trend is better identified by the CPI which excludes food,
energy and indirect taxes. On this basis, inflation in June 1998 dropped to 0.8%
from 1.2% in May.
While a recent Consensus Economics survey suggests an average inflation
rate next year of 1.7%, the weaker Canadian dollar will also result in some
transitory upward pressure on inflation through 1999.
The risk of inflation is heightened if fixed-income markets become
destabilized. To date, however, the trend in bond markets remains orderly with
yields on 10-year Government issues remaining below those in the United States.
Interest rates are expected to rise slightly in 1999 in response to expected
federal actions.
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
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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 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 market. A stamp duty is
generally a tax on the official recording of a capital market transaction.
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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 purchaser 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
B-24
<PAGE>
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 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 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 securities or currencies on
which the Fund holds a covered call position.
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 Funds 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, 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.
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<PAGE>
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.
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
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
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<PAGE>
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 deems it desirable to
continue to hold the security or currency because of tax considerations. The
premium paid for the put 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.
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<PAGE>
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
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 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 sub-indices 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.
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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.
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.
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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 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
B-30
<PAGE>
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 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
B-31
<PAGE>
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 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
B-32
<PAGE>
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 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
B-33
<PAGE>
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 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.
B-34
<PAGE>
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.
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. 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.
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 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
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.
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<PAGE>
Whether a Fund's use of swap agreements enhance the Fund's total return
will depend on the 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 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 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.
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.
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<PAGE>
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 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 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.
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<PAGE>
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 Age the Past Five Years
---------------- --- -------------------
<S> <C> <C>
Ronald Altbach 51 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 52 Trustee of the Trust. Chairman, Orbitex Management Ltd.
Maritime House (investment management) (1986 - present).
Frederick Street
Nassau, Bahamas
*Otto J. Felber 65 Trustee of the Trust. President of Felcom Capital, Corp. (1985 -
250 Bloor Street East present); President and Vice-Chairman, Altamira Management Ltd.
Suite 300 (investment management) (1987 - 1997).
Toronto, Ontario
Canada M4W 1E6
Robert F. Raucci 43 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 48 Chairman of Trust, President, Assistant Treasurer and Assistant
410 Park Avenue Secretary of the Trust. Director and Chief Executive Officer,
New York, NY 10022 Orbitex 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).
Mark Breault 31 Secretary of the Trust. Vice President - Operations, Orbitex
410 Park Avenue Management, Inc. (1996 - present); Vice President, State Street
New York, NY 10022 Bank and Trust Company (1991 - 1996).
Kimberly Ratz 38 Treasurer of the Trust, America's Mortgage Source - Chief
410 Park Avenue Financial Officer (Mortgage Banking) (4/96-9/97); Chase Manhattan
New York, NY 10022 Mortgage (Mortgage Banking) (Finance Manager) (7/84-4/96)
</TABLE>
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Each Trustee of the Trust who is not an interested person of the Trust
or 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.
As of April 30, 1998 Trustees and officers of the Trust, as a group,
owned less than 1% of the Strategic Natural Resources Fund, the Info-Tech and
Communications Fund and the Asian High Yield Fund and 6.24% of the Growth Fund.
PRINCIPAL HOLDERS OF SECURITIES
As of April 30, 1998 the following shareholders were beneficial owners
of 5% or more of the outstanding shares of the Funds listed because they
possessed voting or investment power with respect to such shares:
<TABLE>
<S> <C>
Strategic Natural Resources Fund Asian High Yield Fund
Sidney Kimmel 20.02% Bank J. Vontobel & Co 10.47%
c/o Cones Apparel Group Bahnhofster 3
1411 Broadway 21st Floor CH-8022 Zurich Switzerland
New York, New York 10018-3403
Westmount Investments LTD 27.88% SAC & Co 30.73%
Maritime House 2nd Floor 12 E. 49th Street 41st Floor
PO Box N-9932 New York, NY 10007-1029
Nassau, BAHAMAS
Info-Tech and Communications Egger & Co. 11.40%
Cresta LTD 36.84% c/o Chase Manhattan Bank, Attn: Mutual Funds Dept.
Maritime House, Frederick Street 4 New York Plaza 13th Floor
PO Box N-9932 New York, NY 10004-2413
Nassau, BAHAMAS
Orbitex Growth Fund Titus & Co 16.00%
Cresta LTD 67.09% c/o Chase Manhattan Bank
Maritime House, Frederick Street Attn: Mutual Funds Dept.
PO Box N-9932 4 New York Plaza 13th Floor
Nassau, BAHAMAS New York, NY 10004
Farisa J. Calk 7.97%
3868 Beverly Bridge Road
Sherman Oaks, CA 91423-4511
James L. Nelson 6.24%
111 E. 56th St. #1296
New York, NY 10022-2603
Lily Swaere 5.78%
150 SE 2nd Avenue
Miami, FL 33131-1518
</TABLE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Adviser
Orbitex Management, Inc., 410 Park Avenue, 18th Floor, New York, NY
10022, 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
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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:
Thomas T. Bachmann, Co-Chairman, James L. Nelson, Director and President; and
Richard I. Stierwalt, Co-Chairman and CEO. The Adviser is a subsidiary of
Orbitex, Inc., a business development firm.
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 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."
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.
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
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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.
Under the terms of the Distribution Plans and Agreements pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Rule 12b-1 Plan"), the
Distributor receives front-end or contingent deferred sales commissions or sales
loads on Class A and Class B Shares and fees for providing services to the Class
A and Class B Shares of each Fund under the Distribution Agreements. In
addition, pursuant to the Rule 12b-1 Plans, each of the Funds are authorized to
use a portion of their assets attributable to the Class A and Class B Shares 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
attributable to the Class A Shares and 1.00% of the average daily net assets
attributable to the B Shares of the Fund during that quarter. A 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
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Plans and Agreements authorize payments to the Distributor as compensation for
providing account maintenance services to investors in the Class A and Class B
Shares of 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 with respect to its Shares.
The services to be provided by Recipients may include, but are not
limited to, the following: assistance in the offering and sale of the Class A
and Class B 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
Plans and Agreements 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 each the Rule 12b-1 Plans and Agreements is one
year and this 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 Plans and Agreements ("Rule 12b-1 Trustees") by votes
cast in person at a meeting called for the purpose of voting on the Rule 12b-1
Plans and Agreements. The Rule 12b-1 Plans and Agreements 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 Class A or B Shares
of the Trust or the affected Fund. The Rule 12b-1 Plans and Agreements will
terminate automatically in the event of their assignment (as defined in the 1940
Act).
The Rule 12b-1 Plans and Agreements 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 a Rule 12b-1 Plan and Agreement. During the
term of the Rule 12b-1 Plans and Agreements, 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 Plans and Agreements, 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 a 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 respective 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
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<PAGE>
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 is responsible for making decisions with respect to the
purchase and sale of portfolio securities on behalf of the Funds. The Adviser is
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.
In purchasing and selling each Fund's portfolio securities, it is the
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, consideration 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 the Funds. It is not the policy of the Adviser 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 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 may receive research services in connection with
brokerage transactions, including designations in fixed price offerings.
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<PAGE>
The Adviser receives 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 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 may be relieved of expenses which it might otherwise bear. In some
cases, research services are generated by third parties but are provided to the
Adviser by or through brokers.
Certain broker-dealers which provide quality execution services also
furnish research services to the Adviser. The Adviser has adopted a brokerage
allocation policy embodying the concepts of Section 28(e) of the Securities
Exchange Act of 1934, which permits an investment advisor 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 may assess the
reasonableness of commissions in light of the total brokerage and research
services provided by each particular broker. The Adviser may also consider sales
of the Funds' Shares as a factor in the selection of broker-dealers.
Portfolio securities will not be purchased from or sold to the Adviser,
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.
PURCHASE AND REDEMPTION OF SECURITIES BEING OFFERED
Letter of Intent. In submitting a Letter of Intent to purchase Class A
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 Class A 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
Class A Shares, but if the investor's purchases of Class A Shares within the
Letter of Intent period, when added to the value (at
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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 of 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.
In determining the total amount of purchases made under a Letter, Class
A 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, Class A 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.
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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.
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
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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 shares 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 in 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 per share of a Fund will be determined for each
class of shares. The net asset value per share of a given class of shares of a
Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares in conformance with the provisions of the
plan adopted by the Fund in accordance with Rule 18f-3 under the 1940 Act., and
dividing the result by the number of shares of such class outstanding. The net
asset value of shares of each class 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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the different classes of shares is expected to be
substantially the same; from time to time, however, the per share net asset
value of the different classes of shares may differ.
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 on the basis of dealer supplied quotations or by
pricing systems selected by the adviser and approved by the Board of Trustees of
the Trust. 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. Short-Term debt securities with a remaining maturity
of 60 days or less are amortized to maturity, provided such valuations represent
par value.
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
B-47
<PAGE>
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) a
Fund must distribute to its shareholders 90% of its ordinary income and net
short-term capital gains; and (c) 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 are
taxable as such to shareholders in the year in which they are received except
dividends declared in October, November and December to the shareholders of
record on a specified date in such a month and paid in January of the following
year are taxable in the previous year.
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.
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
B-48
<PAGE>
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 and the Asian High Yield 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 paid 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 on 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
B-49
<PAGE>
Section 4982. This provision is effective for taxable years of U.S. persons
beginning after December 31, 1997.
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 $19,000 for each Fund, will be amortized on a straight line basis
over a five year period beginning at the commencement of operations of each
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. Average annual total
return will be calculated separately for Class A and Class B Shares. 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:
1/n
T = (ERV/P) - 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
B-50
<PAGE>
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):
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. Yield will be calculated separately for each class of
shares of the Fund.
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:
6
YIELD = 2[(a-b + 1) - 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
B-51
<PAGE>
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.
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
PricewaterhouseCoopers 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 Schedules of Investments for the Orbitex Group of
Funds as of April 30, 1998, (2) the Statements of Assets and Liabilities as of
April 30, 1998, (3) the Statements of Operations as of April 30, 1998, (4) the
Statements of Changes in Net Assets as of April 30, 1998, (5) the Financial
Highlights as of April 30, 1998 and (6) the Notes to the Financial Statements.
B-52
<PAGE>
ORBITEX GROUP OF FUNDS
STRATEGIC NATURAL RESOURCES FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 91.21%
Agricultural Machinery - 2.43%
Delta & Pine Land Co. ................................................ 3,000 $ 138,188
--------------
Aluminum - 2.85%
Alcan Aluminum, Ltd. ................................................. 5,000 162,500
--------------
Chemicals - 4.90%
Cytec Industries, Inc. (a) ........................................... 2,000 109,500
Dow Chemical Co. ..................................................... 1,000 96,687
Du Pont (E.I.) de Nemours and Co. .................................... 1,000 72,813
--------------
279,000
--------------
Gas Exploration - 9.54%
Anderson Exploration, Ltd. (a) ....................................... 4,000 48,673
Coho Energy, Inc. (a) ................................................ 10,000 75,625
Forcenergy, Inc. (a) ................................................. 3,000 69,187
Oryx Energy Co. (a) .................................................. 4,000 104,500
Seagull Energy Corp. (a) ............................................. 10,000 170,625
Weatherford Enterra, Inc. (a) ........................................ 1,500 75,094
--------------
543,704
--------------
Gas & Pipeline Utilities - 1.66%
Williams Companies, Inc. ............................................. 3,000 94,875
--------------
International Oil - 7.50%
Poco Petroleum, Ltd. (a) ............................................. 2,000 22,798
Ranger Oil, Ltd. ..................................................... 17,000 117,938
Santa Fe International Corp. ......................................... 1,500 58,781
Texaco, Inc. ......................................................... 2,000 123,000
YPF Sociedad Anonima, ADR............................................. 3,000 104,625
--------------
427,142
--------------
Mining - 10.88%
Barrick Gold Corp. ................................................... 4,000 89,750
Freeport-McMoRan Copper & Gold, Inc., Class A ........................ 7,000 124,686
Getchell Gold Corp. (a) .............................................. 3,000 73,875
Greenstone Resources, Ltd. (a) ....................................... 15,000 91,875
Newmont Mining Corp. ................................................. 2,500 80,468
Phelps Dodge Corp. ................................................... 1,500 100,688
Placer Dome, Inc ..................................................... 4,000 59,000
--------------
620,342
--------------
B-53
<PAGE>
ORBITEX GROUP OF FUNDS
STRATEGIC NATURAL RESOURCES FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
Oil - 12.48%
Atlantic Richfield Co. ............................................... 2,000 $ 156,000
Canadian 88 Energy Corp. (a) ......................................... 20,000 97,500
Exxon Corp. .......................................................... 1,000 72,937
Halliburton Co. ...................................................... 2,500 137,500
Pennzoil Co. ......................................................... 1,000 64,063
Triton Energy, Ltd. (a) .............................................. 1,500 60,188
Unocal Corp. ......................................................... 3,000 122,812
--------------
711,000
--------------
Oil & Gas Drilling - 8.70%
Ensco International, Inc. ............................................ 5,000 141,250
Santa Fe International Corp. ......................................... 8,000 82,500
Smith International, Inc. (a) ........................................ 1,500 88,125
Ultramar Diamond Shamrock Corp. ...................................... 3,000 96,937
UTI Energy Corp. (a) ................................................. 5,000 86,875
--------------
495,687
--------------
Oil & Gas Exploration and Production - 9.34%
Benz Energy, Ltd. (a) ................................................ 10,000 12,448
Bonavista Petroleum, Ltd. (a) ........................................ 13,000 53,184
Canadian Conquest Exploration, Inc. (a) .............................. 50,000 40,211
EEX Corp. (a) ........................................................ 10,000 96,875
Global Industries, Inc. (a) .......................................... 2,500 56,719
Pacalta Resources, Ltd. (a) .......................................... 5,000 35,666
Probe Exploration, Inc. (a) .......................................... 15,000 65,037
Total SA, ADR......................................................... 2,000 117,500
Ultra Petroleum Corp. (a) ............................................ 15,000 54,023
--------------
531,663
--------------
Paper & Related Products - 9.39%
Asia Pulp & Paper Co., Ltd., ADR ..................................... 4,000 58,250
Champion International Corp. ......................................... 2,000 107,625
Louisiana-Pacific Corp. .............................................. 5,000 109,375
Tembec, Inc., Class A (a) ............................................ 10,000 66,086
Union Camp Corp. ..................................................... 1,300 78,488
Weyerhaeuser Co. ..................................................... 2,000 115,250
--------------
535,074
--------------
B-54
<PAGE>
ORBITEX GROUP OF FUNDS
STRATEGIC NATURAL RESOURCES FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
Petroleum Services - 10.46%
Baker Hughes, Inc. ................................................... 2,500 101,250
Barrington Petroleum, Ltd. (a) ....................................... 15,000 46,156
Lyondell Petrochemical Co. ........................................... 3,000 98,625
Noble Drilling Corp. (a) ............................................. 2,500 80,781
Seven Seas Petroleum, Inc. (a) ....................................... 2,000 42,500
Veritas DGC, Inc. (a) ................................................ 2,000 108,375
Western Atlas, Inc. .................................................. 1,500 118,500
--------------
596,187
--------------
Software - 0.16%
Mobius Management Systems, Inc. (a) .................................. 500 $ 9,250
--------------
Steel - 0.92%
AK Steel Holding Corp. ............................................... 2,500 52,500
--------------
TOTAL COMMON STOCKS - (Cost $4,805,529) 5,197,112
---------------
SHORT TERM INVESTMENTS (Cost $181,000) - 3.18% Principal
TIME DEPOSIT - 3.18% Amount
State Street Bank and Trust Co.,
5.250%, 05/01/1998 ................................................... $ 181,000 181,000
--------------
--------------
TOTAL INVESTMENTS (Cost $4,986,529) - 94.39% 5,378,112
OTHER ASSETS AND LIABILITIES - 5.61% 319,722
--------------
NET ASSETS - 100.00% $ 5,697,834
==============
</TABLE>
(a) Denotes non-income producing security.
ADR - American Depository Receipt
B-55
<PAGE>
ORBITEX GROUP OF FUNDS
INFO - TECH & COMMUNICATIONS FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 71.81%
Advertising - 4.78%
DoubleClick, Inc. (a) ................................................ 2,800 $ 116,725
--------------
Business Services - 5.61%
At Home Corp., Series A (a) .......................................... 1,700 56,631
Nokia Corp., ADR ..................................................... 1,200 80,250
--------------
136,881
--------------
Communication Services - 2.36%
China Telecom Hong Kong, Ltd., ADR (a) ............................... 1,000 38,625
Exodus Communications, Inc. (a) ...................................... 500 19,000
--------------
57,625
--------------
Electronics - 16.75%
Altera Corp. (a) ..................................................... 1,000 40,500
Applied Materials, Inc. (a) .......................................... 1,000 36,125
ARM Holdings Plc, ADR (a) ............................................ 500 20,188
Broadcom Corp. (a) ................................................... 2,000 96,000
Lexmark International Group, Inc., Class A (a) ....................... 600 34,725
Maxim Integrated Products, Inc. (a) .................................. 1,500 60,562
Motorola, Inc. ....................................................... 900 50,062
Texas Instruments, Inc. .............................................. 1,100 70,469
--------------
408,631
--------------
Networking Products - 0.90%
Cisco Systems, Inc. (a) .............................................. 300 21,975
--------------
Software - 14.33%
ISS Group, Inc. (a) .................................................. 1,000 44,250
Mobius Management Systems, Inc. (a) .................................. 1,500 27,750
Ozemail, Ltd., ADR ................................................... 10,000 228,125
Visual Networks, Inc. (a) ............................................ 1,500 49,687
--------------
349,812
--------------
Telecommunications Equipment - 8.76%
Advanced Radio Telecom Corp. (a) ..................................... 1,500 21,938
Ascend Communications, Inc. (a) ...................................... 1,600 69,700
DSC Communications Corp. (a) ......................................... 1,000 18,000
Lucent Technologies, Inc. ............................................ 400 30,450
Newbridge Networks Corp. (a) ......................................... 1,000 29,312
Northern Telecom, Ltd. ............................................... 400 24,350
Reltec Corp. (a) ..................................................... 500 19,938
--------------
213,688
--------------
B-56
<PAGE>
ORBITEX GROUP OF FUNDS
INFO - TECH & COMMUNICATIONS FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
Telecommunications Services - 6.28%
Metronet Communications Corp., Class B (a) ........................... 1,000 $ 25,000
NTL, Inc. (a) ........................................................ 1,000 39,000
Omnipoint Corp. (a) .................................................. 2,200 53,900
Tellabs, Inc. (a) .................................................... 500 35,438
--------------
153,338
--------------
Telephone - 12.04%
BCE, Inc. ............................................................ 500 21,281
Compania Anonima Nacional Telefonos de Venezuela, ADR ................ 1,200 40,200
E. Spire Communications, Inc. (a) .................................... 900 17,100
ITC Deltacom, Inc. (a) ............................................... 500 14,313
Nextlink Communications, Inc., Class A (a) ........................... 800 24,000
Powertel, Inc. (a) ................................................... 1,600 36,600
Sprint Corp. ......................................................... 400 27,325
Telecomunicacoes Brasileiras, ADR..................................... 400 48,725
WorldCom, Inc. ....................................................... 1,500 64,172
--------------
293,716
--------------
TOTAL COMMON STOCKS - (Cost $1,446,288) 1,752,391
--------------
SHORT TERM INVESTMENTS (Cost $706,000) - 28.93% Principal
TIME DEPOSIT - 28.93% Amount
State Street Bank and Trust Co.,
5.250%, 05/01/1998 .................................................. $ 706,000 706,000
--------------
TOTAL INVESTMENTS (Cost $2,152,288) - 100.74% 2,458,391
OTHER ASSETS AND LIABILITIES - (0.74)% (18,049)
--------------
NET ASSETS - 100.00% $ 2,440,342
==============
</TABLE>
(a) Denotes non-income producing security
ADR - American Depository Receipt
B-57
<PAGE>
ORBITEX GROUP OF FUNDS
GROWTH FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 101.66%
Advertising - 1.64%
DoubleClick, Inc. (a) ................................................ 350 $ 14,591
--------------
Air Travel - 4.82%
AMR Corp. (a) ........................................................ 100 15,237
ASA Holdings, Inc. ................................................... 440 16,720
Southwest Airlines Co. ............................................... 400 10,975
--------------
42,932
--------------
Auto Parts - 3.56%
CSK Auto Corp. (a) ................................................... 700 18,900
Superior Industries International, Inc. .............................. 400 12,850
--------------
31,750
--------------
Banks - 1.91%
BankAmerica Corp. .................................................... 200 17,000
--------------
Broadcasting - 3.67%
Tele-Communications, Inc., Liberty Media Group, Series A (a) ......... 500 16,594
Tele-Communications, Inc., TCI Group, Series A (a) ................... 500 16,125
--------------
32,719
--------------
Business Services - 3.22%
Equifax, Inc. ........................................................ 400 15,475
Manpower, Inc. ....................................................... 300 13,219
--------------
28,694
Chemicals - 2.17%
Dow Chemical Co. ..................................................... 200 19,337
--------------
Computers & Business Equipment - 1.95%
Symbol Technologies, Inc. ............................................ 450 17,325
--------------
Diversified Manufacturing- 1.91%
General Electric Co. ................................................. 200 17,025
--------------
Drugs & Health Care - 8.64%
Agouron Pharmaceuticals, Inc. (a) .................................... 500 17,000
Amgen, Inc. .......................................................... 200 11,925
Biogen, Inc. (a) ..................................................... 100 4,438
Bristol-Myers Squibb Co. ............................................. 100 10,587
Cellegy Pharmaceuticals, Inc. (a) .................................... 1,300 7,394
Merck & Co., Inc. .................................................... 100 12,050
RLI Corp. ............................................................ 250 13,562
--------------
76,956
--------------
Electric Utilities - 2.95%
Eastern Utilities Assoc. ............................................. 1,000 26,250
--------------
B-58
<PAGE>
ORBITEX GROUP OF FUNDS
GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
Electronics - 5.25%
ARM Holdings Plc, ADR (a) ............................................ 200 $ 8,075
Maxim Integrated Products, Inc. (a) .................................. 250 10,094
SGS-Thomson Microelectronics NV (a) .................................. 100 8,450
Texas Instruments, Inc. .............................................. 100 6,406
Xilinx, Inc. (a) ..................................................... 300 13,725
--------------
46,750
--------------
Financial Services - 2.70%
Countrywide Credit Industries, Inc. .................................. 250 12,094
Federal National Mortgage Assoc. ..................................... 200 11,975
--------------
24,069
--------------
Gas & Pipeline Utilities - 2.73%
Leviathan Gas Pipeline Partners ...................................... 750 24,328
--------------
Homebuilders - 0.96%
Kaufman & Broad Home Corp. ........................................... 290 8,584
--------------
Industrial Machinery - 3.46%
Magna International, Inc., Class A ................................... 200 14,912
Tokheim Corp. (a) .................................................... 1,000 15,875
--------------
30,787
--------------
Insurance - 0.96%
20th Century Industries .............................................. 300 8,550
--------------
International Oil - 0.93%
Chevron Corp. ........................................................ 100 8,269
--------------
Metals - 6.18%
Friedman Industries, Inc. ............................................ 5,775 42,591
Precision Castparts Corp. ............................................ 200 12,425
--------------
55,016
--------------
Mining - 3.09%
Getchell Gold Corp. (a) .............................................. 600 14,775
Homestake Mining Co. ................................................. 1,100 12,787
--------------
27,562
--------------
Networking Products - 2.64%
3Com Corp. (a) ....................................................... 260 8,889
Cisco Systems, Inc. (a) .............................................. 200 14,650
--------------
23,539
--------------
Paper - 4.37%
Pope & Talbot, Inc. .................................................. 2,500 38,906
--------------
Petroleum Services - 1.06%
Global Marine, Inc. (a) .............................................. 400 9,425
--------------
B-59
<PAGE>
ORBITEX GROUP OF FUNDS
GROWTH FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- --------------------------------------------------------------------------------------------------------------------
Real Estate - 2.02%
Catellus Development Corp. (a) ....................................... 300 $ 5,344
Lennar Corp. ......................................................... 450 12,655
--------------
17,999
--------------
Retail - 1.36%
Viking Office Products, Inc. (a) ..................................... 500 12,094
--------------
Retail Trade - 1.95%
Longs Drug Stores Corp. .............................................. 600 17,362
--------------
Savings and Loan - 3.49%
Golden West Financial Corp. .......................................... 150 15,797
H.F. Ahmanson & Co. .................................................. 200 15,250
--------------
31,047
--------------
Software - 13.99%
Check Point Software Technologies, Ltd. (a) .......................... 200 5,875
Computer Associate International, Inc. ............................... 300 17,569
Electronic Arts, Inc. (a) ............................................ 300 13,875
HTE, Inc. (a) ........................................................ 500 14,000
Pegasystems, Inc. (a) ................................................ 700 13,125
Peregrine Systems, Inc. (a) .......................................... 600 14,475
Transaction Systems Architects, Inc., Class A (a) .................... 300 12,600
Visual Networks, Inc. (a) ............................................ 1,000 33,125
--------------
124,644
--------------
Telecommunications Services - 1.59%
Tellabs, Inc. (a) .................................................... 200 14,175
--------------
Tobacco - 1.86%
UST, Inc. ............................................................ 600 16,538
--------------
Transportation - 1.54%
C.H. Robinson Worldwide, Inc. ........................................ 600 13,725
--------------
Trucking & Freight Forwarding - 3.09%
Air Express International Corp. ...................................... 400 10,500
Expeditores International ............................................ 400 17,000
--------------
27,500
--------------
TOTAL COMMON STOCKS - (Cost $846,862) 905,448
--------------
TOTAL INVESTMENTS (Cost $846,862) - 101.66% 905,448
OTHER ASSETS AND LIABILITIES - (1.66)% (14,808)
--------------
NET ASSETS - 100.00% $ 890,640
==============
</TABLE>
(a) Denotes non-income producing security
ADR - American Depository Receipt
B-60
<PAGE>
ORBITEX GROUP OF FUNDS
ASIAN HIGH YIELD FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND NOTES - 106.23%
BRAZIL - 1.15%
Government - 1.15%
Republic of Brazil C Bond, 5.00%
with 3.00% Interest Capitalization, 04/15/2014 (a)(b)............. $ 52,279 $ 43,326
--------------
CHINA - 2.46%
Government - 1.22%
Guangdong International Trust
& Investment Corp., 8.750%, 10/24/2016 (c) ......................... 50,000 46,000
--------------
Municipal - 1.24%
Zhuhai Hwy Co., Ltd., 11.500%, 07/01/2008 (c) ........................ 50,000 46,750
--------------
HONG KONG - 2.56%
Industrial - 1.26%
Hutchison Whampoa, Ltd., 6.950%, 08/01/2007 (c)....................... 50,000 47,395
--------------
Real Estate - 1.30%
Cheung Kong Finance, 5.500%, 09/30/1998 .............................. 50,000 49,125
--------------
INDIA - 6.19%
Energy - 4.93%
Tata Electric Co., 7.875%, 08/19/2007 (c)............................. 200,000 185,720
--------------
Industrials - 1.26%
Reliance Industries, Ltd., 8.125%, 09/27/2005 (c)..................... 50,000 47,500
--------------
INDONESIA- 0.92%
Food, Beverage & Tobacco - 0.92%
Sampoerna International Financial Co., 8.375%, 06/15/2006 (c)......... 50,000 34,500
--------------
JAPAN - 8.71%
Banks - 2.61%
Tokai Preferred Capital Co. LLC, 9.980%, 12/29/2049 (c)(d)............ 100,000 98,500
--------------
Electric Utilities - 6.10%
Tenaga Nasional Berhad, 7.625%, 04/29/2007 (c)........................ 50,000 44,875
Tenaga Nasional Berhad, 7.875%, 06/15/2004 (c)........................ 200,000 184,790
--------------
229,665
B-61
<PAGE>
ORBITEX GROUP OF FUNDS
ASIAN HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------------------------------------------
KOREA - 37.61%
Banks - 8.75%
Korea Development Bank, 7.000%, 07/15/1999 ........................... $ 100,000 $ 98,590
Korea Development Bank, 7.375%, 09/17/2004 ........................... 250,000 230,825
--------------
329,415
Government - 14.55%
Export-Import Bank of Korea, 6.500%, 02/10/2002 ..................... 110,000 100,937
Export-Import Bank of Korea, 6.500%, 11/15/2006 ..................... 200,000 175,000
Export-Import Bank of Korea, 7.100%, 03/15/2007 ..................... 80,000 74,800
Republic of Korea, 8.875%, 04/15/2008 ................................ 200,000 197,210
--------------
547,947
Industrials - 4.96%
Pohang Iron & Steel, Ltd., 7.500%, 08/1/2002 ......................... 200,000 187,000
--------------
Telecommunications Services - 7.27%
Korea Telecom, 7.625%, 04/15/2007 .................................... 100,000 88,744
SK Telecom Co., Ltd., 7.750%, 04/29/2004 ............................. 200,000 185,250
--------------
273,994
--------------
Utilities - 2.08%
Korea Electric Power Corp., 6.375%, 12/01/2003 ....................... 90,000 78,300
--------------
MALAYSIA - 1.23%
Industrials - 1.23%
Petroliam Nasional Berhad, 7.125%, 08/15/2005 (c)..................... 50,000 46,340
--------------
MEXICO - 2.75%
Industrials - 2.75%
AXA SA de CV, 9.000%, 08/04/2004 (c).................................. 50,000 49,125
Copamex Industrias SA De CV, 11.375%, 04/30/2004 ..................... 50,000 54,625
--------------
103,750
--------------
PHILIPPINES - 21.15%
Energy - 9.21%
Ce Casecnan Water & Energy, Inc.,
Senior Note, 11.450%, 11/15/2005 ................................... 100,000 105,200
Ce Casecnan Water & Energy, Inc.,
Senior Note, 11.950%, 11/15/2010 ................................... 225,000 241,603
--------------
346,803
--------------
Government - 9.11%
Bangko Sentral Ng Philipinas, 8.600%, 06/15/2027 ..................... 100,000 90,000
ING Bank NV, Floating Rate Note, 02/12/1999 (c)(e)(d)(f) ............. 100,000 104,250
Republic of Philippines, 8.875%, 04/15/2008 .......................... 150,000 148,875
--------------
343,125
--------------
Telephone - 2.83%
Philippine Long Distance Telephone, 10.625%, 06/02/2004 .............. 100,000 106,470
--------------
B-62
<PAGE>
ORBITEX GROUP OF FUNDS
ASIAN HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------------------------------------------
RUSSIA - 1.17%
Government - 1.17%
Russia Ministry of Finance, 9.250%, 11/27/2001 ....................... $ 30,000 $ 29,475
Russia Ministry of Finance, 10.000%, 06/26/2007 ...................... 15,000 14,456
--------------
43,931
--------------
THAILAND - 12.12%
Banks - 4.58%
Bangkok Bank Public Co., Ltd., 7.250%, 09/15/2005 (c) ................ 200,000 172,340
--------------
Industrials - 7.54%
PTTEP International, Ltd., 7.625%, 10/01/2006 (c)..................... 320,000 283,888
--------------
TURKEY - 5.37%
Government - 5.37%
Republic of Turkey, 10.000%, 09/19/2007 .............................. 100,000 102,500
Sultan, Ltd., Floating Rate Note, 8.750%, 06/11/1999 (d) ............. 100,000 99,760
--------------
202,260
--------------
UNITED STATES - 2.84%
Government - 2.84%
United States Treasury Note, 6.875%, 05/15/2006 ...................... 100,000 107,062
--------------
TOTAL BONDS AND NOTES - (Cost $4,015,710) 4,001,106
---------------
PREFERRED STOCKS (Cost $49,716) - 1.32%
CHINA - 1.32% Shares
------
Industrials - 1.32%
Swire Pacific, Ltd., 9.33%, Series 144A(c)............................ 2,200 50,050
--------------
TOTAL LONG TERM INVESTMENTS - (Cost $4,065,426) 4,051,156
---------------
B-63
<PAGE>
ORBITEX GROUP OF FUNDS
ASIAN HIGH YIELD FUND
SCHEDULE OF INVESTMENTS (continued)
April 30, 1998
- --------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (Cost $354,755) - 9.42%
UNITED STATES - 9.42%
Government - 9.42%
United States Treasury Bill,
4.850% - 4.990%, 06/25/1998 - 07/09/1998(g)........................ $ 358,000 $ 354,755
--------------
TOTAL INVESTMENTS (Cost $4,420,181) - 116.97% 4,405,911
OTHER ASSETS AND LIABILITIES - (16.97)% (639,354)
--------------
NET ASSETS - 100.00% $ 3,766,557
==============
</TABLE>
(a) The coupon rate shown on step-up coupon bond represents the rate as of April
30, 1998.
(b) Bond pays stated or additional interest with "payment-in-kind" (PIK) bonds.
(c) Securities purchased pursuant to Rule 144A of the Securities Act of 1933 and
may be resold in transactions exempt from registration, normally only to
qualified institutional buyers. At April 30, 1998, these securities amounted
to $1,442,023, representing 38.29% of the Fund's net assets.
(d) The coupon rate shown on floating rate note represents the rate at April 30,
1998.
(e) Illiquid security restricted as to resale, represents 2.77% (at value) of
the net assets of the Fund, with an acquisition date of 02/12/98 and
acquisition cost of $100,000.
(f) Structured Note which pays an interest amount at either the Philippines
T-Bill rate (currently at 17.7%, resets semi-annually) less 2.25% or LIBOR
plus 100 basis points, whichever is higher at the due date.
(g) The coupon rate represents the annualized yield at date of purchase.
B-64
<PAGE>
ORBITEX GROUP OF FUNDS
ASIAN SELECT ADVISORS FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 41.60%
HONG KONG - 19.04%
Conglomerates - 4.58%
Hutchison Whampoa .................................................... 1,000 $ 6,184
--------------
Real Estate - 4.65%
Citic Pacific, Ltd. .................................................. 1,000 3,072
Wharf Holdings ....................................................... 2,000 3,202
--------------
6,274
--------------
Retail - 4.22%
New World Development Co., Ltd. ...................................... 2,000 5,693
--------------
Telephone - 5.59%
China Telecom, Ltd. .................................................. 2,000 3,796
Hong Kong Telecomm ................................................... 2,000 3,744
--------------
7,540
--------------
KOREA - 4.04%
Electric Utilities - 4.04%
Korea Electric Power Corp. ........................................... 400 5,447
--------------
SINGAPORE - 14.18%
Building Materials & Construction - 3.12%
Hong Leong Asia, Ltd. ................................................ 5,000 4,202
--------------
Electronics - 3.27%
Singapore Technologies ............................................... 5,137 4,415
--------------
Telephone - 3.82%
Singapore Telecommunications, Ltd. ................................... 3,000 5,156
--------------
Transportation - 3.97%
Keppel Telecom & Transport ........................................... 8,000 5,359
--------------
THAILAND - 4.34%
Banks - 4.34%
Bangkok Bank ......................................................... 600 1,506
Thai Farmers Bank Public Co., Ltd. ................................... 1,900 4,350
--------------
5,856
--------------
TOTAL COMMON STOCKS - (Cost $57,817) 56,126
--------------
TOTAL INVESTMENTS (Cost $57,817) - 41.60% 56,126
OTHER ASSETS AND LIABILITIES - 58.40% 78,795
--------------
NET ASSETS - 100.00% $ 134,921
==============
</TABLE>
B-65
<PAGE>
ORBITEX GROUP OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
April 30, 1998
<TABLE>
<CAPTION>
Strategic
Natural Info-Tech & Asian High Asian
Resources Communications Growth Yield Select Advisors
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in securities, at value (Note 2) $ 5,197,112 $ 1,752,391 $ 905,448 $ 4,051,156 $ 56,126
Short term investments (Note 2)............. 181,000 706,000 - 354,755 -
------------ ----------- ------------ ----------- ------------
Total investments...................... 5,378,112 2,458,391 905,448 4,405,911 56,126
Cash........................................ 855 2,760 81,923 378,422 85,944
Foreign currency, at value.................. 35,384 - - - 1,065
Receivable for securities sold.............. 372,880 - 18,627 - -
Interest receivable......................... 26 103 - 77,358 -
Dividends receivable........................ 8,430 498 4,063 1,283 83
Receivable for fund shares sold............. 246,116 133,455 9,413 39,035 -
Receivable due from advisor (Note 3)........ 6,407 14,614 17,142 28,783 22,647
Prepaid expenses............................ 6,048 6,049 5,381 6,179 5,378
Deferred organizational expenses (Note 2)... 16,891 16,881 16,881 16,871 16,974
------------ ----------- ------------ ----------- ------------
TOTAL ASSETS.......................... 6,071,149 2,632,751 1,058,878 4,953,842 188,217
LIABILITIES
Payable for securities purchased............ 310,203 117,894 114,432 376,771 -
Payable for fund shares redeemed............ - 22,019 - - -
Payable for trustee fees (Note 3)........... 1,000 1,000 1,000 1,000 1,000
Payable for organizational expense (Note 2). 4,589 4,589 4,589 4,589 4,589
Payable for line of credit (Note 9)......... - - - 750,000 -
Accrued expenses and other liabilities...... 57,523 46,907 48,217 54,925 47,707
------------ ----------- ------------ ----------- ------------
TOTAL LIABILITIES..................... 373,315 192,409 168,238 1,187,285 53,296
------------ ----------- ------------ ----------- ------------
NET ASSETS........................ $ 5,697,834 $ 2,440,342 $ 890,640 $ 3,766,557 $ 134,921
============ =========== ============ =========== ============
NET ASSETS
Paid-in capital............................. $ 5,484,453 $ 2,164,523 $ 776,356 $ 3,931,613 $ 137,824
Undistributed net investment income......... 119,210 - 13,074 26,364 -
Accumulated net realized gain (loss) on
investments and foreign currency transactions (297,412) (30,284) 42,624 (177,150) (1,212)
Net unrealized appreciation (depreciation) on
investments and foreign currency transactions 391,583 306,103 58,586 (14,270) (1,691)
------------ ----------- ------------ ----------- ------------
NET ASSETS............................ $ 5,697,834 $ 2,440,342 $ 890,640 $ 3,766,557 $ 134,921
============ =========== ============ =========== ============
NET ASSET VALUE PER SHARE
Net asset value per share (based on shares
of beneficial interest outstanding, par
value $0.01 per share).................... $ 16.54 $ 19.62 $ 17.93 $ 10.93 $ 14.56
============ =========== =========== =========== ============
Maximum sales charge (Note 1)............... 5.75% 5.75% 5.75% 4.75% 5.75%
Offering price per share.................... $ 17.55 $ 20.82 $ 19.02 $ 11.48 $ 15.45
============ =========== ============ =========== ============
Total shares outstanding at end of period... 344,464 124,389 49,674 344,640 9,265
============ =========== ============ =========== ============
Cost of investments......................... $ 4,986,529 $ 2,152,288 $ 846,862 $ 4,420,181 $ 57,817
============ =========== ============ =========== ============
</TABLE>
B-66
<PAGE>
ORBITEX GROUP OF FUNDS
STATEMENTS OF OPERATIONS
For the Period Ended April 30, 1998 *
<TABLE>
<CAPTION>
Strategic
Natural Info-Tech & Asian High Asian
Resources Communications Growth Yield Select Advisors
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest income............................. $ 19,752 $ 2,943 $ 502 $ 122,532 $ 80
Dividend income............................. 157,738 1,726 18,839 1,283 310
Foreign taxes withheld...................... (369) (62) (7) - -
------------ ----------- ------------ ----------- ------------
TOTAL INVESTMENT INCOME................... 177,121 4,607 19,334 123,815 390
EXPENSES
Custodian fee (Note 3)...................... 45,074 40,820 45,605 36,946 51,513
Administration fee (Note 3)................. 43,750 43,750 43,750 43,750 43,750
Investment advisor fee (Note 3)............. 25,989 5,113 2,423 17,612 953
Professional fees........................... 24,000 24,000 24,000 24,000 24,000
Transfer agent fee.......................... 14,860 15,028 14,893 14,971 14,129
Registration fees........................... 17,000 15,510 15,219 16,404 15,100
Distribution fee (Note 3)................... 8,316 1,635 1,291 4,227 254
Printing expense............................ 7,000 7,000 7,000 7,000 7,000
Insurance fee............................... 2,917 2,917 2,917 2,917 2,917
Trustees' fee (Note 3)...................... 2,000 2,000 2,000 2,000 2,000
Miscellaneous expense....................... 30 28 28 2,001 58
Amortization of organizational expense (Note 2) 1,963 1,973 1,973 1,983 1,880
Interest expense (Note 9)................... - - - 1,924 -
------------ ----------- ------------ ----------- ------------
Total expenses before waivers,
reimbursements and custodial credits .... 192,899 159,774 161,099 175,735 163,554
Expenses waived and reimbursed (Note 3)..... (142,005) (148,028) (154,315) (172,701) (160,290)
Fees reduced by credits allowed by the
custodian (Note 3)..................... (1,091) (1,929) (1,622) (1,110) (1,677)
------------- ------------ ------------- ------------ -------------
NET EXPENSES............................. 49,803 9,817 5,162 1,924 1,587
------------ ----------- ------------ ----------- ------------
NET INVESTMENT INCOME (LOSS)............. 127,318 (5,210) 14,172 121,891 (1,197)
------------ ----------- ------------ ----------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) on:
Investments............................... (290,842) (30,284) 41,526 (177,110) (1,212)
Foreign currency related transactions..... (615) - - - 44
------------ ----------- ------------ ----------- ------------
Total net realized gain (loss)......... (291,457) (30,284) 41,526 (177,110) (1,168)
Net change in unrealized appreciation
(depreciation) on investment transactions. 391,583 306,103 58,586 (14,270) (1,691)
------------ ----------- ------------ ----------- ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS)........................ 100,126 275,819 100,112 (191,380) (2,859)
------------ ----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS............................. $ 227,444 $ 270,609 $ 114,284 $ (69,489) $ (4,056)
============ =========== ============ =========== ============
SALES CHARGE PAID TO
FUNDS DISTRIBUTOR, INC. .................. $ 38,790 $ 47,510 $ 5,248 $ 55,389 $ 1,100
========================= ============ =========== ============
</TABLE>
* The commencement of investment operations was October 23, 1997 for Strategic
Natural Resources Fund, October 22, 1997 for Info-Tech & Communications Fund
and Growth Fund, October 20, 1997 for Asian High Yield Fund, and October 31,
1997 for Asian Select Advisors Fund.
B-67
<PAGE>
ORBITEX GROUP OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended April 30, 1998 *
<TABLE>
<CAPTION>
Strategic
Natural Info-Tech & Asian High Asian
Resources Communications Growth Yield Select Advisors
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
From Operations:
Net investment income (loss)................... $ 127,318 $ (5,210) $ 14,172 $ 121,891 $ (1,197)
Net realized gain (loss) on investments and
foreign currency related transactions....... (291,457) (30,284) 41,526 (177,110) (1,168)
Net change in unrealized appreciation
(depreciation) on investment transactions... 391,583 306,103 58,586 (14,270) (1,691)
------------ ----------- ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from operations................... 227,444 270,609 114,284 (69,489) (4,056)
------------ ----------- ------------ ----------- ------------
Dividends and distributions to shareholders
from:
Net investment income.......................... (7,147) - - (95,628) -
Distributions in excess of net realized gains.. (6,916) - - - -
------------ ----------- ------------ ----------- ------------
Total dividends and distributions to
shareholders ............................. (14,063) - - (95,628) -
------------ ----------- ------------ ----------- ------------
Fund share transactions:
Proceeds from fund shares sold................. 10,833,321 2,171,752 756,356 5,998,122 118,977
Proceeds from reinvestment of dividends........ 12,051 - - 21,381 -
Cost of fund shares redeemed................... (5,380,919) (22,019) - (2,107,829) -
------------ ----------- ------------ ----------- ------------
Net increase from fund share transactions... 5,464,453 2,149,733 756,356 3,911,674 118,977
Total increase in net assets................... 5,677,834 2,420,342 870,640 3,746,557 114,921
------------ ----------- ------------ ----------- ------------
Net assets:
Beginning of period (Note 8)................... 20,000 20,000 20,000 20,000 20,000
------------ ----------- ------------ ----------- ------------
End of period ................................. $ 5,697,834 $ 2,440,342 $ 890,640 $ 3,766,557 $ 134,921
============ =========== ============ =========== ============
Number of fund shares:
Shares outstanding at beginning of period (Note 8) 1,333 1,333 1,333 1,667 1,333
Shares sold.................................... 709,678 124,204 48,341 528,380 7,932
Shares reinvested.............................. 713 - - 2,010 -
Shares redeemed................................ (367,260) (1,148) - (187,417) -
------------- ----------- ------------ ----------- ------------
Net increase in shares outstanding............. 343,131 123,056 48,341 342,973 7,932
------------ ----------- ------------ ----------- ------------
Total shares outstanding at end of period... 344,464 124,389 49,674 344,640 9,265
============ =========== ============ =========== ============
Undistributed net investment income at
end of period .............................. $ 119,210 $ - $ 13,074 $ 26,364 $ -
============ =========== ============ =========== ============
Foreign currency, at cost................... $ 35,384 $ - $ - $ - $ 1,065
============ =========== ============ =========== ============
</TABLE>
* The commencement of investment operations was October 23, 1997 for Strategic
Natural Resources Fund, October 22, 1997 for Info-Tech & Communications Fund
and Growth Fund, October 20, 1997 for Asian High Yield Fund, and October 31,
1997 for Asian Select Advisors Fund.
B-68
<PAGE>
ORBITEX GROUP OF FUNDS
FINANCIAL HIGHLIGHTS
For the Period Ended April 30, 1998 (a)
Selected data based on a share outstanding throughout the period indicated
<TABLE>
<CAPTION>
Strategic Asian
Natural Info-Tech & Asian Select
Resources Communications Growth High Yield Advisors
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 15.00 $ 15.00 $ 15.00 $ 12.00 $ 15.00
------- -------- -------- -------- -------
Income (loss) from investment operations:
Net investment income .................................... 0.38 (d) 0.00 0.26(d) 0.45 0.00
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions ................ 1.22 4.62 2.67 (1.15) (0.44)
------- -------- -------- -------- -------
Total income (loss) from investment operations ........... 1.60 4.62 2.93 (0.70) (0.44)
------- -------- -------- -------- -------
Less distributions from net investment income ............ (0.03) -- -- (0.37) --
Less distributions in excess of capital gains ............ (0.03) -- -- -- --
------- -------- -------- -------- -------
Total distributions from net investment income
and net capital gains .................................... (0.06) -- -- (0.37) --
======= ======== ======== ======== =======
Net asset value, end of period ........................... $ 16.54 $ 19.62 $ 17.93 $ 10.93 $ 14.56
======= ======== ======== ======== =======
Total Return (b) ......................................... 10.74% 30.80% 19.53% (5.71)% (2.93)%
======= ======== ======== ======== =======
Ratios and Supplemental Data:
Net assets, end of period (in 000's) ..................... $ 5,698 $ 2,440 $ 891 $ 3,767 $ 135
Ratio of expenses to average net assets
(including interest expense) (c) ......................... 2.40% 2.40% 1.60% 0.14% 2.50%
Ratio of expenses to average net assets (including
interest expense and custodial credits) (c) .............. 2.45% 2.88% 2.11% 0.22% 5.14%
Ratio of expenses to average net assets without expenses
waived, reimbursed and/or reduced by custodial credits (c) 9.27% 39.06% 50.13% 12.47% 257.54%
Ratio of net investment income (loss) to average
net assets (c) ........................................... 6.12% (d) (1.27)% 4.41% 8.65% (d) (1.89)%
Portfolio turnover rate .................................. 519% 76% 448% 173% 5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The commencement of investment operations was October 23, 1997 for
Strategic Natural Resources Fund, October 22, 1997 for Info-Tech &
Communications Fund and Growth Fund, October 20, 1997 for Asian High Yield
Fund, and October 31, 1997 for Asian Select Advisors Fund.
(b) Total returns are historical and assume changes in share price,
reinvestment of dividends and capital gains distributions, and assume no
sales charge. Had the Advisor, Administrator and Custodian not absorbed a
portion of the expenses, total returns would have been lower. Periods less
than one year are not annualized.
(c) Annualized for periods less than one year.
(d) Net investment income per share and the net investment income ratio would
have been lower without a certain investment strategy followed by the
Advisor during the current fiscal year.
B-69
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
1. Organization
Orbitex Group of Funds (the "Trust") was incorporated in Delaware in December
1996 and is registered under the Investment Company Act of 1940 (the "1940
Act"), as amended, as an open-end management investment company. The Trust is
comprised of five funds (collectively the "Funds" and individually the "Fund")
as follows: Strategic Natural Resources Fund, Info-Tech & Communications Fund,
Growth Fund, Asian High Yield Fund and Asian Select Advisors Fund. Each Fund
operates as a diversified investment company except Asian High Yield Fund which
operates as a non-diversified investment company. The commencement date of
operations for Strategic Natural Resources Fund, Info-Tech & Communications
Fund, Growth Fund, Asian High Yield Fund and Asian Select Advisors Fund was
October 23, 1997, October 22, 1997, October 22, 1997, October 20, 1997 and
October 31, 1997, respectively. All Funds are offered at net asset value plus a
maximum sales load of 5.75%, except for Asian High Yield Fund, which is offered
at net asset value plus a maximum sales load of 4.75%.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
Security Valuation and Transactions
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 Advisor or Sub-Advisor deems it
appropriate, prices obtained from an independent pricing service will be used.
Short term debt investments with maturities less than 60 days are valued at
amortized cost or original cost plus accrued interest, each of which
approximates fair value.
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.
Securities for which current market quotations are not readily available or for
which quotations are not deemed by Orbitex Management, Inc. (the "Advisor") to
be representative of market values are valued at fair value as determined in
good faith by or under the direction of the Trustees.
Investment security transactions are accounted for as of the trade date. Cost is
determined and gains and losses are based upon the specific identification
method for both financial statement and federal income tax purposes.
Foreign Currency Translation
The accounting records of the Funds are maintained in U.S. dollars. Investment
securities and other assets and liabilities denominated in a foreign currency
and income receipts and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions. Purchases
and sales of securities are translated into U.S. dollars at the contractual
currency rates established at the approximate time of the trade.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from currency realized between the trade and settlement dates
on securities transactions and the difference between income accrued versus
income received. The effects of changes in foreign currency exchange rates on
investments in securities are included with the net realized and unrealized gain
or loss on investment securities.
B-70
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1998
Income Taxes
It is each Fund's policy to comply with all sections of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income and gains to its shareholders and therefore, no provision for
federal income tax has been made. Each Fund is treated as a separate taxpayer
for federal income tax purposes.
Investment Income
Corporate actions (including cash dividends) are recorded net of nonreclaimable
tax withholdings on the ex-dividend date, except for certain foreign securities
for which corporate actions are recorded as soon after ex-dividend date as such
information is available. Interest income is recorded on the accrual basis.
Market discount, original issue discount and premium are accreted and amortized
respectively, on a yield to maturity basis. The value of additional securities
received as interest or dividend payments is recorded at their fair value as
income and as the cost basis of such securities.
Expenses
Expenses of the Trust which are directly identifiable to a specific Fund are
allocated to that Fund. Expenses which are not readily identifiable to a
specific Fund are allocated in such a manner as deemed equitable, taking into
consideration the nature and type of expense and the relative sizes of the
Funds.
Distributions to Shareholders
Income dividends will normally be declared and distributed quarterly for the
Asian High Yield Fund and annually for each of the other Funds. All Funds
declare and pay net realized capital gain distributions annually. The character
of income and gains to be distributed are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and gains
on various investment securities held by the Funds, timing differences and
differing characterization of distributions made by each Fund as a whole.
Deferred Organizational Costs
Organizational expenses have been deferred and are being amortized over a period
of five years commencing with operations. The Advisor has agreed with respect to
each of the Funds that, if any of the initial shares of a Fund are redeemed
during such amortization period by the holder thereof, the redemption proceeds
will be reduced for any unamortized organization expenses in the same ratio as
the number of shares redeemed bears to the number of initial shares held at the
time of redemption. The Advisor has paid a majority of the organizational costs
of the Funds and was reimbursed by the Funds.
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 maturity date. If the seller is unable to make a timely repurchase, the
Fund could experience delays in the receipt of expected proceeds, suffer a loss
in principal or current interest, or incur costs in liquidating the collateral.
The Trustees have established criteria to evaluate the creditworthiness of
parties with which the Funds may enter into repurchase agreements.
B-71
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1998
Structured Notes
Each Fund may invest in structured notes, whose principal amount, redemption
terms or conversion terms are related to specific securities or other indices.
The prices of structured securities have historically been subject to high
volatility and their interest or dividend rates may at times be substantially
lower than prevailing market rates.
Other
There are certain additional risks involved when investing in foreign securities
that are not inherent in domestic securities. These risks may involve foreign
currency exchange rate fluctuations, adverse political and economic developments
and the imposition of unfavorable foreign governmental laws and restrictions.
There is significant potential for continuing economic and political turmoil in
the Pacific Basin and Southeast Asia, such turmoil could have a negative effect
on the share prices of the Funds; particularly the Asian High Yield Fund and the
Asian Select Advisors Fund.
The Strategic Natural Resources Fund, Info-Tech & Communications Fund and Asian
High Yield Fund may focus their investments in certain industries, subjecting
them to greater risk than funds that are more diversified.
3. Fees and Compensation Paid to Affiliates and Other Parties
Advisory Fees
Each Fund has entered into an Investment Advisory Agreement with the Advisor. As
compensation for the services rendered, facilities furnished, and expenses borne
by the Advisor, the Funds will pay the Advisor a fee accrued daily and paid
monthly, at the annualized rate of 1.25% for the Strategic Natural Resources
Fund, 1.25% for the Info-Tech & Communications Fund, 0.75% for the Growth Fund,
1.25% for the Asian High Yield Fund, and 1.50% for the Asian Select Advisors
Fund. The Advisory Agreement also provides that the Advisor may retain
Sub-Advisers at the Advisor's own cost and expense, for the purpose of managing
the investment of the assets of one or more Funds of the Trust.
The Advisor has agreed to waive or limit its fees and to pay certain operating
expenses to the extent necessary to limit total fund operating expenses, net of
waivers and custodial credits, to an annualized rate of 2.40%, 2.40%, 1.60%,
2.00%, and 2.50% for the Strategic Natural Resources Fund, Info-Tech &
Communications Fund, Growth Fund, Asian High Yield Fund and Asian Select
Advisors Fund, respectively, subject to possible reimbursement by the Asian High
Yield Fund in future years if such reimbursement can be achieved within the
foregoing expense limit. The Advisor has agreed to waive or limit its fees and
to pay all operating expenses, not including interest expense but including fee
waivers and custodial credits, of the Asian High Yield Fund for the first 150
days of the Fund's operation and in 60 day intervals thereafter. The waivers for
the advisor's fee for the period ended April 30, 1998 amounted to $25,989,
$5,113, $2,423, $17,612 and $953 for Strategic Natural Resources Fund, Info-Tech
& Communications Fund, Growth Fund, Asian High Yield Fund and Asian Select
Advisors Fund, respectively. The reimbursements for the period ended April
30,1998 amounted to $55,295, $74,137, $80,890, $96,111 and $82,263 for Strategic
Natural Resources Fund, Info-Tech & Communications Fund, Growth Fund, Asian High
Yield Fund and Asian Select Advisors Fund, respectively.
Sub-Advisory Fees
Asian High Yield Fund and Asian Select Advisors Fund both have Sub-Advisory
relationships. Pursuant to separate Sub-Advisory Agreements among each
Sub-Advisor, the Advisor and the Trust, each Sub-Advisor 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 Advisor.
B-72
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS
April 30, 1998
On a monthly basis, each Sub-Advisor receives a sub-advisory fee, paid by the
Advisor, based on the applicable Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
Asia Strategic Investment J.P. Morgan Investment
Bankers Trust Company Management Limited Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asian High Yield Fund - - 0.50% on the first $50
million average daily net
assets of the Fund; 0.45% on
the next $50 million average
daily net assets of the Fund;
and 0.40% on the average
daily net assets over $100
million of the Fund
- -----------------------------------------------------------------------------------------------------------------------------
Asian Select Advisors Fund 0.70% of the average daily net 0.50% of the average daily -
assets of the Fund advised by net assets of the Fund
Bankers Trust Company. advised by Asia Strategic
Investment Management Limited
</TABLE>
Administration Fees
State Street Bank and Trust Company ("State Street") serves as the Administrator
of the Trust. For providing administrative services to the Funds, State Street
will receive from each Fund, a monthly fee at an annual rate of 0.10% of the
first $100 million of each Fund's average daily net assets, plus 0.08% of the
next $100 million of each Fund's average daily net assets, plus 0.06% of each
Fund's average daily net assets in excess of $200 million, subject to certain
minimum requirements. State Street agreed to waive certain fees for the period
ended April 30, 1998 which amounted to $40,014, $41,403, $41,412, $40,544, and
$41,610 for Strategic Natural Resources Fund, Info-Tech & Communications Fund,
Growth Fund, Asian High Yield Fund and Asian Select Advisors Fund, respectively.
Custodian Fees
State Street serves as the Trust's custodian, including holding all portfolio
securities and cash assets of the Trust and providing accounting services
including daily valuation of the shares of each Fund, for which it receives an
annual custody and accounting fee. State Street agreed to waive certain fees for
the period ended April 30, 1998 which amounted to $20,707, $27,375, $29,590,
$18,434 and $35,464 for Strategic Natural Resources Fund, Info-Tech &
Communications Fund, Growth Fund, Asian High Yield Fund and Asian Select
Advisors Fund, respectively.
Distributor
Funds Distributor, Inc. (the "Distributor") serves as the distributor of the
shares of each Fund pursuant to a Distribution Plan and Agreement, pursuant to
Rule 12b-1 under the 1940 Act, between the Distributor and the Trust. 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.
Trustees Fees
The Funds pay no compensation to their Trustees who are employees of the Advisor
or Sub-Advisors. Trustees who are not Advisor or Sub-Advisor employees receive
an annual fee of $5,000.
B-73
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1998
4. Aggregate Unrealized Appreciation and Depreciation
The identified cost of investments in securities owned by each Fund for federal
income tax purposes and their respective gross unrealized appreciation and
depreciation at April 30, 1998, were as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Identified Unrealized Unrealized Appreciation
Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Strategic Natural Resources Fund....... $ 5,014,480 $ 429,886 $ 66,254 $ 363,632
Info-Tech & Communications Fund........ 2,152,288 329,395 23,292 306,103
Growth Fund............................ 847,500 77,002 19,054 57,948
Asian High Yield Fund.................. 4,420,181 42,108 56,378 (14,270)
Asian Select Advisors Fund............. 57,817 2,219 3,910 (1,691)
</TABLE>
5. Investment Transactions
The cost of purchases and the proceeds from sales of investments, other than
U.S. Government obligations and short-term securities, for the period ended
April 30, 1998, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Strategic Natural Resources Fund....... $ 22,061,773 $ 16,965,402
Info-Tech & Communications Fund........ 1,950,955 474,383
Growth Fund............................ 3,178,134 2,372,798
Asian High Yield Fund.................. 6,461,606 2,333,508
Asian Select Advisors Fund............. 61,126 2,097
</TABLE>
Purchases and sales of U.S. Government obligations aggregated $2,105,657 and
$1,997,957, respectively, for the Asian High Yield Fund.
6. Beneficial Interest
The following schedule shows the number of shareholders each owning 5% or more
of a Fund and the total percentage of the Fund held by such shareholders:
<TABLE>
<CAPTION>
5% or Greater Shareholders
--------------------------
Number % of Fund Held
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Strategic Natural Resources Fund....... 2 48%
Info-Tech & Communications Fund........ 1 36%
Growth Fund............................ 4 87%
Asian High Yield Fund.................. 4 70%
Asian Select Advisors Fund............. 3 93%
</TABLE>
The following schedule shows the number of affiliates each owning 5% or more of
a Fund and the total percentage of the Fund held by such affiliates:
<TABLE>
<CAPTION>
5% or Greater Affiliates
------------------------
Fund Name % of Fund Held
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Fund............................ James Nelson 6%
Asian Select Advisors Fund............. Konrad Krill 72%
Asian Select Advisors Fund............. Orbitex Management Inc. 14%
</TABLE>
B-74
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1998
7. Capital Loss Carryforward
At April 30, 1998, the Info-Tech Communications Fund had available for federal
income tax purposes unused capital losses of $30,284, expiring in the Year 2006.
Under current tax law, capital losses realized after October 31, may be deferred
and treated as occurring on the first day of the following fiscal year. For the
fiscal year ended April 30, 1998, the following Funds have elected to defer
losses occurring between November 1, 1997 and April 30, 1998 under these rules,
as follows:
<TABLE>
<CAPTION>
Capital Currency
Losses Losses
Name of Fund Deferred Deferred
------------ -------- --------
<S> <C> <C>
Strategic Natural Resources Fund........... $269,461 $706
Asian High Yield Fund...................... 177,282 -
Asian Select Advisors Fund................. 1,212 -
</TABLE>
Such deferred losses will be treated as arising on the first day of the fiscal
year ending April 30, 1999.
8. Initial Capitalization and Offering of Shares
During the period from May 29, 1997 to the commencement of investment operations
for each of the Funds, each Fund had no operations other than those related to
organizational matters, including the initial capital contribution of $20,000
for each Fund and the issuance of 1,333 shares for each of the Funds, with the
exception of the Asian High Yield Fund which issued 1,667 shares. There were no
additional transactions until commencement of investment operations for each of
the Funds.
9. Line of Credit
The Trust participates in a $10 million line of credit provided by Deutsche Bank
AG, New York Branch (the "Bank") under a Credit Agreement (the "Agreement")
dated February 17, 1998. Under the Agreement, each Fund as a separate and
distinct borrower may borrow up to a designated base commitment allocation
specified in the Agreement, plus its pro rata portion of any unused commitment
allocation of the other borrowers under the agreement. Interest is payable in
respect to the unpaid principal amount depending on the type of loan designated
by the borrower. The Funds are charged an annualized commitment fee computed at
a rate equal to 0.10 of 1% on a annual basis of the daily average unutilized
credit balance. The Agreement requires, among other provisions, that the
aggregate outstanding principal amount of the loans made to each borrower under
the Agreement shall not exceed the lesser of (i) 33 1/3% of the value of the
total assets of the borrower less all liabilities and indebtedness not
represented by senior securities; and (ii) any borrower limitations described
for such borrowers in the Trust's prospectus.
During the fiscal year ending April 30, 1998, only the Asian High Yield Fund had
borrowings under the Agreement. The Asian High Yield Fund entered into a NIBOR
based loan agreement on April 16, 1998 in the amount of $750,000, with an
interest rate of 6.15625% (NIBOR rate plus 50 basis points). The expiration date
of the loan is May 15, 1998.
B-75
<PAGE>
ORBITEX GROUP OF FUNDS
NOTES TO FINANCIAL STATEMENTS (continued)
April 30, 1998
10. Subsequent Events (Unaudited)
At the May 27, 1998 Board Meeting, the Trustees voted to accept the resignation
of J.P. Morgan Investment Management, Inc. as the Sub-Advisor on the Asian High
Yield Fund, which will be effective July 1998. The Fund will be managed by its
current investment advisor, Orbitex Management Inc.
Additionally, the Trustees have approved, by unanimous vote, the addition of a
new fund to the series, Orbitex West Coast Fund, and the addition of two new
classes of shares. Class I shares will be an institutional class of shares
offered to qualified institutions and certain fee-based investment and financial
advisors. Class I shares will be offered at net asset value and subject to a
shareholder servicing fee at an annual rate of 0.25% of the average daily net
asset value of the Class I shares beneficially owned by the clients receiving
the service. Class B shares will also be offered at net asset value, without any
initial sales charge. However, there will be a contingent deferred sales charge
on Class B shares which are sold within six years of their purchase date. Class
B shares will also be subject to a distribution fee of 0.75% of the average
daily net assets attributable to Class B shares of the Fund.
B-76
<PAGE>
Report of Independent Accountants
To the Trustees and Shareholders of Orbitex Group of Funds,
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the five funds (each a
"Fund") comprising Orbitex Group of Funds (the "Trust") at April 30, 1998, and
the results of each Fund's operations, the changes in each Fund's net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at April 30, 1998 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmation from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
June 12, 1998
B-77
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) (1) Financial Statements for the Orbitex Group of Funds
as of April 30, 1998, included in the Prospectus:
1. Financial Highlights
(2) Financial Statements for the Orbitex Group of Funds
as of April 30, 1998, included in the Statement of
Additional Information:
1. Schedules of Investments
2. Statements of Changes in Net Assets
3. Statements of Operations
4. Statements of Assets and Liabilities
5. Financial Highlights
6. Notes to Financial Statements
(b) Exhibits:
1. a. Declaration of Trust of Orbitex Group of
Funds (the "Trust) previously filed in the
Registration Statement on January 29, 1997
is incorporated herein by reference.
2. By-Laws of the Trust previously filed in the
Registration Statement on January 29, 1997
are incorporated herein by reference.
3. Not applicable.
4. Not applicable.
5(a). i. Form of Investment Advisory Agreement by
and between the Trust on behalf of each Fund
and Orbitex Management, Inc. previously
filed in Pre-Effective Amendment No. 1 to
the Registration Statement on April 14, 1997
is incorporated herein by reference.
6(a) i. Form of Distribution Agreement between the
Trust and Funds Distributor, Inc.
previously filed in the Registration
Statement on January 29, 1997 is
incorporated herein by reference.
6(b) Form of Selected Dealers Agreement previously filed
in the Registration Statement on January 29, 1997 is
incorporated herein by reference.
7. Not applicable.
8. i. Form of Custodian Contract by and between
the Trust and State Street Bank and Trust
Company previously filed in the Registration
Statement on January 29, 1997 is
incorporated herein by reference.
C-1
<PAGE>
9(a). i. Form of Transfer Agency and Service
Agreement by and between the Trust and State
Street Bank and Trust Company previously
filed in the Registration Statement on
January 29, 1997 is incorporated herein by
reference.
9(b). i. Form of Administration Agreement by and
between the Trust and State Street Bank and
Trust Company previously filed in the
Registration Statement on January 29, 1997
is incorporated herein by reference.
10. i. Opinion and Consent of Rogers & Wells
regarding the legality of the securities
being registered previously filed in
Pre-Effective Amendment No. 2 to the
Registration Statement dated September 26,
1997 is incorporated herein by reference.
ii. Consent of Rogers & Wells to continued
validity of September 26, 1997 opinion
letter is filed herewith.
11. Consent of Independent Accountants dated August 17,
1998.
12. Not applicable.
13. i. Form of Shareholder Subscription Agreement
by and between Orbitex Management, Inc. and
the Trust on behalf of each Fund previously
filed in Pre-Effective Amendment No. 2 to
the Registration Statement dated September
26, 1997 is incorporated herein by
reference.
14. Form of Individual Retirement Account Agreement
previously filed in Pre-Effective Amendment No. 2 to
the Registration Statement dated September 26, 1997
is incorporated herein by reference.
15(a). i. Distribution Plan and Agreement Pursuant
to Rule 12b-1 under the Investment Company
Act of 1940 previously filed in
Pre-Effective Amendment No. 2 to the
Registration Statement dated September 26,
1997 is incorporated herein by reference.
ii. Class B Distribution Plan and Agreement
Pursuant to Rule 12b-1 under the Investment
Company Act of 1940 dated May 27, 1998 is
filed herein.
iii. Shareholder Services Plan and Shareholder
Servicing Agreement (Non- Rule 12b-1 Plan)
approved May 27, 1998 is filed herein.
15(b). Form of Distribution Sub-Agreement previously filed
in Pre-Effective Amendment No. 2 to the Registration
Statement dated September 26, 1997 is incorporated
herein by reference.
C-2
<PAGE>
16. Schedule for Computation of Performance Quotation
previously filed in Post-Effective Amendment No. 1 to
the Registration Statement dated March 27, 1998 is
incorporated herein by reference.
17. Financial Data Schedule is filed herein as Exhibit
27.
18. Rule 18f-3 Plan for Multiple Classes of Shares dated
January 21, 1998 is filed herein.
19. Powers of Attorney previously filed in Pre-Effective
Amendment No. 2 to the Registration Statement dated
September 26, 1997 is incorporated herein by
reference.
Item 26. Number of Holders of Securities .
Orbitex Strategic Natural Resources Fund 107
Info-Tech & Communications Fund 8
Orbitex Growth Fund 9
Orbitex Asian High Yield Fund 15
Item 27. Indemnification.
Reference is made to Article VI of the Registrant's Amended
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 Trustees 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; (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 a reason
to believe that the Trustee or officer will be found entitled
to indemnification.
C-3
<PAGE>
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 s
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. (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).
Item 29. Principal Underwriter.
(a) Funds Distributor, Inc. (the "Distributor") acts as principal
underwriter for the following investment companies.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Fund, Inc.
Harris Insight Funds Trust
C-4
<PAGE>
IIT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Stanby Reserve Fund, Inc.
SG Cowen Stanby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
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 located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109. 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 following is a list of the executive officers, directors
and partners of Funds Distributor, Inc.
Director, President and Chief -Marie E. Connolly
Executive Officer
Executive Vice President -George A. Rio
Executive Vice President -Donald R. Roberson
Executive Vice President -William S. Nichols
Senior Vice President, General -Margaret W. Chambers
Counsel, Chief Compliance Officer,
Secretary and Clerk
Senior Vice President -Michael S. Petrucelli
Director, Senior Vice President, -Joseph F. Tower, III
Treasurer and Chief Financial Officer
Senior Vice President -Paula R. David
Senior Vice President -Allen B. Closser
Senior Vice President -Bernard A Whalen
Chairman and Director -William J. Nutt
C-5
<PAGE>
(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 the1940 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, cancelled checks, financial books and records, and
keeps records of each shareholder's account and all
disbursement 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 to Rule 12b-1 under the 1940 Act.
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Not applicable.
(b) 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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 13th
day of August 1998.
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>
/s/ Otto J. Felber* Trustee August 17, 1998
--------------------
Otto J. Felber
Trustee, President, Assistant August 17, 1998
/s/ James L. Nelson Treasurer & Assistant Secretary
--------------------
James L. Nelson Secretary August 17, 1998
/s/ Mark Breault
--------------------
Mark Breault
Treasurer August 17, 1998
/s/ Kimberly Ratz
--------------------
Kimberly Ratz
/s/ Ronald Altbach* Trustee August 17, 1998
--------------------
Ronald Altbach
/s/ Thomas Bachmann* Trustee August 17, 1998
--------------------
Thomas Bachmann
/s/ Robert Raucci* Trustee August 17, 1998
--------------------
Robert Raucci
</TABLE>
* By: /s/ James L. Nelson
-----------------------------------
James L. Nelson, Attorney-in-Fact
C-7
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10ii Consent of Rogers and Wells
11 Consent of Independent Accountants
15(a)ii Class B Distribution Plan and Agreement Pursuant to Rule 12b-1
15(a)iii Shareholder Services Plan and Shareholder Servicing Agreement
18. Rule 18f-3 Plan for Multiple Classes of Shares
27. Financial Data Schedule
</TABLE>
C-8
August 12, 1998
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 preparation and filing with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "1933 Act"), and the Investment Company Act of
1940, as amended, of Post Effective Amendment No. 4 ("Post Effective Amendment
No. 4") to the Fund's Registration Statement on Form N-1A (the "Registration
Statement").
Reference is made to the opinion, dated September 26, 1997 (the
"Opinion"), addressed to you and rendered by us in connection with, and included
as Exhibit 10 to, Pre-Effective Amendment No. 2 to the Registration Statement.
This letter is to advise you that you may rely on the Opinion as if it had been
delivered to you on and as of the date hereof. This letter is furnished to you
at your request in connection with the proposed public offering by the Fund of
transferable units of beneficial interest of the Fund, designated Class B and
Class I, pursuant to Post Effective Amendment No. 4 to the Registration
Statement.
We consent to the filing of this letter with the Commission as an
Exhibit to the Registration Statement. 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 Commission
thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
------------------------
Rogers & Wells LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated June
12, 1998, relating to the financial statements and financial highlights of each
of the five funds comprising ORBITEX Group of Funds, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 17, 1998
CLASS B DISTRIBUTION PLAN AND AGREEMENT PURSUANT TO RULE 12B-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
PLAN AND AGREEMENT made as of May 27, 1998, 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 Class B Shares of the Orbitex Strategic Natural
Resources Fund, Orbitex Info-Tech & Communications Fund, Orbitex Growth Fund and
Orbitex Asian High Yield 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 1.00% on an
annualized basis of the average net assets attributable to Class B shares 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. FDI shall use such fee for, among other things, to
make the payments contemplated by Section 2 below and to pay interest and
principal where such payments have been financed.
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
Class B 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.
2
<PAGE>
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.
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
ORBITEX GROUP OF FUNDS
SHAREHOLDER SERVICES PLAN
(Non-Rule 12b-1 Plan)
Section 1. Any officer of the Orbitex Group of Funds (the
"Trust") is authorized to execute and deliver, in the name and on behalf of the
Trust, written agreements based on the form attached hereto as Appendix A or any
other form duly approved by the Trust's Board of Trustees ("Agreements") with
institutional investors ("Shareholder Organizations") which are shareholders or
dealers of record or which have a servicing relationship with the beneficial
owners of Class I shares of the various series of the Trust. Pursuant to such
Agreements, Shareholder Organizations shall provide support services as set
forth therein to their clients who beneficially own Class I Shares in
consideration of a fee, computed monthly in the manner set forth in the
Agreements, at an annual rate of up to 0.25% of the average daily net asset
value of the Class I Shares beneficially owned by such clients.
Section 2. Funds Distributor, Inc. ("FDI"), the Funds'
distributor shall monitor the arrangements pertaining to the Trust's Agreements
with Shareholder Organizations. FDI shall not, however, be obligated by this
Plan to recommend, and the Trust shall not be obligated to execute, any
Agreement with any qualifying Shareholder Organization.
Section 3. So long as this Plan is in effect, FDI shall
provide to the Trust's Board of Trustees, on a regular basis, a report of the
amounts expended pursuant to this Plan and the purposes for which such
expenditures were made.
Section 4. This Plan shall become effective immediately with
respect to Class I Shares of this Fund upon the approval of the Plan (and the
form of Agreement attached hereto) by a majority of the Trust's Board of
Trustees, including a majority of the Trustees who are not "interested persons,"
as defined in the Investment Company Act of 1940, as amended, of the Trust and
who have no direct or indirect financial interest in the operation of this Plan
or in any Agreement related to this Plan (the "Disinterested Trustees").
Section 5. Unless sooner terminated, this Plan shall continue
in effect for so long as its continuance is approved at least annually in the
manner set forth in Section 4.
Section 6. This Plan is terminable at any time with respect to
Class I Shares of the Fund by vote of a majority of the Disinterested Trustees.
<PAGE>
APPENDIX A
ORBITEX GROUP OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
To: [ ]
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients ("Clients") who may
from time to time beneficially own Class I shares ("Shares") of the various
series of the Orbitex Group of Funds (the "Funds") offered by us.
The terms and conditions of this Shareholder Servicing Agreement are as
follows:
1. You agree to provide the following support services to Clients who
may from time to time beneficially own Shares:1 (i) establishing and maintaining
accounts and records relating to Clients that invest in Shares; (ii) processing
dividend and distribution payments from us on behalf of Clients; (iii) providing
information periodically to Clients showing their positions in Shares and
integrating such statements with those of other transactions and balances in
Client's other accounts serviced by you; (iv) arranging for bank wires; (v)
responding to Client inquiries relating to the services performed by you; (vi)
responding to routine inquiries from Clients concerning their investments in
Shares; (vii) providing subaccounting with respect to Shares beneficially owned
by Clients or the information to us necessary for subaccounting; (viii) if
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Clients; (ix) assisting in processing purchase,
exchange and redemption requests from Clients and in placing such orders with
our servicing contractors; (x) assisting Clients in changing dividend options,
account designations and addresses; (xi) providing Clients with a service that
invests the assets of their accounts in Shares pursuant to specific or
pre-authorized instructions; and (xii) providing such other similar services as
we may reasonably request to the extent you are permitted to do so under
applicable statutes, rules and regulations.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services and assistance to Clients.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning us or the shares except
those contained in our then current prospectuses and statements of additional
information for Shares, copies of which will be supplied by us to you, or in
such supplemental literature or advertising as may be authorized by us in
writing.
- ---------------------------------
(1) Services may be modified or omitted in the particular case and items
renumbered.
1
<PAGE>
Section 4. For all purposes of this Agreement, you will be deemed to be
an independent contractor and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares (or orders relating to the same) by or on
behalf of Clients. You and your employees will, upon request, be available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will pay to you, and you will accept as full payment therefor,
a fee at the annual rate of .25% of the average daily net asset value of the
Shares beneficially owned by your Clients for whom you are the dealer of record
or holder of record or with whom you have a servicing relationship (the
"Clients' Shares"), which fee will be computed daily and payable monthly. For
purposes of determining the fees payable under this Section 5, the average daily
net asset value of the Clients' Shares will be computed in the manner specified
in our Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes of
purchases and redemptions. [By your written acceptance of this Agreement, you
agree to and do waive such portion of any fee payable to you hereunder to the
extent necessary to assure that such fee and other expenses required to be
accrued by us on any day with respect to the Clients' Shares in any Fund that
declares its net investment income as a dividend to shareholders on a daily
basis does not exceed the income to be accrued by us to such Shares on that
day.] The fee rate stated above may be prospectively increased or decreased by
us, in our sole discretion, at any time upon notice to you. Further, we may, in
our discretion and without notice, suspend or withdraw the sale of Shares,
including the sale of Shares to you for the account of any Client or Clients.
Section 6. You will furnish us or our designees with such information
as we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to Clients of the services described
herein), and will otherwise cooperate with us and our designees (including,
without limitation, any auditors designated by us), in connection with the
preparation of reports to our Board of Trustees concerning this Agreement and
the monies paid or payable by us pursuant hereto, as well as any other reports
or filings that may be required by law.
Section 7. We may enter into other similar Shareholder Servicing
Agreements with any other persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) you are a broker dealer or transfer agent duly
registered (or are exempt from such registration) under the federal securities
laws; (ii) the compensation payable to you in connection with the investment of
your Clients' assets in Shares will be disclosed by you to your Clients, will be
authorized by your Clients, will not be excessive and its receipt by you will
not constitute a "prohibited" transaction" under the Employee Retirement Income
Security Act of
<PAGE>
1974; (iii) the services provided by you under this Agreement will in no event
be primarily intended to result in the sale of shares of Shares; and (iv) in the
event an issue pertaining to our Shareholder Services Plan is submitted for
shareholder approval, you will vote any shares held for your own account in the
same proportion as the vote of those shares held for your Client's accounts.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our designee. This
Agreement shall continue until termination by either party on 60 days' written
notice to the other.
Section 10. All notices and other communications hereunder will be duly
given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address stated herein, or to such
other address as either party shall so provide the other.
Section 11. This Agreement will be construed in accordance with the
laws of the State of New York and is non-assignable by the parties hereto.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, Funds Distributor, Inc., 60 State Street, Boston, Massachusetts 02109.
Very truly yours,
ORBITEX GROUP OF FUNDS
Date: _____________________ By: _____________________________
(Authorized Officer)
Accepted and Agreed to:
[SHAREHOLDER ORGANIZATION]
By: _____________________________
Date: _____________________ (Authorized Officer)
Address of Shareholder Organization: _________________________________
_________________________________
_________________________________
3
ORBITEX GROUP OF FUNDS
REVISED RULE 18f-3 PLAN FOR MULTIPLE CLASSES OF SHARES
MAY 27, 1998
WHEREAS, The Orbitex Group of Funds (the "Trust") is a Delaware
business trust, registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), with the Securities and Exchange Commission (the "SEC") as an
open-end management investment company;
WHEREAS, pursuant to the terms of the Trust's Declaration of Trust, as
well as the 1940 Act and the rules and regulations thereunder, the Board of
Trustees of the Trust (the "Board") has authority to approve and authorize the
issuance of, and has approved and authorized the issuance of shares of
beneficial interest of, Class A, Class B and Class I of each fund (a "Fund") of
the Trust listed herein on Schedule A, as may be amended;
WHEREAS, the Trust wishes to adopt this Plan for Multiple Classes of
Shares (the "Multi-Class Plan"), which is a plan as contemplated by Rule 18f-3
of the 1940 Act; and
WHEREAS, at a meeting held on May 27, 1998, the Board, including a
majority of the Trustees who are not interested persons of the Trust (as defined
in section 2(a)(19) of the 1940) (the "Independent Trustees"), approved and
adopted this Revised Multi-Class Plan and determined that this Multi-Class Plan
is: (a) in the best interests of the holders of Class A Shares; (b) in the best
interests of the holders of Class B Shares; (c) in the best interests of the
holders of Class I Shares; and (d) in the best interests of the Trust as a
whole;
NOW THEREFORE, this Multi-Class Plan, as amended from time to time,
shall remain in effect until such time as the Board terminates this Multi-Class
Plan.
SECTION 1. CLASS DISTRIBUTION AND SHAREHOLDER SERVICES FEES
------------------------------------------------
Class A Shares are principally offered by Funds Distributor, Inc. (the
"Distributor") to individuals at net asset value plus any applicable sales
charge. The maximum sales charge for the Asian High Yield Fund is 4.75% and for
each other Fund is 5.75% of the public offering price. These charges may be
reduced for investors who invest more than $50,000. The sales charge will also
be waived in certain circumstances including for purchases of $1 million or
more. However, the Trust will apply a contingent deferred sales charge of 1% to
certain redemptions made within the first year after investing with respect to
shares purchased at net asset value without a sales charge. Class A Shares are
also subject to a distribution fee (as provided for by the Distribution Plan and
Agreement Pursuant to 12b-1 under the Investment Company Act of 1940) of .30%
(in the case of the Asian High Yield Fund) and .40% (in the case of the other
<PAGE>
Funds) of the average daily net assets of the Fund. The minimum initial
investment for Class A Shares is $2,500 ($2,000 for individual retirement
accounts).
Class B Shares are offered at their net asset value per share, without
any initial sales charge. However, there is a contingent deferred sales charge
on shares which are sold within five years of their purchase. There will be no
contingent deferred sales charge on shares acquired through reinvestment of
dividends. The contingent deferred sales charge will be based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
Years After Purchase Contingent Deferred Sales Charge on
Shares Being Sold
<S> <C>
1st Year 5.00%
2nd Year 4.00%
3rd Year 3.00%
4th Year 3.00%
5th Year 2.00%
6th Year 1.00%
After 6th Year None
</TABLE>
Class B Shares will automatically be converted to Class A Shares after seven
years. Class B Shares are also subject to a distribution fee (as provided for by
the Distribution Plan and Agreement Pursuant to 12b-1 under the Investment
Company Act of 1940) of 0.75% of the average daily net assets of the Fund. The
minimum initial investment for Class B Shares is $2,500 ($2,000 for individual
retirement accounts).
Class I Shares, the institutional class, are offered to qualified
institutions and certain fee-based investment and financial advisers at net
asset value and are not subject to any asset-based distribution or shareholder
servicing fee. Investors in the Class I Shares will be required to make a
minimum investment of one hundred thousand dollars ($100,000).
Notwithstanding the foregoing, the aggregate amounts of any asset-based
distribution and/or shareholder service fee paid by the Trust shall not exceed
such amount as is permitted under Section 26(d) of the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. (the "NASD"), as amended
form time to time, and any other rules or regulations promulgated by the NASD or
the SEC applicable to mutual fund distribution and service fees.
SECTION 2. ALLOCATION OF CLASS EXPENSES
----------------------------
Class A, Class B and Class I represent interests in the same Fund of
the Trust and have no exchange privileges or conversion features except as noted
above. Each class of
<PAGE>
shares shall have the same rights, preferences, voting powers, restrictions and
limitations, except as follows:
(a) expenses related to the distribution of a class of shares or
to the services provided to shareholders of a class of shares
shall be borne solely by such class;
(b) each class will bear different Class Expenses ( as defined
below);
(c) each class will have exclusive voting rights with respect to
matters that exclusively affect such class and separate voting
rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other
class; and
(d) each class will bear a different name or designation.
The Board, acting in its sole discretion, has determined that the
following expenses attributable to the shares of a particular class ("Class
Expenses") will be borne solely by the class to which they are attributable:
(1) asset-based distribution and shareholder service fees and
(2) extraordinary non-recurring expenses including litigation and
other legal expenses relating to a particular class.
Investment advisory fees, custodial fees, and other expenses relating
to the management of a Fund's assets shall not be allocated on a class-specific
basis.
SECTION 3. ALLOCATION OF FUND INCOME AND EXPENSES
--------------------------------------
Income realized and unrealized capital gains and losses, and expenses
that are not allocated to a specific class pursuant to Section 2 above, shall be
allocated to each class of a Fund on the basis of the net asset value of that
class in relation to the net asset value of the Fund.
SECTION 4. EXPENSE WAIVERS OR REIMBURSEMENTS
---------------------------------
All expense waivers or reimbursements will be in compliance with Rule
18f-3 issued under the 1940 Act.
SECTION 5. AMENDMENTS
----------
This Multi-Class Plan may not be amended to change any material
provision unless such amendment is approved by a vote of the majority of the
Board, including a majority of the Trustees who are not interested persons of
the Trust, based on its finding
<PAGE>
that the amendment is in the best interest of each class individually and the
Trust as a whole.
IN WITNESS WHEREOF, the Trust has executed this Multi-Class Plan on the
day and year set forth below.
ORBITEX GROUP OF FUNDS
By: _________________________
Title: _________________________
Date: _________________________
Attest: _________________________
<PAGE>
SCHEDULE A
Orbitex Group of Funds
Asian High Yield Fund
Strategic Natural Resources Fund
Info-Tech and Communications Fund
Growth Fund
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029068
<NAME> ORBITEX GROUP OF FUNDS
<SERIES>
<NUMBER> 2
<NAME> INFO-TECH AND COMMUNICATIONS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 2152288
<INVESTMENTS-AT-VALUE> 2458391
<RECEIVABLES> 148670
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 25690
<TOTAL-ASSETS> 2632751
<PAYABLE-FOR-SECURITIES> 117894
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74515
<TOTAL-LIABILITIES> 192409
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2164523
<SHARES-COMMON-STOCK> 124389
<SHARES-COMMON-PRIOR> 1333
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30284)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 306103
<NET-ASSETS> 2440342
<DIVIDEND-INCOME> 1664
<INTEREST-INCOME> 2943
<OTHER-INCOME> 0
<EXPENSES-NET> 9817
<NET-INVESTMENT-INCOME> (5210)
<REALIZED-GAINS-CURRENT> (30284)
<APPREC-INCREASE-CURRENT> 306103
<NET-CHANGE-FROM-OPS> 270609
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 124204
<NUMBER-OF-SHARES-REDEEMED> 1148
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2440342
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159774
<AVERAGE-NET-ASSETS> 781740
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 4.62
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.62
<EXPENSE-RATIO> 2.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029068
<NAME> ORBITEX GROUP OF FUNDS
<SERIES>
<NUMBER> 3
<NAME> ASIAN SELECT ADVISORS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 57817
<INVESTMENTS-AT-VALUE> 56126
<RECEIVABLES> 22730
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 109361
<TOTAL-ASSETS> 188217
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53296
<TOTAL-LIABILITIES> 53296
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137824
<SHARES-COMMON-STOCK> 9265
<SHARES-COMMON-PRIOR> 1333
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1212)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1691)
<NET-ASSETS> 134921
<DIVIDEND-INCOME> 310
<INTEREST-INCOME> 80
<OTHER-INCOME> 0
<EXPENSES-NET> 1587
<NET-INVESTMENT-INCOME> (1197)
<REALIZED-GAINS-CURRENT> (1168)
<APPREC-INCREASE-CURRENT> (1691)
<NET-CHANGE-FROM-OPS> (4056)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7932
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 114921
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 953
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 163554
<AVERAGE-NET-ASSETS> 127363
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> (0.44)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.56
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029068
<NAME> ORBITEX GROUP OF FUNDS
<SERIES>
<NUMBER> 4
<NAME> ASIAN HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 4420181
<INVESTMENTS-AT-VALUE> 4405911
<RECEIVABLES> 146459
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 401472
<TOTAL-ASSETS> 4953842
<PAYABLE-FOR-SECURITIES> 376771
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 810514
<TOTAL-LIABILITIES> 1187285
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3931613
<SHARES-COMMON-STOCK> 344640
<SHARES-COMMON-PRIOR> 1667
<ACCUMULATED-NII-CURRENT> 26364
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (177150)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14270)
<NET-ASSETS> 3766557
<DIVIDEND-INCOME> 1283
<INTEREST-INCOME> 122532
<OTHER-INCOME> 0
<EXPENSES-NET> 1924
<NET-INVESTMENT-INCOME> 121891
<REALIZED-GAINS-CURRENT> (177110)
<APPREC-INCREASE-CURRENT> (14270)
<NET-CHANGE-FROM-OPS> (69489)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (95628)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 528380
<NUMBER-OF-SHARES-REDEEMED> 187417
<SHARES-REINVESTED> 2010
<NET-CHANGE-IN-ASSETS> 3746557
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17612
<INTEREST-EXPENSE> 1924
<GROSS-EXPENSE> 175735
<AVERAGE-NET-ASSETS> 3664585
<PER-SHARE-NAV-BEGIN> 12.00
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> (1.15)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.37)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> 0.14
<AVG-DEBT-OUTSTANDING> 750000
<AVG-DEBT-PER-SHARE> 0.20
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029068
<NAME> ORBITEX GROUP OF FUNDS
<SERIES>
<NUMBER> 5
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 846862
<INVESTMENTS-AT-VALUE> 905448
<RECEIVABLES> 49245
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 104185
<TOTAL-ASSETS> 1058878
<PAYABLE-FOR-SECURITIES> 114432
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53806
<TOTAL-LIABILITIES> 168238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 776356
<SHARES-COMMON-STOCK> 49674
<SHARES-COMMON-PRIOR> 1333
<ACCUMULATED-NII-CURRENT> 13074
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42624
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58586
<NET-ASSETS> 890640
<DIVIDEND-INCOME> 18832
<INTEREST-INCOME> 502
<OTHER-INCOME> 0
<EXPENSES-NET> 5162
<NET-INVESTMENT-INCOME> 14172
<REALIZED-GAINS-CURRENT> 41526
<APPREC-INCREASE-CURRENT> 58586
<NET-CHANGE-FROM-OPS> 114284
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48341
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 870640
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2423
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 161099
<AVERAGE-NET-ASSETS> 614160
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 2.67
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.93
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
