--------------------------------------------------------------------------------
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
ANNUAL REPORT
October 31, 2001
A PRODUCT OF
THE ORBITEX FAMILY OF FUNDS
--------------------------------------------------------------------------------
Dear Shareholder,
2001 was a challenging year for the equity markets, as the effects of a
recession and the events of September 11th negatively impacted the stock market.
However, the fundamentals and attractiveness of the healthcare sector remain
strong, poising 2002 as potentially a breakout year for this sector. The stock
market has endured a widespread sell-off due to the bleak earnings outlook for
most industries in the "soft" U.S. economy. But, this selling pressure has
spread beyond economically sensitive stocks into areas that are historically not
dependent upon economic growth. Healthcare stocks have been hurt despite the
fact that the demand for healthcare continues to advance at the rate of 8-to-10%
each year. We believe that these stocks, particularly within the Life Sciences &
Biotechnology sector, represent a very attractive opportunity for investors as a
result of the market's sell-off. Key drivers for the growth of the healthcare
sector include: strong demand for products from an aging US population which
results in an increase in healthcare spending, convergence of information
technology and biotechnology, improving financial outlook for biotech companies
and favorable government policy. Theoretically, none of these factors should be
heavily impacted by the recent slowdown of the US economy, and since healthcare
spending is not discretionary spending, it stands to reason that the earnings
power of companies with marketed products will be strong heading into 2002.
Biotechnology companies are key drivers of advancement in medical research and
development activities. As a result, biotechnology is now a burgeoning industry.
It stands to reason that as new therapeutic products reach the market, they will
continue to generate a wave of earnings from which those who are invested in
biotechnology stocks are more than likely to benefit.
The Fund continues to concentrate on the leading edge of healthcare innovation
by identifying those medical technologies that are likely to have the greatest
impact on healthcare over the next several years. Its diversified makeup
balances the risk and reward of investing in volatile sectors such as biotech
and Genomics with traditionally "safer" sectors such as pharmaceutical and
medical services industry.
A key differentiator of this Fund is that it is able to allocate a portion of
its assets to small and mid-cap biotech companies. Because the biotechnology
industry is still emerging, almost two-thirds of the biotech companies in
existence today are small. As a result, the Orbitex Life Sciences &
Biotechnology Fund is capable of investing in some of the most exciting
companies that are coming to market with new and promising medical technologies.
We would suggest that healthcare stocks are not merely "defensive" investments
but also have strong growth characteristics. Scientific drug discoveries,
advances in medical devices and innovative treatments and services continue to
drive growth expectations in healthcare for the foreseeable future. Based on
"aging America" demographics, we continue to expect strong and increasing demand
for healthcare products and services that are expected to generate above-average
market earnings for the next five to ten years. All things considered, this
might be an extremely good time for one to consider initiating or increasing a
position in the Orbitex Life Sciences & Biotechnology Fund.
Sincerely,
▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Co-Portfolio Managers
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2001
------------------------------------------------------------------------------------------------------
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
Common Stocks - 72.58%
BIOTECHNOLOGY - 42.14%
AmerisourceBergen Corp. (a) 1,525 $ 96,897
Amgen, Inc. (a)+ 4,600 261,372
Atrix Laboratories, Inc. (a) 4,278 107,378
Biomarin Pharmaceutical, Inc. (a) 31,747 361,916
Biomarin Pharmaceutical, Inc. Warrants (a) 4,762 -
Cell Genesys, Inc. (a) 6,347 113,611
Cell Therapeutics, Inc. (a) 4,097 123,033
Cubist Pharmaceuticals, Inc. (a)+ 12,400 499,720
Genentech, Inc. (a) 500 26,125
Human Genome Sciences, Inc. (a) 2,200 93,786
ICOS Corp. (a) 1,237 71,437
IDEC Pharmaceuticals Corp. (a) 4,175 250,333
Immunogen, Inc. (a) 500 7,245
InKine Pharmaceutical Co., Inc. (a) 73,350 148,167
InterMune, Inc. ( a) 2,700 117,909
Millennium Pharmaceuticals, Inc. (a) 9,000 229,140
Myriad Genetics, Inc. (a) 1,870 86,020
Protein Design Labs, Inc. (a) 2,994 98,832
Quest Diagnostics, Inc. (a) 1,400 91,532
Sepracor, Inc. (a)+ 5,414 256,840
TELIK, Inc. (a) 7,292 57,242
Vertex Pharmaceuticals, Inc. (a) 350 8,575
Vion Pharmaceuticals, Inc. (a) 49,475 271,123
----------------
3,378,233
----------------
GENOMICS - 1.66%
CYTOGEN Corp. (a) 63,825 132,756
----------------
HEALTHCARE - 17.92%
▇▇▇▇▇▇ International, Inc. 2,400 116,801
Caremark Rx, Inc. (a) 10,225 137,015
HCA, Inc. 1,696 67,263
Health Management Associates, Inc. Class A Shares(a) 5,600 109,144
HEALTHSOUTH Corp. (a) 10,077 131,203
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ + 5,200 301,132
Laboratory Corp. of America Holdings (a) 2,442 210,500
Omnicare, Inc. 5,200 103,376
Province Healthcare Co. (a) 3,800 104,690
▇▇▇▇▇ Healthcare Corp. (a)+ 2,700 155,304
----------------
1,436,428
----------------
MEDICAL INSTRUMENTS - 3.65%
Molecular Devices Corp. (a) 10,000 161,900
Thermo Electron Corp. (a) 6,200 131,069
----------------
292,969
----------------
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
OCTOBER 31, 2001
------------------------------------------------------------------------------------------------------
SECURITY SHARES VALUE
------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.21%
American Home Products Corp. 3,200 $ 178,656
Merck & Co., Inc.+ 3,900 248,859
Pfizer, Inc.+ 3,600 150,840
----------------
578,355
----------------
TOTAL COMMON STOCKS (Cost $5,951,150) 5,818,741
----------------
PREFERRED STOCKS - 26.20%
BIOTECHNOLOGY - 26.20%
Discovery Therapeutics Series D convertible (b) 100,000 1,100,000
Vitagen Inc. Series C convertible (b) 833,333 1,000,001
----------------
TOTAL PREFERRED STOCKS (Cost $2,100,001) 2,100,001
----------------
------------------------------------------------------------------------------------------------------
----------------
TOTAL INVESTMENTS - 98.78% (Cost $8,051,151) 7,918,742
----------------
Other Assets less Liabilities - 1.22% 97,922
----------------
NET ASSETS - 100.00% $ 8,016,664
------------------------------------------------------------------------------------------------------
SCHEDULE OF SHORT SALES
BIOTECHNOLOGY
Genzyme Corp. - General Division 3,000 $ 161,850
Immunex Corp. 17,000 406,130
ImClome Systems Inc. 2,646 161,910
Tularik, Inc. 5,000 115,000
-------------
TOTAL SHORT SALES - (Proceeds $690,179) $ 844,890
-------------
(a) Non-income producing security.
(b) Private placement security that has been fair valued under the direction of
the Board of Directors. Security is restricted as to sale and deemed
illiquid. See Note 2 - Restricted Securities.
+ Segregated securities as collateral for short sales.
ADR-American Depositary Receipt
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2001
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $8,051,151) (Note 2) $ 7,918,742
Cash 301,611
Cash-Restricted (Note 2) 588,962
Receivable for securities sold 276,928
Dividends and interest receivable 44
-----------------
TOTAL ASSETS 9,086,287
-----------------
LIABILITIES
Payable for securities purchased 116,801
Securities sold short, at value (proceeds $690,179) (Note 2) 844,890
Payable for fund shares redeemed 46,538
Payable to affiliates (Note 3) 8,168
Payable to directors (Note 3) 7,500
Payable for distribution fees (Note 3) 1,911
Accrued expenses and other liabilities 43,815
-----------------
TOTAL LIABILITIES 1,069,623
-----------------
-----------------
NET ASSETS $ 8,016,664
-----------------
-----------------
Net asset value per share (based on 472,181 shares
of capital stock outstanding, $0.01 par value) $ 16.98
Maximum Sales Charge 4.00%
-----------------
Offering price per share $ 17.69
-----------------
NET ASSETS CONSIST OF:
Paid-in Capital $ 11,000,025
Accumulated net realized gain (loss) on investments (2,696,241)
Net unrealized appreciation (depreciation) on investments (287,120)
-----------------
NET ASSETS $ 8,016,664
----------------------------------------------------------------------------------- -----------------
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 2001 *
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 4,161
Interest 109,989
---------------
Total investment income 114,150
---------------
EXPENSES:
Advisory fees (Note 3) 151,805
Fund accounting fees (Note 3) 40,000
Audit fees 27,839
Registration fees 27,363
Administration fees (Note 3) 25,436
Directors fees and expenses 22,500
Transfer agent fees (Note 3) 23,600
Distribution fees (Note 3) 21,686
Custody fees (Note 3) 13,177
Printing and postage 6,589
Legal fees 4,459
Insurance 1,484
Other 1,726
---------------
Total expenses before waivers and reimbursements 367,664
Less: expenses waived and reimbursed (116,102)
---------------
Net expenses 251,562
---------------
Net investment income (loss) (137,412)
---------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS: (Note 2)
Net realized gain (loss) on investment transactions (2,696,241)
Net change in unrealized appreciation (depreciation)
on long term investments (132,409)
Net change in unrealized appreciation (depreciation)
on short sales (154,711)
---------------
Net realized and unrealized gain (loss) on investments (2,983,361)
---------------
Net increase (decrease) in net assets resulting
from operations $(3,120,773)
===============
* For the period November 2, 2000 (commencement of operations) through
October 31, 2001.
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
FOR THE
PERIOD ENDED
OCTOBER 31
Increase (Decrease) in Net Assets: 2001 *
---------------
From Operations:
Net investment income (loss) $ (137,412)
Net realized gain (loss) from investment transactions (2,696,241)
Net change in unrealized appreciation (depreciation) on
long term investments (132,409)
Net change in unrealized appreciation (depreciation) on short sales (154,711)
---------------
Net increase (decrease) in net assets resulting from operations (3,120,773)
FUND SHARE TRANSACTIONS (NOTE 6) 11,037,437
---------------
Total increase (decrease) in net assets 7,916,664
NET ASSETS:
Beginning of period 100,000
---------------
End of period $ 8,016,664
---------------
* From November 2, 2000 (commencement of operations) to October 31, 2001.
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE PERIOD NOVEMBER 2, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2001
--------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Sale of capital shares $ 12,660,453
Repurchases of capital shares (1,576,478)
---------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 11,083,975
---------------------
CASH (USED) PROVIDED BY OPERATIONS:
Purchases of portfolio securities (55,244,596)
Proceeds from sale of portfolio securities 44,337,077
Increase in securities sold short 690,179
---------------------
(10,217,340)
Net investment income (137,412)
Net Change in Receivables/Payables related to
Operations 61,350
---------------------
NET CASH USED BY OPERATIONS (10,293,402)
---------------------
Net Increase in Cash 790,573
Cash, Beginning of Period 100,000
---------------------
Cash, End Of Period $ 890,573
=====================
See Notes to Financial Statements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
FINANCIAL HIGHLIGHTS
(SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
PERIOD
ENDED
OCTOBER 31,
2001 (A)
----------
Net asset value, beginning of period $ 25.00
----------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (0.29)
Net realized and unrealized gain (loss)
on investments (7.73)
----------
----------
Total from investment operations (8.02)
----------
Net asset value, end of period $ 16.98
==========
Total return (b) (32.08%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 8,017
Ratio of net expenses to average net assets (c) 2.90%
Ratio of total expenses to average net assets (before waivers
and reimbursements) (c) 4.21%
Ratio of net investment income (loss) to average net assets (1.57%)
Portfolio Turnover Rate ............................................. 631%
(a) The commencement of operations was November 2, 2000.
(b) Total returns are historical and assume change in share price, reinvestment
of dividends and capital gains distributions and assumes no sales charges.
Had the Advisor and Administrator not absorbed a portion of the expenses,
total returns would have been lower. Total returns for periods less than
one year are not annualized.
(c) Annualized.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2001
1. ORGANIZATION
Orbitex Life Sciences & Biotechnology Fund, Inc. (the "Fund") was incorporated
in Maryland on April 6, 2000 and is registered under the Investment Company Act
of 1940 (the "1940 Act"), as amended, as a closed-end non-diversified management
investment company. The Fund had no operations until November 2, 2000, other
than matters related to the sale and issuance of 4,000 shares of capital stock
for $100,000 to Orbitex Management, Inc ("OMI" or the "Advisor"). The Fund's
investment objective is to seek long-term growth of capital through selective
investments in securities of life sciences and biotechnology companies of all
sizes that offer potential growth. The Fund offers and sells its shares on a
continuous basis. The Fund will generally offer to repurchase five percent of
its outstanding shares each quarter. There is no guarantee that shareholders
will be able to sell all of their Fund shares that they desire. If a repurchase
offer is over subscribed, the Fund will repurchase only a pro rata portion of
the shares tendered by each shareholder.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund 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
U.S. 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, the last available bid price. U.S. long-term debt obligations are valued
at the mean between quoted bid and asked prices for such securities or, if such
prices are not available, at prices of securities with comparable maturity,
quality and type; however, when the advisor deems it appropriate, prices
obtained from an independent pricing service will be used. U.S. 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 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 Fund's Board of Directors ("Directors").
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.
RESTRICTED SECURITIES
A restricted security is a security which has been purchased through a private
offering and cannot be resold to the public without prior registration under the
Securities Act of 1933. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may be
difficult. The issuers of the securities will bear any costs involved in
registration under the Securities Act of 1933 in connection with the disposition
of such securities.
The Fund does not have the right to demand that such securities be registered.
Restricted securities are valued at the direction of the Fund's Board of
Directors; the securities are restricted as to resale and have been valued in
good faith, taking into consideration the appropriate economic, financial and
other pertinent available information to the restricted security. The table
below shows the securities held at October 31, 2001 that are being valued by the
Fund's Board of Directors:
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
OCTOBER 31, 2001
NUMBER OF ACQUISITION VALUE PER 10/31/01 PERCENTAGE
SECURITY SHARES DATE COST UNIT FAIR VALUE OF NET ASSETS
-------- ------ ---- ---- ---- ---------- -------------
Discovery Therapeutics Series D
convertible preferred 100,000 02/07/01 $1,100,000 $11.00 $1,100,000 13.68%
Vitagen Inc. Series C
convertible preferred 833,333 06/18/01 $1,000,001 $1.20 $1,000,001 12.44%
Because of the inherent uncertainty of valuation, these values may differ
significantly from the values that would have been used had a ready market for
these securities existed, and the differences could be material.
FOREIGN CURRENCY TRANSLATIONS
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 and expenses, 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.
INCOME TAXES
It is the 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 or excise tax has been made.
INVESTMENT INCOME
Corporate actions (including cash dividends) are recorded net of non-reclaimable
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.
Discounts and premiums are amortized on a yield to maturity basis. The value of
additional securities received as interest or dividend payments is recorded as
income and as an adjustment to the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund will pay dividends of substantially all of its net investment income,
if any, annually. Dividends from net realized gains will also be paid annually.
However, pursuant to the 1940 Act, the Fund may not declare dividends or
distributions or purchase its stock (including in repurchase offers, see
Repurchase Offers below) unless, immediately after doing so, it will have an
"asset coverage" of at least 300%. If the Fund is unable to make distributions
as a result of these requirements, it may no longer qualify as a regulated
investment company and could be required to pay additional taxes. The character
of income and gains to be distributed is determined in accordance with income
tax regulations that may differ from generally accepted accounting principles.
These differences are primarily due to the timing of the recording of certain
expenses and realized losses.
REPURCHASE AGREEMENTS
The 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 Directors have established criteria to evaluate the creditworthiness of
parties with which the Fund may enter into repurchase agreements.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
OCTOBER 31, 2001
OPTIONS
The Fund may enter into options contracts. An option contract is a contract in
which the writer of the option grants the buyer of the option the right to
purchase from (call option), or sell to (put option), the writer a designated
instrument at a specified price within a specified period of time. Certain
options, including options on indices, will require cash settlement by the Fund
if the option is exercised.
If the Fund writes an option and the option expires unexercised, the Fund will
realize a capital gain to the extent of the amount received for the option (the
"premium"). If the Fund elects to close out a written option it would recognize
a gain or loss based on the difference between the cost of closing the option
and the initial premium received. If the Fund purchased an option and allows the
option to expire, it would realize a loss to the extent of the premium paid. If
the Fund elects to close out the purchased option, it would recognize a gain or
loss equal to the difference between the cost of acquiring the option and the
amount realized upon the sale of the option. The gain or loss recognized by the
Fund upon the exercise of a written call or purchased put option is adjusted for
the amount of the option premium. If a written put or purchased call option is
exercised,
The Fund's cost basis of the acquired security or currency would be the exercise
price adjusted for the amount of the option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the closing bid price or at the most recent
asked price (bid for purchased options) if no bid and asked price are available.
Over-the-counter written or purchased options are valued using dealer supplied
quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
SHORT SALES
The Fund may engage in short sales (selling securities it does not own) as part
of its normal investment activities. These short sales are collateralized by
cash deposits and securities made with the applicable counterparty broker. The
collateral required is determined daily by reference to the market value of the
short positions. Such collateral for the Fund is held by one broker. Dividend
expense on short sales is treated as an expense on the Statement of Operations.
Liabilities for securities sold short are reported at market value in the
financial statements. Such liabilities are subject to off balance sheet risk to
the extent of any future increases in market value of the securities sold short.
The ultimate liability for securities sold short could exceed the liabilities
recorded in the Statement of Assets and Liabilities. Liabilities for securities
sold short are closed out by purchasing the applicable securities for delivery
to the counterparty broker.
REPURCHASE OFFERS
The Fund will generally offer to repurchase five (5) percent of its shares each
quarter, and there is no guarantee that shareholders will be able to sell all of
their Fund shares that they desire. If a repurchase offer is oversubscribed, the
Fund will repurchase only a pro rata portion of the shares tendered by each
shareholder.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
OCTOBER 31, 2001
3. FEES AND COMPENSATION PAID TO AFFILIATES AND OTHER PARTIES
ADVISORY FEES
The Fund has entered into an Investment Advisory Agreement with OMI. As
compensation for the services rendered, facilities furnished, and expenses borne
by OMI, the Fund will pay OMI a fee, accrued daily and payable monthly, at the
annualized rate of 1.75% of the Fund's average daily net assets. Effective
November 2, 2000, ▇▇▇ had agreed to waive or limit its fees and to pay certain
expenses to the extent necessary to limit total fund operating expenses, net of
waivers and custodial credits, to an annualized rate of 2.90%, at the advisor's
discretion. The waivers of the Advisor's fees for the period ended October 31,
2001 amounted to $54,768.
ADMINISTRATION, FUND ACCOUNTING AND TRANSFER AGENT FEES
American Data Services, Inc. ("ADS"), an affiliate of the Adviser, serves as the
administrator of the Fund. For providing administration services to the Fund,
ADS will receive a monthly fee based on a sliding scale ranging from 0.10% of
the Fund's average daily net assets up to $100 million, down to 0.03% for assets
greater than $500 million, subject to certain minimum requirements. ADS also
performs fund accounting services for the Fund. For providing fund accounting
services, the Fund pays ADS a fixed monthly fee for average daily net assets
less than $20 million plus out-of-pocket expenses.
ADS serves as the transfer agent to the Fund. For providing transfer agent fees,
the Fund pays ADS a minimum monthly fee or per account fee plus certain
transaction fees.
During the period ended October 31, 2001, ADS agreed to waive service fees
amounting to $61,334.
DISTRIBUTOR
The distributor of the Fund is BISYS (the "Distributor). The Fund has adopted a
Distribution Plan and Agreement pursuant to Rule 12B-1 under the 1940 Act. The
Plan and Agreement provide for the payment of a distribution fee to the
Distributor at an annualized rate of 0.25% of the average daily net assets. The
Distributor has advised the Fund that it has earned front-end sales charges of
$355,600 from the sale of the Fund's shares during the period ended October 31,
2001.
DIRECTORS' FEES
The Fund pays no compensation to the Directors who are employees of OMI. Those
Directors who are not OMI employees receive a fee of $2,500 for each regular and
special meeting of the Board that the Director attends. The Fund also reimburses
each such Director for travel and other expenses incurred in attending meetings
of the Board.
CUSTODIAN
Circle Trust Company ("CTC"), an affiliate of OMI, serves as the Fund's
custodian. In addition, CTC acts as a broker for certain of the Fund's portfolio
transactions. For the period ended October 31, 2001, CTC earned $7,526 in
commissions.
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
OCTOBER 31, 2001
4. INVESTMENT TRANSACTIONS
At October 31, 2001, the identified cost of investments in securities for
federal income tax purposes, and gross unrealized appreciation and depreciation
were as follows:
NET
GROSS GROSS UNREALIZED
IDENTIFIED UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
---- ------------ ------------ --------------
Investments - Long $8,117,561 $366,896 ($565,715) ($198,819)
During the period ended October 31, 2001, the cost of purchases and the proceeds
from sales of investments, excluding short-term investments, were as follow:
PURCHASES SALES
------------ -----
$54,671,218 $44,614,005
5. SHAREHOLDERS' TRANSACTIONS
At October 31, 2001, there were 100,000,000 shares authorized at $0.01 par
value. During the period ended October 31, 2001, transactions in capital stock
amounted to:
PERIOD ENDED OCTOBER 31, 2001*
SHARES DOLLARS
------ -------
Beginning of period............. 4,000 $ 100,000
Shares sold..................... 560,707 12,660,453
Shares redeemed................. (92,526) (1,623,016)
--------- -------------
End of period................... 472,181 $ 11,137,437
========= =============
* For the period November 2, 2000 (commencement of operations) to October 31,
2001.
6. CAPITAL LOSS CARRYFORWARD
At October 31, 2001, for federal income tax purposes, a capital loss
carryforward was available to the extent provided by regulations to offset
future realized gains of the Fund. To the extent that this loss carryforward is
used to offset future capital gains, it is probable that the capital gains will
not be distributed to shareholders. The capital loss carryforward is available
to the Fund through 2009.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Orbitex Life Sciences & Biotechnology Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Orbitex Life Sciences &
Biotechnology Fund, Inc. (the "Fund") at October 31, 2001, and the results of
its operations, its cash flows, the changes in its net assets and the financial
highlights for the period November 2, 2000 (commencement of operations) through
October 31, 2001, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with auditing standards generally
accepted in the United States of America, 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 audit, which included confirmation of securities at October 31,
2001 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 20, 2001
--------------------------------------------------------------------------------
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
April 30, 2002
A PRODUCT OF
THE ORBITEX FAMILY OF FUNDS
--------------------------------------------------------------------------------
Dear Shareholder:
The markets have continued to wrestle with economic weaknesses that developed
prior to the events of September 11, 2001, as well as with subsequent events
that have permeated the nation's psychology. During the past 18 months investors
have regarded the biotechnology sector as an extension of the broader technology
sector, causing the biotech index (BTK) to mimic and directionally follow the
NASDAQ index. As the markets in general and the technology sector specifically
have continued to struggle, investors' flight from uncertainty has spilled over
to the biotech sector in 2002.
While it was not surprising to see a 1Q2002 decline in the BTK (in 8 out of the
11 previous years, the BTK had been down in 1Q), the weakness and selling
pressure have continued into the second quarter. The current weakness in the
sector can be the result of the combination of a variety of occurrences
including: a weakness in the NASDAQ fueled by poor tech earnings, accounting
problems and lack of investor confidence, as well as a large number of clinical
failures and regulatory rejections compounding investors' fear of uncertainty in
the sector.
It should be noted, though that the fundamentals of the industry are as strong
as ever. The sector is very well capitalized, and a majority of companies have
enough cash to sustain operations for the next 24-36 months without the need for
additional financing from the equity markets. Companies are also making
impressive gains in their clinical programs. Demographic trends and government
policy are still very favorable and the industry has generally been spared
accounting and research analyst scandals.
The Fund continues to concentrate on the leading edge of healthcare innovation,
as well by identifying those medical technologies that are likely to have the
greatest impact on healthcare over the next several years. The lack of market
visibility has not hampered the ability for healthcare companies to generate
profits growth. A continued optimistic outlook, given solid fundamentals and
pricing, also remains. The regulatory reimbursement environment also continues
to be a positive. Stocks in healthcare services have largely seen positive price
movements in their stocks given the good earnings growth and near-term outlook.
However, valuations have not increased dramatically and are still quite
attractive, as earnings growth has far outpaced price appreciation in the latest
time period.
A key differentiator of the Orbitex Life Sciences & Biotechnology Fund is that
it is able to allocate a portion of its assets to small and mid-cap biotech
companies. Because the biotechnology industry is still emerging, almost
two-thirds of the biotech companies in existence today are small. As a result,
the Fund is capable of investing in some of the most exciting companies that are
coming to market with new and promising medical technologies. All things
considered, this might be an extremely good time for one to consider initiating
or increasing a position in the Orbitex Life Sciences & Biotechnology Fund
Sincerely,
/s/ ▇▇▇▇ ▇▇▇▇▇▇ /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
----------------------------------- ----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
Co-Portfolio Manager Co-Portfolio Manager
-1-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
APRIL 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
Security Shares Value
--------------------------------------------------------------------------------
COMMON STOCKS - 69.52%
BIOTECHNOLOGY - 28.46%
AmerisourceBergen Corp. (a) 1,524 $ 118,110
Amgen, Inc. (a) 5,000 264,400
BioMarin Pharmaceutical, Inc. (a) 31,747 191,434
BioMarin Pharmaceutical, Inc. Warrants (a) 4,762 --
Cell Genesys, Inc. (a) 7,947 112,927
Cell Therapeutics, Inc. (a) 11,897 147,761
Cubist Pharmaceuticals, Inc. (a) 12,400 173,352
CV Therapeutics, Inc. (a) 1,000 28,940
Genentech, Inc. (a) 4,300 152,650
Human Genome Sciences, Inc. (a) 3,531 55,578
IDEC Pharmaceuticals Corp. (a) 1,975 108,526
ImmunoGen, Inc. (a) 320 2,637
InKine Pharmaceutical Co., Inc. (a) 35,000 52,150
InterMune, Inc. ( a) 3,700 98,975
Millennium Pharmaceuticals, Inc. (a) 4,117 82,175
Protein Design Labs, Inc. (a) 4,327 77,713
Sepracor, Inc. (a) 3,014 38,157
TELIK, Inc. (a) 8,317 86,497
----------
1,791,982
----------
GENOMICS - 0.71%
CYTOGEN Corp. (a) 26,558 44,618
----------
HEALTHCARE SERVICES- 16.69%
Advance PCS (a) 600 20,286
Cardinal Health, Inc. 1,200 83,100
Caremark Rx, Inc. (a) 10,225 219,838
Health Management Associates, Inc. Class A Shares(a) 9,100 194,194
HEALTHSOUTH Corp. (a) 12,177 183,873
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ 2,400 153,264
Mckesson HBOC, Inc. 1,000 40,390
Omnicare, Inc. 1,900 50,806
Province Healthcare Co. (a) 1,600 61,616
▇▇▇▇▇ Healthcare Corp. (a) 600 44,022
----------
1,051,389
----------
MEDICAL INSTRUMENTS - 13.68%
Biomet, Inc. 7,893 222,819
CardioDynamics International Corp. (a) 2,154 6,677
Invitrogen Corp. (a) 3,000 104,040
Medtronic, Inc. 3,000 134,070
Molecular Devices Corp. (a) 3,872 69,115
Respironics, Inc. (a) 4,229 138,669
Thermo Electron Corp. (a) 4,300 81,270
Waters Corp. (a) 3,900 105,105
----------
861,765
----------
See Notes to Financial Statements
-2-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (continued)
APRIL 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
Security SHARES VALUE
--------------------------------------------------------------------------------
Pharmaceuticals - 9.98%
Elan Corp. PLC ADR (a) 2,500 $ 29,700
Enzon, Inc. (a) 2,000 74,480
Ivax Corp. 3,775 44,545
Merck & Co., Inc. 2,950 160,303
Novartis AG 2,400 100,728
Schering-Plough Corp. 3,000 81,900
Wyeth 3,900 136,800
----------
628,456
----------
TOTAL COMMON STOCKS (Cost $5,228,175) 4,378,210
----------
PREFERRED STOCKS - 29.38%
BIOTECHNOLOGY - 29.38%
Aderis Pharmaceuticals, Inc. (b) 166,210 1,100,310
Vitagen Inc. Series C convertible (b) 833,333 750,000
----------
TOTAL PREFERRED STOCKS (Cost $2,100,000) 1,850,310
================================================================================
TOTAL INVESTMENTS - 98.90% (Cost $7,328,175) 6,228,520
----------
OTHER ASSETS LESS LIABILITIES - 1.10% 69,303
----------
NET ASSETS - 100.00% $6,297,823
================================================================================
(a) Non-income producing security.
(b) Private placement security that has been fair valued under the direction of
the Board of Directors. Security is restricted as to sale and deemed
illiquid. See Note 2 - Restricted Securities.
ADR-American Depositary Receipt
See Notes to Financial Statements.
-3-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $7,328,175) (Note 2) $ 6,228,520
Cash 149,115
Cash-Restricted (Note 2) 11,695
Receivable for securities sold 11,568
Prepaid expenses and other assets 16,282
------------
TOTAL ASSETS 6,417,180
------------
LIABILITIES
Payable for securities purchased 27,122
Payable for fund shares redeemed 9,830
Payable to affiliates (Note 3) 5,300
Payable to directors (Note 3) 7,500
Payable for distribution fees (Note 3) 1,539
Accrued expenses and other liabilities 68,066
------------
TOTAL LIABILITIES 119,357
------------
------------
NET ASSETS $ 6,297,823
------------
Net asset value per share (based on 433,859 shares
of capital stock outstanding, $0.01 par value) $ 14.52
Maximum Sales Charge 4.00%
------------
Offering price per share $ 15.13
------------
NET ASSETS CONSIST OF:
Paid-in Capital $ 10,422,129
Accumulated net investment income (loss) (100,270)
Accumulated net realized gain (loss) on investments (2,924,381)
Net unrealized appreciation (depreciation) on investments (1,099,655)
------------
NET ASSETS $ 6,297,823
================================================================================
See Notes to Financial Statements.
-4-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED APRIL 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 8,991
Interest 4,106
-----------
Total investment income 13,097
-----------
EXPENSES:
Advisory fees (Note 3) 67,378
Directors fees and expenses 26,267
Audit fees 15,014
Transfer agent fees (Note 3) 13,345
Administration fees (Note 3) 12,010
Registration fees 10,949
Fund accounting fees (Note 3) 9,685
Distribution fees (Note 3) 9,626
Legal fees 7,588
Printing and postage 5,540
Custody fees (Note 3) 2,121
Insurance 334
Other 888
-----------
Total expenses before waivers and reimbursements 180,745
Less: expenses waived and reimbursed (67,378)
-----------
Net expenses 113,367
-----------
Net investment income (loss) (100,270)
-----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS: (Note 2)
Net realized gain (loss) on investment transactions (228,140)
Net change in unrealized appreciation (depreciation)
on long term investments (967,246)
Net change in unrealized appreciation (depreciation)
on short sales 154,711
-----------
Net realized and unrealized gain (loss) on investments (1,040,675)
-----------
Net increase (decrease) in net assets resulting
from operations $(1,140,945)
===========
See Notes to Financial Statements.
-5-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
FOR THE SIX FOR THE
MONTHS ENDED PERIOD ENDED
APRIL 30, OCTOBER 31,
2002 2001 *
--------------------------------
Increase (Decrease) in Net Assets (UNAUDITED)
From Operations:
Net investment income (loss) $ (100,270) $ (137,412)
Net realized gain (loss) from investment transactions (228,140) (2,696,241)
Net change in unrealized appreciation (depreciation) on
long term investments (967,246) (132,409)
Net change in unrealized appreciation (depreciation) on short sales 154,711 (154,711)
----------------------------
Net increase (decrease) in net assets resulting from operations (1,140,945) (3,120,773)
FUND SHARE TRANSACTIONS (NOTE 5) (577,896) 11,037,437
----------------------------
Total increase (decrease) in net assets (1,718,841) 7,916,664
NET ASSETS:
Beginning of period 8,016,664 100,000
----------------------------
End of period $ 6,297,823 $ 8,016,664
----------------------------
Undistributed net investment income (loss) at end of period $ (100,270) $ --
============================
* From November 2, 2000 (commencement of operations) to October 31, 2001.
See Notes to Financial Statements.
-6-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED APRIL 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Sale of capital shares $ 315,452
Repurchases of capital shares (930,056)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: (614,604)
------------
CASH (USED) PROVIDED BY OPERATIONS:
Purchases of portfolio securities (29,169,244)
Proceeds from sale of portfolio securities 29,839,761
Decrease in securities sold short (690,179)
------------
(19,662)
Net investment income (100,270)
Net Change in Receivables/Payables related to
Operations 4,773
------------
NET CASH USED BY OPERATIONS (115,159)
------------
Net Increase (Decrease) in Cash (729,763)
Cash, Beginning of Period 890,573
------------
Cash, End of Period $ 160,810
============
See Notes to Financial Statements.
-7-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
FINANCIAL HIGHLIGHTS
(SELECTED DATA BASED ON A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS PERIOD
ENDED ENDED
APRIL 30, OCTOBER 31,
2002 2001 (A)
----------- -----------
(UNAUDITED)
Net asset value, beginning of period $ 16.98 $ 25.00
--------- ---------
INCOME (LOSS) FROM OPERATIONS:
Net investment income (loss) (0.23) (0.29)
Net realized and unrealized gain (loss)
on investments (2.23) (7.73)
--------- ---------
Total from investment operations (2.46) (8.02)
--------- ---------
Net asset value, end of period $ 14.52 $ 16.98
========= =========
Total return (b) (14.49%) (32.08%)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 6,298 $ 8,017
Ratio of net expenses to average net assets (c) 2.90% 2.90%
Ratio of total expenses to average net assets (before waivers
and reimbursements) (c) 4.63% 4.21%
Ratio of net investment income (loss) to average net assets (c) (1.30%) (1.57%)
Portfolio Turnover Rate 52% 631%
(a) The commencement of operations was November 2, 2000.
(b) Total returns are historical and assume change in share price, reinvestment
of dividends and capital gains distributions and assumes no sales charges.
Had the Advisor and Administrator not absorbed a portion of the expenses,
total returns would have been lower. Total returns for periods less than
one year are not annualized.
(c) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS
-8-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2002 (UNAUDITED)
1. ORGANIZATION
Orbitex Life Sciences & Biotechnology Fund, Inc. (the "Fund") was incorporated
in Maryland on April 6, 2000 and is registered under the Investment Company Act
of 1940 (the "1940 Act"), as amended, as a closed-end, non-diversified
management investment company. The Fund had no operations until November 2,
2000, other than matters related to the sale and issuance of 4,000 shares of
capital stock for $100,000 to Orbitex Management, Inc ("OMI" or the "Advisor").
The Fund's investment objective is to seek long-term growth of capital through
selective investments in securities of life sciences and biotechnology companies
of all sizes that offer potential growth. The Fund offers and sells its shares
on a continuous basis. The Fund will generally offer to repurchase five percent
of its outstanding shares each quarter. There is no guarantee that shareholders
will be able to sell all of their Fund shares that they desire. If a repurchase
offer is over subscribed, the Fund will repurchase only a pro rata portion of
the shares tendered by each shareholder.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund 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
U.S. 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, the last available bid price. U.S. long-term debt obligations are valued
at the mean between quoted bid and asked prices for such securities or, if such
prices are not available, at prices of securities with comparable maturity,
quality and type; however, when the advisor deems it appropriate, prices
obtained from an independent pricing service will be used. U.S. 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 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 Fund's Board of Directors ("Directors").
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.
RESTRICTED SECURITIES
A restricted security is a security which has been purchased through a private
offering and cannot be resold to the public without prior registration under the
Securities Act of 1933. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may be
difficult. The issuers of the securities will bear any costs involved in
registration under the Securities Act of 1933 in connection with the disposition
of such securities.
The Fund does not have the right to demand that such securities be registered.
Restricted securities are valued at the direction of the Fund's Board of
Directors; the securities are restricted as to resale and have been valued in
good faith, taking into consideration the appropriate economic, financial and
other pertinent available information to the restricted security. The table
below shows the securities held at April 30, 2002 that are being valued by the
Fund's Board of Directors:
-9-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2002 (UNAUDITED)
NUMBER OF ACQUISITION VALUE PER 4/30/02 PERCENTAGE
SECURITY SHARES DATE COST UNIT FAIR VALUE OF NET ASSETS
Aderis Pharmaceutical, Inc. 166,210 02/07/01 $1,100,000 $6.62 $1,100,310 17.47%
Vitagen Inc. Series C
convertible preferred 833,333 06/18/01 $1,000,000 $0.90 $750,000 11.91%
Because of the inherent uncertainty of valuation, these values may differ
significantly from the values that would have been used had a ready market for
these securities existed, and the differences could be material.
FOREIGN CURRENCY TRANSLATIONS
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 and expenses, 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.
INCOME TAXES
It is the 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 or excise tax has been made.
INVESTMENT INCOME
Corporate actions (including cash dividends) are recorded net of non-reclaimable
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.
Discounts and premiums are amortized on a yield to maturity basis. The value of
additional securities received as interest or dividend payments is recorded as
income and as an adjustment to the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund will pay dividends of substantially all of its net investment income,
if any, annually. Dividends from net realized gains will also be paid annually.
However, pursuant to the 1940 Act, the Fund may not declare dividends or
distributions or purchase its stock (including in repurchase offers, see
Repurchase Offers below) unless, immediately after doing so, it will have an
"asset coverage" of at least 300%. If the Fund is unable to make distributions
as a result of these requirements, it may no longer qualify as a regulated
investment company and could be required to pay additional taxes. The character
of income and gains to be distributed is determined in accordance with income
tax regulations that may differ from generally accepted accounting principles.
These differences are primarily due to the timing of the recording of certain
expenses and realized losses.
REPURCHASE AGREEMENTS
The 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 Directors have established criteria to evaluate the creditworthiness of
parties with which the Fund may enter into repurchase agreements.
-10-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2002 (UNAUDITED)
OPTIONS
The Fund may enter into options contracts. An option contract is a contract in
which the writer of the option grants the buyer of the option the right to
purchase from (call option), or sell to (put option), the writer a designated
instrument at a specified price within a specified period of time. Certain
options, including options on indices, will require cash settlement by the Fund
if the option is exercised.
If the Fund writes an option and the option expires unexercised, the Fund will
realize a capital gain to the extent of the amount received for the option (the
"premium"). If the Fund elects to close out a written option it would recognize
a gain or loss based on the difference between the cost of closing the option
and the initial premium received. If the Fund purchased an option and allows the
option to expire, it would realize a loss to the extent of the premium paid. If
the Fund elects to close out the purchased option, it would recognize a gain or
loss equal to the difference between the cost of acquiring the option and the
amount realized upon the sale of the option. The gain or loss recognized by the
Fund upon the exercise of a written call or purchased put option is adjusted for
the amount of the option premium. If a written put or purchased call option is
exercised, the Fund's cost basis of the acquired security or currency would be
the exercise price adjusted for the amount of the option premium. The liability
representing the Fund's obligation under an exchange traded written option or
investment in a purchased option is valued at the last sale price or, in the
absence of a sale, the closing bid price or at the most recent asked price (bid
for purchased options) if no bid and asked price are available. Over-the-counter
written or purchased options are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
SHORT SALES
The Fund may engage in short sales (selling securities it does not own) as part
of its normal investment activities. These short sales are collateralized by
cash deposits and securities made with the applicable counterparty broker. The
collateral required is determined daily by reference to the market value of the
short positions. Such collateral for the Fund is held by one broker. Dividend
expense on short sales is treated as an expense on the Statement of Operations.
Liabilities for securities sold short are reported at market value in the
financial statements. Such liabilities are subject to off balance sheet risk to
the extent of any future increases in market value of the securities sold short.
The ultimate liability for securities sold short could exceed the liabilities
recorded in the Statement of Assets and Liabilities. Liabilities for securities
sold short are closed out by purchasing the applicable securities for delivery
to the counterparty broker.
REPURCHASE OFFERS
The Fund will generally offer to repurchase five (5) percent of its shares each
quarter, and there is no guarantee that shareholders will be able to sell all of
their Fund shares that they desire. If a repurchase offer is oversubscribed, the
Fund will repurchase only a pro rata portion of the shares tendered by each
shareholder.
-11-
ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2002 (UNAUDITED)
3. FEES AND COMPENSATION PAID TO AFFILIATES AND OTHER PARTIES ADVISORY FEES
The Fund has entered into an Investment Advisory Agreement with OMI. As
compensation for the services rendered, facilities furnished, and expenses borne
by OMI, the Fund will pay OMI a fee, accrued daily and payable monthly, at the
annualized rate of 1.75% of the Fund's average daily net assets. Effective
November 2, 2000, ▇▇▇ had agreed to waive or limit its fees and to pay certain
expenses to the extent necessary to limit total fund operating expenses, net of
waivers and custodial credits, to an annualized rate of 2.90%, at the advisor's
discretion. The waivers of the Advisor's fees for the six months ended April 30,
2002 amounted to $67,378.
ADMINISTRATION, FUND ACCOUNTING AND TRANSFER AGENT FEES
Orbitex Fund Services, ("OFS"), formerly known as American Data Services
("ADS"), an affiliate of the Adviser, serves as the administrator of the Fund.
For providing administration services to the Fund, OFS will receive a monthly
fee based on a sliding scale ranging from 0.10% of the Fund's average daily net
assets up to $100 million, down to 0.03% for assets greater than $500 million,
subject to certain minimum requirements.
OFS also performs fund accounting services for the Fund. For providing fund
accounting services, the Fund pays OFS a fixed monthly fee for average daily net
assets less than $20 million plus out-of-pocket expenses.
OFS serves as the transfer agent to the Fund. For providing transfer agent fees,
the Fund pays OFS a minimum monthly fee or per account fee plus certain
transaction fees.
DISTRIBUTOR
The distributor of the Fund is BISYS (the "Distributor). The Fund has adopted a
Distribution Plan and Agreement pursuant to Rule 12B-1 under the 1940 Act. The
Plan and Agreement provide for the payment of a distribution fee to the
Distributor at an annualized rate of 0.25% of the average daily net assets. The
Distributor has advised the Fund that it has earned front-end sales charges of
$5,185 from the sale of the Fund's shares during the six months ended April 30,
2002.
DIRECTORS' FEES
The Fund pays no compensation to the Directors who are employees of OMI. Those
Directors who are not OMI employees receive a fee of $2,500 for each regular and
special meeting of the Board that the Director attends. The Fund also reimburses
each such Director for travel and other expenses incurred in attending meetings
of the Board.
CUSTODIAN
Circle Trust Company ("CTC"), an affiliate of OMI, serves as the Fund's
custodian. In addition, CTC acts as a broker for certain of the Fund's portfolio
transactions. For the six months ended April 30, 2002, CTC earned $1,037 in
commissions.
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ORBITEX LIFE SCIENCES & BIOTECHNOLOGY FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 30, 2002 (UNAUDITED)
4. INVESTMENT TRANSACTIONS
At April 30, 2002, the identified cost of investments in securities for federal
income tax purposes, and gross unrealized appreciation and depreciation were as
follows:
NET
GROSS GROSS UNREALIZED
IDENTIFIED UNREALIZED UNREALIZED APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Investments $7,328,175 $285,172 ($1,384,827) ($1,099,655)
During the six months ended April 30, 2002, the cost of purchases and the
proceeds from sales of investments, excluding short-term investments, were as
follow:
PURCHASES SALES
------------ -----
$3,756,603 $4,247,304
5. SHAREHOLDERS' TRANSACTIONS
At April 30, 2002, there were 100,000,000 shares authorized at $0.01 par value.
During the six months ended April 30, 2002, transactions in capital stock
amounted to:
SIX MONTHS ENDED APRIL 30, 2002 PERIOD ENDED OCTOBER 31, 2001*
------------------------------- ------------------------------
SHARES DOLLARS SHARES DOLLARS
Shares sold 16,560 315,452 560,707 12,660,453
Shares redeemed (54,882) (893,348) (92,526) (1,623,016)
--------------------------------- ------------ ------------ ------------ ------------
Net increase (decrease) (38,322) $ (577,896) 472,181 $(11,137,437)
================================= ============ ============ ============ ============
* For the period November 2, 2000 (commencement of operations) to October 31,
2001.
6. CAPITAL LOSS CARRYFORWARD
At October 31, 2001, for federal income tax purposes, a capital loss
carryforward was available to the extent provided by regulations to offset
future realized gains of the Fund. To the extent that this loss carryforward is
used to offset future capital gains, it is probable that the capital gains will
not be distributed to shareholders. The capital loss carryforward is available
to the Fund through 2009.
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