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ORBITEX

INVESTMENTPORTFOLIO

INDEX

• ORBITEX Investment Process

• Selecting and Structuring of Asset Classes

• ORBITEX Investment Portfolio

• Performance Analysis

• Glossary

3

ORBITEXINVESTMENT PROCESS

TOP-DOWN APPROACH

Result of Top-Down Approach (Macro-Analysis):

➪ Guidelines for asset allocation, selection and weighting of asset classes in portfolios

➪ Standards for structuring of the selected asset classes

➪ The portfolio should anticipate and reflect the future economic development

TechnologicalSphere

EnvironmentalSphere

PoliticalSphere

SocialSphere

Top

Down

World Economy

Europe USA ➪ Japan

Monetary/Fiscal Policy

Interest, Inflation

Currency

Economic/EarningsGrowth

➪

ORBITEX Investment Process

BOTTOM-UP APPROACH

Result of Bottom-Up Approach:➪ Asset allocation: Portfolio structure by asset classes➪ Structuring of each asset class

4

Bottom

Up Currencies USD, EUR,

GBP, YEN, CHF

Duration, Government vs.

Corporate Bonds,Rating

Liquidity, EarningsGrowth and Consistency,

PEG-Ratio

➪ Defensive Stocks➪ Cyclical Stocks ➪ Growth Stocks

➩ Low Beta Stocks➩ High Beta Stocks

Private Equity Funds (0-5%)

Hedge InvestmentStrategies (5-25%

➪ Market Neutral ➪ Incentive-Driven

➪ Opportunistic

Cash(0-5%)

Fixed-Income

Securities(30-45%)

Equities*

(30-50%)

AlternativeInvestments(10-25%)

* See Stock Selection Process, page 5-9

5


STOCK SELECTION PROCESS

Computer Screening

Global Screening

FundamentalAnalyses

TechnicalAnalyses

(>10,000)

(>1,000)

(>500)

(<100)

Growth ratesValuation Liquidity

Historical returns

Global conference callsInternational forecasts

Historical valuation

Company meetingsIndustry conferencesWall Street analysesProprietary research

Bollinger bands Money flow

Relative strength Rate of change

(Number of Companies)

QUANTITATIVE AND QUALITATIVE APPROACH

SCREENING AND ANALYSES CRITERIA

YOUR PORTFOLIO

Quantitative Screening:

-Computer Screening-Technical Analyses

Qualitative Screening:

-GlobalScreening-FundamentalAnalyses

Investment Universe

30 - 40 STOCKS

6

STOCK SELECTION PROCESS:AN EXAMPLE


Methodology for Selecting the Stocks of the Defensive Sector of the Equity Portfolio

(See Page 13)

Defensive stocks are characterized by sustainable growth which is determined by the pricing flexibility, the recurrence of the company’srevenues and the global reach.

The Keys to Successful Long-Term Growth Investing

Pricing Flexibility (The ability to price products and services at consistently profitable levels)

Reasons for pricing power Examples

Strong franchises Mc Donald’s - Quick service restaurantsMarriott International - Hotel and senior living servicesStarbucks - Specialty coffee retailing

Proprietary positions Abbott Laboratories - DiagnosticsGillette - Razor bladesJohnson & Johnson - Healthcare productsPfizer - Cardiovascular drugs

Low cost provider Automatic Data Processing - Payroll processingHome Depot - Home improvementState Street Corp. - Mutual fund shareholder accounting Wal-Mart - Mass merchandising

Brand name acceptance Coca Cola - Soft drinksColgate - ToothpastesTiffany - Specialty retailingWm. Wrigley - Chewing gum

Pricing Flexibility

SustainableGrowth

Recurring Revenues+

7


Time Period Repeat New RevenueSources Growth Totals

Beg. Year 1 100

End Year 1 100 20 120

End Year 2 120 24 144

End Year 3 144 29 173

% Total Revenues 83% 17% 100%

Recurring Revenues

(Companies with revenues that recur are better able to sustain high growth rates because their products or services are consumed andneed to be replaced.)

Company ARecurring Revenues (in USD mn)

Company BNo Recurring Revenues (in USD mn)

End Year 4 173 35 208

End Year 5 208 42 250

5 Years totals 745 150 895

Repeat New RevenueSources Growth Totals

100

0 120 120

0 144 144

0 173 173

0% 100% 100%

0 208 208

0 250 250

0 895 895

➩ Over five years, both companies grew 20% and generated total sales of USD 895 million.

➩ Company A derives 83% of these revenues from doing the same things with the same customers.It needs only 17% from new customers each year.

➩ Company B got none of these revenues from doing the same things with the same customers.It needs to find new customers for all its growth.

8


Our Sustainable Growth Companies Have a Global Reach

The United States

Canada, Western Europe and Japan(1950s - early 1980)

Latin America, Asia, Eastern Europe, Middle East and Africa(Late 1980s - 2000 and beyond)

Five Billion Consumers Now Living Within Market-Oriented Economies

+

+

Creating an Investment Universe

Most do it quantitatively

• Computer screening creates initial universe• Earnings and price changes monitored against

benchmarks• Little continuity to universe over time

Valuation Discipline

Valuation screens

• Reinvestment rates related to price/earnings ratios• Sustainable growth rate estimates related to

price/earnings ratios

We do it qualitatively

• Direct research prequalifies each universe company • Earnings and price changes monitored against

established benchmarks• Significant continuity to universe over time

Our valuation screens help identify

• Which of the universe companies are most attractively valued and should be in the portfolio

• What percentage of total portfolio assets each holding should represent

• When a portfolio company should be sold

9


How the Defensive Part of the Equity Portfolio Would Be Invested Today

Pricing Recurring Global SustainableFlexibility Revenues Reach Growth

Beverages 4.1% Coca Cola

Business & Information Services 4.4%Automatic Data Processing

Entertainment & Lodging 4.5%Marriott International

Financial Services 8.3%Marsh & Mc Lennan 1.9%State Street Corp. 6.4%

Foods 6.2%Wm. Wrigley 4.8%Nestle 1.4%

Food Services 10.6%Mc Donald’s 3.6%Starbucks 7.0%

Health Products 10.9%Abbott Laboratories 3.9%Johnson & Johnson 7.0%

Household Products 3.1%Colgate

Insurance 5.0%American International Group

Mass Merchandising 7.1%Wal-Mart

Package Delivery Services 2.3%United Parcel Service

Pharmaceuticals 12.8%Merck 4.7%Pfizer 6.6%Novartis 1.5%

Specialty Retailing 16.9%Home Depot 5.7% Staples 6.4% Tiffany 4.8%

Toiletries 3.8%Gillette

+ + =

10

SELECTING

AND STRUCTURING OF

ASSET CLASSESThe economic downtrend beginning in2001 - the first recession in the globalized world economy - is fundamentally different from thosein the past. Previous recessions were generally a result of monetary squeezes that were put in place to deal with excess demand andrising inflation. As a result, once monetary conditions were relaxed, recessions soon came to an end. The current cycle has been associated with supply excesses as well as demand excesses and it has been more of a deflationary than inflationary environment.Furthermore, in previous cycles at least one major region was not in recession and provided a certain support to the regions affected bythe economic slump; this time all major economies are simultaneously in recession, so the external sector offers little relief. This helps toexplain why sharp declines in interest rates have not been as effective as in the past in stimulating growth. Nevertheless, the power ofeasy money should not be underestimated.

For the upcoming three years we expect continued sluggish growth with erratic capital markets with practical no clear-cut long-lastingprice trends.

The following selection and structuring of the asset classes in our portfolio reflects our assessment of the economic and capital market developments:

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Selected Asset Classes

Cash / Money MarketInstruments

(0-5%)

Equities (30-50%)

Alternative Investments(10-25%)

Fixed-Income Securities (30-50%)

Selecting and Structuring of Asset Classes

For each of these four asset classes, special portfolios are designed in accordance with two typical customer profiles:

1) Conservative Value Oriented Investor, whose prime target is capital protection and achieving a return of around the double of risk-free investments (US-Government Fund Rates) by assuming minimal risks.

2) Dynamic Growth Oriented Investor, whose prime target is longer-term capital protection and achieving a return which is three timesthe risk-free rate by assuming higher but controllable risks.

FIXED-INCOME SECURITIES

This asset category offers very low returns (risk free investments in USD and Euro: around 1%). A small portion in this asset class isheld in the portfolio for tactical purposes; it allows to act quickly if and when special opportunities arise in the field of equities and/oralternative investments. Currency-wise, 25% are held in Euro and 75% in USD.

Bonds in general do not offer exiting value at present. They do, however, offer protection in a deflationary environment;therefore, positions above minimum levels should be kept. Nevertheless, with unexiting valuations and a slight economic

recovery on the horizon, we expect that bonds will underperform stocks in the next twelve months and beyond.

On the one side, we assume that investors will be quick to react as the economy picks up. On the other side, the inflation outlookin the USA and in Europe is very good and this argues against being too bearish on bonds. We assume that yields will be very slow

to move up when the economy picks up because of lingering deflationary concerns.

To maximize returns from the bond portfolio, we intend to focus on corporate bonds rather than government bonds. Credit spreadshave narrowed from their very high levels, but they are still at the top end of their historical range.

The high yield bond markets offer good potential in absolute and relative terms. A diversified basket of high yield issues may beatequity returns in the coming years, with some issues perhaps delivering more than 20%. We recommend to invest for growth orientedportfolios up to 10% of the bond portfolio in high yield issues.

In order to reduce the price risk of the bond portfolio, we focus on fixed- income securities with shorter to middle-term maturitiesresulting in a relatively low duration of the overall bond portfolio. Currency-wise, we invest 50% in USD and 40% in Euro; Yen-Bondsare avoided.

CASH / MONEYMARKET INSTRUMENTS

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Value Oriented Bond Portfolio


Issuer Minimal Weight Expected Expected Return RiskRating Return Volatility Contribution Contribution

(Risk) to Portfolio to Portfolio

Government A+ 60.0% 4.5% 0.5% 2.7% 0.3%Bonds

Corporate A+ 40.0% 5.5% 1.0% 2.2% 0.4%Bonds

Expected return of value oriented bond portfolio 4.9%

Expected risk of value oriented bond portfolio 0.7%

Expected sharpe ratio1 of value oriented bond portfolio 0.6

Growth Oriented Bond Portfolio

Issuer Minimal Weight Expected Expected Return RiskRating Return Volatility Contribution Contribution


Government A 40.0% 4.5% 0.5% 1.8% 0.2%Bonds

Corporate A 40.0% 5.5% 1.0% 2.2% 0.4%Bonds

Expected return of growth oriented bond portfolio 6.6%

Expected risk of growth oriented bond portfolio 2.6%

Expected sharpe ratio1 of growth oriented bond portfolio 0.8

High Yield A 20.0% 13.0% 10.0% 2.6% 2.0%Bonds

1Risk free rate = 4.5%


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EQUITIES

We are neutral and cautious for the major equity markets in the USA and Europe. Since 2002, a number of bear and bull factors areoverhanging the equity markets:

Negative factors

The bursting of the technology bubble beginning in spring 2000 has washed out most of the market excesses and left back a greatnumber of investors with huge losses and suposedly with a lasting impact on investor psychology. One has to assume that the experience of the last couple of years would encourage investors to pay more attention to market fundamentals, and to make themmore cautious. This reluctant behavior is shown by the large mountain of cash piled up in money market funds. Another negative element is the fact that the equity valuations are not cheap. At the beginning of 2003 the S&P 500 Index traded at close to 30 timestrailing operating earnings. To justify a P/E-ratio of 30, an average earnings growth of 15% p.a. in the coming years would be required.In view of the prevailing recessionary and deflationary tendencies, only a few selected industries may reach these earnings growthrates.

Positive factors

Other than the valuation, many prices are in place for a classic cyclical recovery: Many measures of sentiment reached depressed levels;liquidity is explosive; there are some hints that the economy and earnings are set to slightly recover. As experience shows, stocks ledeconomic upturns by an average of 4.5 months during the past eight cycles. Chartists, however, teach us that the broad market has yetto receive a technical green light by breaking through above its 200-day moving average.

Summary of Equity Market Outlook

– Opportunities outweigh the risks– Markets will remain liquidity-driven with little chance to become earnings-driven– Since a transition from liquidity-driven to earnings-driven is rarely smooth:

➩ Volatility will remain high ➩ Sector rotation may be frequent

Our Investment Policy

We pursue a defensive policy in our equity portfolios. Consequently, we focus on defensive sectors such as utilities, food, pharmaceuti-cal, retail; also prime quality cyclicals such as technology, paper, chemicals, selected natural resources - inparticular, precious metals andgold - belong to our favorites. In the stock-picking process low beta stocks are preferred to high beta stocks; strong large cap compa-nies, which have the power to expand their market share in the current low growth environment, get preference to middle and smallsized companies. Particular attractive are stocks with secured high dividend yield.

As soon as a slight economic recovery becomes reality, a more aggressive investment behavior will be adopted. Beside cyclical stocksgrowth sectors such as financials, IT, communication, biotech will be focused on. Preference will be given to higher beta stocks.

Growth 10.0% Computer Hardware (IBM), 14.0% 8.0% 1.4% 0.8%Stocks Biotech (Amgen),

Media (AOL), Financial Services (Merrill Lynch),

Software (Microsoft), Telecoms (Vodafone)

14


Value Oriented Equity Portfolio

Sectors Weight Industries Expected Expected Return Risk(Company Example) Return Volatility Contribution Contribution


Defensive 60.0% Food (Nestle), 10.0% 5.0% 6.0% 3.0%Stocks Drugs (Pfizer),

Retail (Wal-Mart),Insurance (Aetna Life),

Health Products (Johnson & Johnson),Utilities (RWE)

Writing of 2.0% 2.0%Call andPut Options 2

Expected return of value oriented equity portfolio 13.0%

Expected risk of value oriented equity portfolio 5.9%

Expected sharpe ratio1 of value oriented equity portfolio 1.4

Cyclical 30.0% Automobiles (Daimler-Chrysler), 12.0% 7.0% 3.6% 2.1%Stocks Banking (City Corp.),

Machinery (GE), Paper (International Paper),

Basic Materials (Alcoa, Holcin),Energy (Exxon)


15

Growth 20.0% Computer Hardware (IBM), 14.0% 8.0% 2.8% 1.6%Stocks Biotech (Amgen),

Media (AOL), Financial Services (Merrill Lynch),

Software (Microsoft), Telecoms (Vodafone)

Growth Oriented Equity Portfolio

Sectors Weight Industries Expected Expected Return Risk(Company Example) Return Volatility Contribution Contribution


Defensive 50.0% Food (Nestle), 10.0% 5.0% 5.0% 2.5%Stocks Drugs (Pfizer),

Retail (Wal-Mart),Insurance (Aetna Life),

Health Products (Johnson & Johnson),Utilities (RWE)

Writing of 2.0% 2.0%Call andPutOptions 2

Expected return of growth oriented equity portfolio 13.4%

Expected risk of growth oriented equity portfolio 6.2%

Expected sharpe ratio1 of growth oriented equity portfolio 1.4

Cyclical 30.0% Automobiles (Daimler-Chrysler), 12.0% 7.0% 3.6% 2.1%Stocks Banking (City Corp.),

Machinery (GE), Paper (International Paper),

Basic Materials (Alcoa, Holcin),Energy (Exxon)

2 Where market conditions allow, we write put options instead of direct purchase of a stock at limited price and we write call options instead of direct sale of a stock in the portfolio at limited price.By collecting premiums the overall return of the portfolio can be increased.

1 Risk free rate = 4.5%

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ALTERNATIVE INVESTMENTSThe market environment which became very difficult since the burst of the technology bubble at the beginning of 2000 offers greatpotential to the alternative investments. The capital markets of the last couple of months and years can be characterized by thefollowing observations:

– Stocks are more risky as the volatility has remarkably increased.– Stocks may have low or negative performance over a longer period of time.– The correlation between the major stock markets became very high with the consequence that the diversification benefits in

equity portfolios have substantially diminished.

There is now the consensus opinion in the financial industry that specific alternative investments are an efficient solution to mitigateand overcome above capital market problems. Among the alternative investments, there is a great variety and heterogenity.

In our portfolio management we focus on market neutral strategies which are designed

– to generate pure alpha (returns independent on direction of underlying markets zero-beta),– to capitalize on mispricings and inefficiencies in global capital markets and– to generate high and consistent returns with low correlation to traditional asset classes.

Numerous academic studies have shown that the inclusion of alternative investments in general and market neutral hedge funds inparticular in a traditional portfolio greatly contributes to the optimization of the portfolio; it increases the overall return and reduces theoverall risk of the portfolio by moving upwards the efficient frontier.

Moving-up of the Efficient Frontier of Investor’s Portfolio by Adding Alternative Investments

Investor’s return/risk profile

AlternativeInvestments

Risk

Ret

urn

Money MarketBonds Europe

Bonds USA

Stocks Japan

Stocks Europe

Stocks USA

Low HighMarket Exposure

Hedge Investment Strategies

Relative-ValueNon-Directional

ConvertibleArbitrage

WarrantArbitrage

Fixed-IncomeArbitrage

Equity MarketNeutral

StatisticalArbitrage

Merger Arbitrage(Risk Arbitrage)

DistressedSecurities

Macro

Short Sellers(Short only Funds)

EmergingMarkets

Long/ShortEquity

CommodityTrading Advisors

Event-Driven OpportunisticDirectional

Classification of the Hedge Investment Strategies

(Criterion: Exposure to general market)


17

18


ConvertibleArbitrage

WarrantArbitrage

Fixed-IncomeArbitrage

Equity MarketNeutral

StatisticalArbitrage

Mean Reversion

Momentum

Multi-FactorModels

Relative-ValueNon-Directional

Relying and capitalizing on mispricings of two or more interrelated instruments. Thesestrategies have low or no correlation to the underlying markets; they are therefore alsocalled “market neutral” or “non-dirctional”.

E.g. long underpriced convertible bonds and short the underlying stocks; long under-priced convertibles and short overpriced convertibles of the same underlying stocks.

E.g. long underpriced warrants and short the underlying stocks; long underpriced warrants and short overpriced warrants of the same underlying stocks.

Capitalizing on pricing anomalies within and across global fixed-income markets andtheir derivatives. Example: Buying underpriced fixed-income instruments and sellingshort expensive securities.

Exploiting equity market inefficiencies by being involved simultaneously in long and shortmatched equity positions. One of the greatest advantages is the doubling of the alpha.

Most of these strategies are proprietary quantitative styles that are developed using sophisticated mathematical and statistical tools to identify non-random price behavior.Statistical arbitrage can be broadly characterized into three sub-styles: 1) MeanReversion, 2) Momentum and 3) Multi-Factor Models. In most cases these strategiestrade large liquid equities, maintain equally balanced long/short market exposure andcapitalize on the statistically proved price distortions.

Mean Reversion Strategies exploit a tendency between two assets with a quantifiablesympathetic price relationship. For example, lets take a pair of automobile stocks such as GM and Ford. A mean reversion statistical arbitrage program will have defined amean price and a probability distribution for the price difference between the two stocksover a specific time horizon. When the price differential between GM and Ford spreads a standard deviation measurement from the mean within this specific time horizon, thecomputer sells one stock and buys the other, expecting the price differential to revertback to the mean.

Sophisticated mathematical formulas measure the momentum (speed) of marketmovement and seek to exploit differences in the structures of individual sectormomentums.

Multiple fundamental factors drive this strategy that seeks to exploit relative values between equities based on these factors.The holding time in this strategy is substantiallylonger than the one of the short-term Mean Reversion and Momentum Strategy.

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Event-Driven

Merger Arbitrage(Risk Arbitrage)

DistressedSecurities

This strategy class focuses on identifying and analyzing securities that can benefit fromthe occurence of extraordinary transactions and events. It has a variable, rather lowdegree of market exposure.

Investing in securities of companies which are or may be the subject of publicly announcedmergers or acquisitions, in anticipation of earning the spread between prevailing marketprices and the prices of the value of the securities or cash to be received uponconsumption of the particular corporate event or transaction. This strategy intends tobuy the target company’s shares and simultaneously sell short the proper ratio of theacquiring company’s shares. An example is the acquisition proposal of GE for Honeywellannounced in spring 2001.

Taking long and, to some extent, short positions in equities and debts of companieswhich are in financial distress, in a bankruptcy procedure or in a major reorganization.

Macro

Short Sellers(Short only Funds)

EmergingMarkets

Long/ShortEquity

CommodityTrading Advisors

This strategy class has a variable, rather high degree of market exposure. It capitalizeson an identified expected price trend on a specific market.

This strategy employs an opportunistic top-down approach to invest in a leveraged baseacross multiple sectors, markets and instruments. The investment process is based onmacro-economic analyses and forecasts of shifts in global interest rates, currencymarkets, equity markets and policy changes. Example: Soros‘ Quantum Fund

Profitable in a bearish market environment. Short sellers borrow stocks and sell them onthe market with the intention of buying them back at a lower price; the portfolio holdsusually only short positions.

Taking long and short positions of equity and/or debt and derivative products in emergingmarkets.

Long/Short strategies combine both long as well as short equity positions. A long/shortequity manager can add value by buying winners and selling losers in one and the sameindustrial sector. The long and short positions are usually not balanced.

Market specialists buying and selling index, interest, currency or commodity futures andthe respective options in order to capitalize on the expected market trends.

OpportunisticDirectional

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Value Oriented Alternative Investments Portfolio

Strategies Weight Expected Expected Sharpe Return RiskReturn Volatility Ratio Contribution Contribution


Fixed-Income Arbitrage 30.0% 12.0% 4.0% 1.9 3.6% 1.2%

Expected return of value oriented alternative investments portfolio 13.4%

Expected sharpe ratio1 of value oriented alternative investments portfolio 1.5

Convertible Arbitrage 20.0% 14.0% 5.6% 1.7 2.8% 1.1%

Merger Arbitrage 10.0% 10.0% 3.7% 1.5 1.0% 0.4%

Warrant Arbitrage 10.0% 15.0% 6.0% 1.8 1.5% 0.6%

Long/Short Global Equities 10.0% 15.0% 8.0% 1.3 1.5% 0.8%

Statistical Arbitrage 20.0% 15.0% 10.0% 1.1 3.0% 2.0%


Expected risk of value oriented alternative investments portfolio 6.1%


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Growth Oriented Alternative Investments Portfolio

Strategies Weight Expected Expected Sharpe Return RiskReturn Volatility Ratio Contribution Contribution


Fixed-Income Arbitrage 10.0% 12.0% 4.0% 1.9 1.2% 0.4%

Expected return of growth oriented alternative investments portfolio 13.9%

Expected risk of growth oriented alternative investments portfolio 6.9%

Expected sharpe ratio1 of growth oriented alternative investments portfolio 1.4

Convertible Arbitrage 30.0% 14.0% 5.6% 1.7 4.2% 1.7%

Merger Arbitrage 10.0% 10.0% 3.7% 1.5 1.0% 0.4%

Warrant Arbitrage 10.0% 15.0% 6.0% 1.8 1.5% 0.6%

Long/Short Global Equities 10.0% 15.0% 8.0% 1.3 1.5% 0.8%

Statistical Arbitrage 30.0% 15.0% 10.0% 1.1 4.5% 3.0%

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Growth OrientedAlternative Investments

Portfolio

Value Oriented Investment Portfolio

Value OrientedAlternative Investments

Portfolio

Growth OrientedInvestment Portfolio

Growth Oriented Bond Portfolio

Value OrientedBond Portfolio

Value Oriented Equity Portfolio

Growth Oriented Equity Portfolio

ORBITEX INVESTMENT PORTFOLIO

(Investment Portfolios for 100 Million USD)

Proposed Structure

The portfolios of each asset class are - comparable to modules - combined to two different investment portfolios:

➩ Value Oriented Investment Portfolio, designed for more conservative investors and➩ Growth Oriented Investment Portfolio, designed for investors willing to take a higher but controllable risk.

The two investment portfolios - designed for two typical client profiles - are the consolidation of the respective model portfolios foreach asset class. If the client requests - in accordance with his risk profile, personal wishes and needs - modifications of the differentasset class portfolios respectively of the final portfolio, ORBITEX can easily comply with these requests by changing the contents andweights in the asset class portfolios and by changing the weights of the different asset classes in the final portfolio. Such modifications,of course, result in modified risk/return profiles and in different performance figures. To conclude, ORBITEX is in a position, if needed,to create for each client a tailor-made portfolio.

23

Investment Portfolio

VALUE ORIENTED

INVESTMENT PORTFOLIO

Asset Classes Investment Weight Expected Expected Return RiskGroup Return Volatility Contribution Contribution


Cash / Money Treasury Bills 5.0% 1.0% 0.0% 0.1% 0.0%Market Instruments Time Deposits

Expected return of value oriented investment portfolio 8.5%

Expected risk of value oriented investment portfolio 3.1%

Expected sharpe ratio1 of value oriented investment portfolio 1.3

Fixed-Income (See Page 12) 50.0% Securities

Government 30.0% 4.5% 0.5% 1.4% 0.2%Bonds

Corporate 20.0% 5.5% 1.0% 1.1% 0.2%Bonds

Equities Value Oriented 30.0% 13.0% 5.9% 3.9% 1.8%(See Page 14)

Alternative Value Oriented 15.0% 13.4% 6.1% 2.0% 0.9%Investments (See Page 20)


24

Investment Portfolio

GROWTH ORIENTED

INVESTMENT PORTFOLIO

Asset Classes Investment Weight Expected Expected Return RiskGroup Return Volatility Contribution Contribution


Cash / Money Treasury Bills 1.0% 1.0% 0.0% 0.0% 0.0%Market Instruments Time Deposits

Expected return of growth oriented investment portfolio 10.6%

Expected risk of growth oriented investment portfolio 4.7%

Expected sharpe ratio1 of growth oriented investment portfolio 1.3

Fixed-Income (See Page 12) 39.0% Securities

Government 19.0% 4.5% 0.5% 0.9% 0.1%Bonds

Corporate 15.0% 5.5% 1.0% 0.8% 0.2%Bonds

Equities Growth Oriented 40.0% 13.4% 6.2% 5.4% 2.5%(See Page 15)

Alternative Growth Oriented 20.0% 13.9% 6.9% 2.8% 1.4%Investments (See Page 21)

High -Yield 5.0% 13.0% 10.0% 0.7% 0.5%Bonds


25

PERFORMANCE

ANALYSIS

VALUE ORIENTED INVESTMENT PORTFOLIO

GROWTH ORIENTED INVESTMENT PORTFOLIO

Asset Classes Performance Figures

Expected Return of Value Oriented Investment Portfolio 8.5%

Expected Risk1 of ValueOriented Investment Portfolio 3.1%

Expected Sharpe Ratio2 of ValueOriented Investment Portfolio 1.3

Asset Classes Performance Figures

Expected Return of Growth Oriented Investment Portfolio 10.6%

Expected Risk1 of GrowthOriented Investment Portfolio 4.7%

Expected Sharpe Ratio2 of Growth Oriented Investment Portfolio 1.3

1 The formula for Risk (Standard Deviation) is 2 The formula for Sharpe Ratio is

µannual - Rf

Sharpe Ratio = δannual

xi = Monthly Returns µannual = Annualized Average Returni = Monthly Interval δannual = Logged Annual Risk (Standard Deviation) n = Number of Fund Returns Rf = Risk Free Rate

n n 2n Σ x2i - Σ xii=1 i=1

δ =n(n-1)

[ ]


15%

Cash / MoneyMarket Instruments

5%

Fixed-IncomeSecurities

50%Equities

30%


20%

Cash / MoneyMarket Instruments

1%

Equities40%

Fixed-IncomeSecurities

39%

26

GLOSSARY

Active Premium A measure of the investment‘s annualized return minus the benchmark‘s annualized return.

Alpha A measure of value added generated independent on the direction and move of the underlyingbenchmark. It is calculated by taking the total return of a fund minus beta times the return of the benchmark. It is based on monthly values.

Beta A relative measure of the sensitivity of an investment‘s return to changes in the benchmark‘s return.The beta (or slope) between two funds is the amount the first fund moves when the other moves byone. For example, if one fund always goes up and down by exactly half of the performance of the in-dex, it‘s beta will be 0.50. The index goes up 1.00 it goes up 0.50 etc. In other words the beta represents the volatility of the first investment versus the second.

Capture Ratio (Down) The down capture ratio is a measure of the investment‘s compounded return when the benchmarkwas down divided by the benchmark‘s compounded return when the benchmark was down.

Capture Ratio (Up) The up capture ratio is a measure of the investment‘s compounded return when the benchmark wasup divided by the benchmark‘s compounded return when the benchmark was up.

Correlation Correlation expresses the strength of the relationship between the distribution of returns of the fundand its benchmark. The coefficient of correlation is always between +1.00 and –1.00. A perfect correlation is when the investment behaves in exactly the same manner. A perfect positive correlationis represented by +1.00, a perfect negative correlation is represented by –1.00. A correlation of morethan 0.70 indicates a strong relationship, between 0.40 and 0.69 a modest relationship. If the correlation is below 0.30 there is effectively no correlation.

Deviation (Downside) Downside deviation is similar to the loss standard deviation except the downside deviation considersonly returns that fall below a defined minimum acceptable return (MAR) rather then the arithmeticmean. For example, if the MAR is assumed to be 10%, the downside deviation would measure thevariation of each period that falls below 10%.

Deviation (Standard) The standard deviation is the measure of the square root of the variance of data (lognormal or arith-metic) points from the mean. We recommend the use of the lognormal measure as this takes into account that 10% up is not the same as 10% down.The larger the figure the higher the volatility of afund and thus its risk. To annualize the result we multiply by the square root of 12.

Deviation (Standard, Gain) Similar to standard deviation, except this statistic calculates an average (mean) return only for theperiods with a gain and then measures the variation of only the gain periods around this gain mean.This statistic measures the volatility of upside performance.

Deviation (Standard, Loss) Similar to standard deviation, except this statistic calculates an average (mean) return only for theperiods with a loss and then measures the variation of only the losing periods around this loss mean.This statistic measures the volatility of downside performance.

Information Ratio The informatio ratio is the active premium divided by the tracking error. This measure explicitly relatesthe degree by which an investment has beaten the benchmark to the consistency by which the ininvestment has beaten the benchmark.

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Jensen Alpha Quantifies the extent to which an investment has added value relative to a benchmark. Equal to theinvestment‘s average return in excess of the risk free rate minus beta times the benchmark‘s averagereturn in excess of the risk free rate.

Maximum Drawdown This is the largest percentage drawdown that has occured in any investment data record.

Number Ratio (Down) The down number ratio is a measure of the number of periods that the investment was down whenthe benchmark was down, divided by the number of periods that the benchmark was down.

Number Ratio (Up) The up number ratio is a measure of the number of periods that the investment was up when thebenchmark was up, divided by the number of periods that the benchmark was up.

Percent Gain Ratio A measure of the number of periods that the investment was up divided by the number of periodsthat the benchmark was up.

Percentage Ratio (Down) The down percentage ratio is a measure of the number of periods that the investment outperformedthe benchmark when the benchmark was down, divided by the number of periods that the bench-mark was down.

Percentage Ratio (Up) The up percentage ratio is a measure of the number of periods that the investment outperformed the benchmark when the benchmark was up, divided bythe number of periods that the benchmark wasup.

Sharpe Ratio A return/risk measure. Return (numerator) is defined as the incremental average return of an invest-ment over the risk free rate. Risk (denominator) is defined as the standard deviation of the invest-ment returns.

Sortino Ratio This is a return/risk ratio. Return (numerator) is defined as the incremental compounded average pe-riod return over a minimum acceptable return (MAR). Risk (denominator) is defined as the downsidedeviation below a MAR.

Tracking Error (Annualized) A measure of the unexplained portion of an investment‘s performance relative to a benchmark. An-nualized tracking error is measured by taking the square root of the average of the squared de- viations between the investment‘s returns and the benchmark‘s returns and then multiplying the result by the square root of 12.

Treynor Ratio The treynor ratio is similar to the sharpe ratio, except that it uses beta as the volatility measurement.Return (numerator) is defined as the incremental average return of an investment over the risk free rate. Risk (denominator) is defined as the beta of the investment‘s returns relative to a benchmark.

Value Added Index The value added monthly index (VAMI) reflects the growth of a hypothetical USD 1‘000 in a giveninvestment over time. The index is equal to USD 1‘000 at inception. Subsequent month-end valuesare calculated by multiplying the previous month‘s VAMI index by 1 plus the current month‘s rate ofreturn.

Volatility (Annualized) Volatility is an estimate of the risk of an investment and is measured by the lognormal annualizedstandard deviation of a fund. Standard deviation is the measure of the square root of the variance of returns from the average return. We use the lognormal measure as this takes into account that10% up is not the same as 10% down. Thus the standard deviation uses logarithmic data ratherthan monthly percentage returns. The larger the figure the higher the volatility of a fund and thus itsrisk.To annualize the monthly volatility, we multiply the square root of 12.

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