As Filed With The Securities And Exchange Commission On February 28, 1996
Registration No. 2-19659
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. __ ( )
Post-Effective Amendment No. 62 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 37 (X)
ASTRA STRATEGIC INVESTMENT SERIES
(formerly Pilgrim Strategic Investment Series)
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Exact Name of Registrant as Specified in Charter)
750 B Street, Suite 2350, San Diego, California 92101
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(Address of Principal Executive Offices) (Zip Code)
(800) 219-1080
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(Registrant's Telephone Number, Including Area Code)
Palomba Weingarten
Atlas Holdings Group, Inc.
9595 Wilshire Boulevard
Suite 1001
Beverly Hills, California 90212
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(Name and Address of Agent for Service of Process)
Copies to:
James F. Jorden, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b) of Rule 485
__ on (date) pursuant to paragraph (b)(1)(v) of Rule 485
__ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
__ on (date) pursuant to paragraph (a)(1) of Rule 485
__ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
__ on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has elected to maintain an indefinite registration of its shares of
beneficial interest (without par value) of each of its currently existing series
under Rule 24f-2. Pursuant to paragraph (b)(1) of Rule 24f-2,. Registrant filed
its Rule 24f-2 Notice for its fiscal year ended October 31, 1995 on December 27,
1995.
This Registration Statement has also been signed by Astra Institutional
Securities Trust.
<PAGE>
ASTRA STRATEGIC INVESTMENT SERIES
CONTENTS OF REGISTRATION STATEMENT
This post-effective amendment shall not supercede or effect this Registration
Statement as it applies to Astra Adjustable Rate Securities Trusts (formerly
Pilgrim Adjustable Rate Securities Trusts) I, I-A, II and IV.
This Registration Statement consists of the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Cross Reference Sheet
o Part A - Astra Adjustable U.S. Government Securities Trust I prospectus
Astra Adjustable U.S. Government Securities Trust I-A and II
prospectus
Astra Adjustable U.S. Government Securities Trust IV prospectus
o Part B - Statements of Additional Information for:
Astra Adjustable U.S.
Government Securities Trust I
Astra Adjustable U.S. Government Securities Trusts I-A and II
Astra Adjustable U.S. Government Securities Trust IV
o Part C - Other Information
o Signature Pages
o Exhibits
<PAGE>
ASTRA STRATEGIC INVESTMENT SERIES
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
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<CAPTION>
N-1A Location in
Item No. Registration Statement
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Part A: Information Required In Prospectus
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Key Features
3. Condensed Financial Information Financial Highlights
4. General Description The Trust's Investment Objective;
of Registrant The Astra Group; General Information
5. Management of the Fund The Astra Group; Management Fees;
Administrative Fees; Distribution Plans
6. Capital Stock and Other General Information
Securities
7. Purchase of Securities How to Buy Shares of the Trust;
Being Offered Shareholder Services and Privileges
8. Redemption or Repurchase How to Redeem Shares of the Trust
9. Pending Legal Proceedings Not Applicable
Part B: Information Required In
Statement of Additional Information
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies Investment Objective and Policies;
Investment Restrictions
14. Management of the Registrant Trustees and Officers; Management of
the Trust and the Portfolio
15. Control Persons and Principal Trustees and Officers; Management of
Holders of Securities the Trust and Portfolio
</TABLE>
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<TABLE>
<CAPTION>
N-1A Location in
Item No. Registration Statement
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Part B: Information Required In
Statement of Additional Information
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<S> <C> <C>
16. Investment Advisory and Management of the Trust and the
Other Services Portfolio; General Information
17. Brokerage Allocation Execution of Portfolio Transactions
18. Capital Stock and Other General Information
Securities
19. Purchase, Redemption and Additional Purchase and Redemption
Pricing of Securities Being Information; Price of the Shares is
Offered Determined Daily; Shareholder Services and Privileges
20. Tax Status Federal Tax Treatment of
Dividends and Distributions
21. Underwriters General Information
22. Calculation of Performance Data Investment Return Information
23. Financial Statements Not Applicable
Part C: Other Information
--------------------------
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled by or Under Persons Controlled by or Under
Common Control Common Control
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other Connections of
of Investment Adviser Investment Adviser
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
</TABLE>
<PAGE>
PART A
<PAGE>
[LOGO] Prospectus
Astra Adjustable U.S. Government Securities Trust I
750 B Street, Suite 2350, San Diego, California 92101 o 1-800-219-1080
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o How the Trust Works Page 6
o Shareholder's Guide Page 21
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Astra Adjustable U.S. Government Securities Trust I (the "Trust") is a
non-diversified series of Astra Strategic Investment Series ("ASIS"), an
open-end management investment company (mutual fund). The investment objective
of the Trust is to seek high current income consistent with low volatility of
principal. THE TRUST, UNLIKE MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY
ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, SEEKS TO ACHIEVE THIS
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN ASTRA INSTITUTIONAL
ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO (THE "PORTFOLIO"), AN OPEN-END
MANAGEMENT INVESTMENT COMPANY WHICH IS A NON-DIVERSIFIED SERIES OF ASTRA
INSTITUTIONAL SECURITIES TRUST ("AIST") WITH THE SAME INVESTMENT OBJECTIVE AS
THE TRUST. AS A RESULT, THE INVESTMENT EXPERIENCE OF THE TRUST WILL CORRESPOND
DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIOS. ACCORDINGLY,
INVESTORS SHOULD CAREFULLY CONSIDER THIS UNIQUE INVESTMENT APPROACH. FOR
ADDITIONAL INFORMATION REGARDING THIS CONCEPT, SEE "HOW THE TRUST WORKS--SPECIAL
INFORMATION REGARDING THE TRUST'S STRUCTURE." The Portfolio seeks to achieve its
investment objective by investing at least 65% of its assets in adjustable rate
mortgage securities which are issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Mortgage Securities"). The
Portfolio invests the remainder of its assets generally in mortgage securities
issued or sponsored by commercial banks, savings and loan associations, mortgage
bankers or other financial institutions, that have no government guarantee and
that are senior or subordinated to other mortgage securities arising out of the
same pool of mortgages ("Multi-Class Residential Mortgage Securities"). The
portion of assets invested in Subordinated Residential Mortgage Securities may
entail greater risk than the portion invested in senior Mortgage Securities or
U.S. Government Mortgage Securities.
The Trust believes that by Investing in the Portfolio which invests primarily in
mortgage securities which have variable rates of interest, it will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. In addition, by selectively investing a portion of its assets in
Multi-Class Residential Mortgage Securities, the Portfolio will seek to achieve
a higher yield than that of traditional mutual funds which invest primarily or
exclusively in U.S. Government Mortgage Securities. There can, of course, be no
assurance that the Trust's objective will be attained.
The Trust offers shares that may be purchased only through the exchange of
shares of Astra Adjustable Rate Securities Trust I and Astra Short-Term
Multi-Market Income Fund II, the transfer of dividends from other Astra Group
Funds or the reinstatement of Shares of the Trust previously redeemed as
outlined below under "Reinstatement Privilege" at a price equal to their net
asset value per share and imposes a contingent deferred sales charge which will
be assessed on most redemptions made within four years of purchase. The Trust
incurs, subject to certain limitations, an annual distribution fee of 1.00% of
its average daily net assets.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY.
This Prospectus must be delivered to the investor prior to consummation of sale.
This Prospectus sets forth concisely information about the Trust that
prospective investors should know before investing. It should be retained for
future reference. A Statement of Additional Information relating to the Trust,
dated February 28, 1996, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement is available
without charge upon request to the Trust at the address or telephone number
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1996
<PAGE>
TABLE OF CONTENTS
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PAGE
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Key Features 2
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Special Information Regarding the Trust's Structure 6
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The Trust's Investment Objective 7
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Distributions and Taxes 20
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How to Buy Shares of the Trust 21
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How to Redeem Shares of the Trust 22
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Shareholder Services and Privileges 24
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Expedited Redemption and Telephone Exchange Information 25
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How the Trust Values Its Shares 26
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The Astra Group 27
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Portfolio Management 28
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Management Fees 28
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Administrative Fees 28
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Distribution Plan 29
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General Information 31
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Additional Account Privileges 33
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KEY FEATURES
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WHAT IS THE TRUST'S INVESTMENT OBJECTIVE?
The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. See "The Trust's Investment
Objective" for a discussion of current adverse market conditions and the effect
of redemption requests on yield.
The Trust seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio which has the same investment objective as
that of the Trust. Since the investment characteristics of the Trust will
correspond to those of the Portfolio, this Prospectus discusses the various
investments of and techniques employed by the Portfolio.
LESS FLUCTUATION IN NET ASSET VALUE
At least 65% of the Portfolio's assets are invested in adjustable rate mortgage
securities ("ARMS") representing an interest in mortgages, which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities"). The adjustable rate feature of the underlying
mortgages to these instruments generally will act as a buffer to reduce sharp
changes in the Portfolio's net asset value in response to normal interest rate
fluctuations. The Portfolio expects that the adjustable rate feature of the U.S.
Government Mortgage Securities will help the Portfolio achieve lower volatility
of principal than a long-term bond fund whose portfolio instruments have a fixed
rate of interest. The Portfolio only invests in those mortgage securities with
underlying mortgages representing first liens on the properties securing such
mortgages. See "U.S. Government Mortgage Securities," "Adjustable Rate Mortgage
Securities" and "Illiquid Securities."
The performance of the Trust has been negatively affected by adverse conditions
in the market for ARM securities. Because of rising interest rates and declining
bond prices, combined with negative publicity on the
2
<PAGE>
mortgage securities market and the higher than expected price volatility
experienced with many derivative mortgage-backed securities, mortgage funds
industry-wide have experienced heavy redemptions. As a result, many ARM funds
have been forced to liquidate ARM securities in order to meet redemption
requests. This has resulted in an increased supply of ARM securities in the
market, bringing about wider spreads over the relevant indices and reduced
prices. Moreover, adverse market conditions have resulted in a decrease in the
value of certain ARM securities of the type in which the Trust has invested.
Further fluctuations in net asset value may occur as a result of such factors as
deteriorating or improving market conditions and liquidity and credit experience
of portfolio securities. See "Illiquid Securities."
HIGH CURRENT INCOME
The remainder of the Portfolio's assets are invested in residential mortgage
securities collateralized by pools of single family, multi-family and mobile
home park residential mortgages issued or sponsored by financial institutions
such as commercial banks, savings and loan associations and mortgage bankers,
that have no government guarantee and that are senior or subordinated to other
mortgage securities arising out of the same pool of mortgages ("Multi-Class
Residential Mortgage Securities"). A substantial portion of the Portfolio's
investment in Multi-Class Residential Mortgage Securities is expected to be
Multi-Class Residential Mortgage Securities that are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
securities ("Subordinated Residential Mortgage Securities"). By investing in
Subordinated Residential Mortgage Securities, the Portfolio seeks to increase
yield to shareholders. The Portfolio seeks to limit the risks presented by such
instruments by reviewing and analyzing the characteristics of the mortgage loans
underlying the Subordinated Residential Mortgage Securities that it may acquire.
The Portfolio purchases Subordinated Residential Mortgage Securities when, in
the view of the Portfolio's investment manager, Astra Management Corporation
("AMC" or the "Manager"), the potential for a higher marginal yield on such
instruments outweighs any additional risk presented by the instruments. See
"Multi-Class Residential Mortgage Securities."
The Trust has experienced a significant increase in the rate of redemptions. As
a result, the Portfolio has increasingly been managed to provide adequate cash
reserves to satisfy redemption requests, resulting in a decreased ability to
seek high current income with low volatility of principal, which is the Trust's
fundamental investment objective. Investing a larger percentage of portfolio
assets in cash and short-term instruments results in lower yields than those
typically received on investments in mortgage securities. See "Illiquid
Securities."
HOW DO I BUY AND SELL (REDEEM) MY SHARES OF THE TRUST?
Shares of the Trust are available through the Exchange Privilege, through the
transfer of dividends or through the reinstatement of shares of the Trust
previously redeemed at the net asset value per share. The minimum initial
investment is $5,000 ($2,000 for IRAs). Shares of the Trust are redeemable at
the net asset value per share on any business day, reduced by the amount of any
applicable contingent deferred sales charge. Payments to you can be made either
through brokers, directly to you, or to your designated bank. In addition, for
the convenience of shareholders, the Trust provides certain shareholder services
and privileges which may be suited to your particular investment needs. See
"Shareholder's Guide."
WHEN DO I RECEIVE INCOME?
You may elect to receive monthly dividends from net investment income in cash or
have them reinvested in additional shares at net asset value. See "Choosing a
Distribution Option."
3
<PAGE>
WHO IS ASTRA GROUP?
Astra Management Corporation ("AMC"), the Portfolio's investment manager, and
Astra Fund Distributors Corp. (the "Distributor"), the Trusts' principal
underwriter, are part of Atlas Holdings Group, Inc. ("Atlas Group"), a financial
services holding company that provides financial services to mutual funds. Atlas
Group has total combined assets under management of approximately $200 million.
AMC and the Distributor are part of the umbrella name "Astra Group."
FEE TABLE
The following fee table is provided to assist investors in understanding the
various costs and expenses which may be borne directly or indirectly by an
investment in the Trust (including costs and expenses charged by both the Trust
and the Portfolio). The percentages shown below expressing Annual Trust
Operating Expenses are based on actual amounts incurred by the Trust for the
fiscal year ended October 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................................. NONE
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) ................................. NONE
Deferred Sales Charge
1st year ............................................................ 4%
2nd year ............................................................ 3%
3rd year ............................................................ 2%
4th year ............................................................ 1%
5th year and thereafter ............................................. 0%
Redemption Fees ...................................................... NONE
ANNUAL TRUST OPERATING EXPENSES
(As a Percentage of Average Net Assets)
Management Fees (See "Management Fees")* ........................... 0.55%
12b-1 Fees (See "Distribution Plan")** ............................. 1.00%
Administration Fees (See "Administration Fees")* ................... 0.10%
Other Expenses ...................................................... 0.76%
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Total Trust Operating Expenses*** ................................... 2.41%
====
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* AMC, the Portfolio's investment manager and Atlas Group, the Trust's
administrator, have agreed to reduce respective management and/or
administrative fees to the extent necessary to ensure that the total
operating expenses of the Trust and the Portfolio are not higher than what
the Trust's total operating expenses would have been under the terms of
AMC's prior management agreement with the Trust.
** As a result of 12b-1 fees, a long-term shareholder in the Trust may pay
more than the economic equivalent of the maximum sales charge permitted by
the Rules of the National Association of Securities Dealers, Inc. The
Distribution Plan for the Trust provides for, among other things, the
payment of interest at a specified rate on the balance of unreimbursed
distribution expenses. Please see "Distribution Plan" at page 29.
*** More complete descriptions of the following expenses are set forth on the
following pages: (i) Management Fees--page 28, (ii) 12b-1 Fees--pages 29-31
and (iii) Administrative Fees--page 28.
4
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EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and redemption
at the end of each time period, an investor in the Trust would have paid
transaction and operating expenses at the end of each year as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$65 $95 $129 $276
You would pay the following expenses on the same investment assuming no
redemption.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$25 $75 $129 $276
This Example should not be considered as representative of past or future
expenses and actual expenses may be greater or less than those shown. The
foregoing table has not been audited by Tait, Weller & Baker, the Trust's
independent certified public accountants.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights relating to the Trust have been audited by
Tait, Weller & Baker, independent certified public accountants, whose report
thereon appears in the Trust's Annual Report to Shareholders for the fiscal year
ended October 31, 1995 and is incorporated by reference in this Prospectus. A
copy of the Trust's Annual Report to Shareholders may be obtained without charge
by contacting the Trust's Shareholder Servicing Agent at (800) 441-7267.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, FEBRUARY 21, 1991*
------------------------------------------------ to
1995 1994 1993 1992 OCTOBER 31, 1991
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ............. $ 6.370 $ 7.150 $ 7.290 $ 7.370 $ 7.350
------- -------- -------- -------- --------
Income (loss) from investment operations--
Net investment income ........................... 0.246(c) 0.270 0.364 0.850 0.400
Net realized and unrealized gain (loss)
on investments ................................. (0.745)(c) (0.715) (0.055) 0.007 0.030
------- -------- -------- -------- --------
Total from investment operations .............. (0.499) (0.445) 0.309 0.857 0.430
------- -------- -------- -------- --------
LESS DISTRIBUTIONS--
Distributions from net investment income ........ 0.254 0.321 0.418 0.850 0.400
Distributions from paid-in capital .............. 0.037 0.014 0.031 0.087 0.010
------- -------- -------- -------- --------
Total distributions ........................... 0.291 0.335 0.449 0.937 0.410
------- -------- -------- -------- --------
Net asset value, end of period ................... $ 5.580 $ 6.370 $ 7.150 $ 7.290 $ 7.370
======= ======== ======== ======== ========
TOTAL RETURN (d) ................................. (8.28)% (6.43)% 4.34% 6.55% 8.79%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ......... $94,914 $309,385 $675,810 $783,527 $385,195
Ratio to average net assets--
Expenses ........................................ 1.55%(b) 1.22%(b) 1.29%(b) 1.32%(b) 1.88%(a)
Net investment income ........................... 4.28% 3.92% 4.91% 6.57% 7.43%(a)
Portfolio turnover rate .......................... 3% 3% 3% 8% 107%
</TABLE>
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* Commencement of operations.
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust I.
(c) Based upon average shares outstanding throughout the period.
(d) Calculated without the deduction of sales charges.
Further information about the Trust's performance is contained in the Trust's
Annual Report to Shareholders for the fiscal year ended October 31, 1995, which
may be obtained by shareholders without charge.
5
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HOW THE TRUST WORKS
SPECIAL INFORMATION REGARDING THE TRUST'S STRUCTURE
- ------------------
The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. The Trust's investment objective is
fundamental and may not be changed without shareholder approval. The Trust
pursues its investment objective by investing all of its investable assets in
the Portfolio, which has the same investment objective as that of the Trust.
Since the investment characteristics of the Portfolio correspond to those of the
Trust, the following includes discussion of the various investments of and
techniques employed by the Portfolio. The Trust may withdraw its investment in
the Portfolio at any time without shareholder approval if the Board of Trustees
of ASIS decides that it is in the best interest of the Trust to do so. Upon any
such withdrawal, the Trustees would consider what action might be taken,
including the investment of the assets of the Trust in another registered
investment company having the same investment objective as the Trust or the
retention of an investment adviser to manage the Trust's assets in accordance
with its investment objective. The investment objective of the Trust and the
Portfolio can only be changed with shareholder approval. Written notice shall be
provided to shareholders of the Trust at least thirty days prior to any changes
in the Trust's or the Portfolio's investment objective. If the objective of the
Portfolio changes and the shareholders of the Trust do not approve a parallel
change in the Trust's investment objective, the Trust would seek an alternative
investment vehicle or directly retain its own investment adviser. There can be,
of course, no assurance that the Trust's and the Portfolio's objective will be
achieved.
Investors should be aware that the Trust, unlike mutual funds which directly
acquire and manage their own portfolio of securities, seeks to achieve its
investment objective by investing all of its investable assets in the Portfolio,
which is a separate investment company, as previously described. The fundamental
and non-fundamental investment restrictions of the Trust are identical to those
of the Portfolio. The Trustees of ASIS believe that by investing all of its
investable assets in the Portfolio, the Trust expects to be in a position to
realize directly or indirectly certain economies of scale, in that a large
investment portfolio may achieve a lower ratio of operating expenses to net
assets. Since the Trust will invest only in the Portfolio, the Trust's
shareholders will acquire only an indirect interest in the investments of the
Portfolio. Historically, the Pilgrim Group Inc., Astra's predecessor, had
sponsored traditionally structured funds and, therefore, Astra has limited
experience with funds that invest all of their assets in a separate portfolio.
In addition to selling its interests to the Trust, the Portfolio may sell its
interests to other affiliated or non-affiliated investment companies and/or
other institutional investors. All institutional investors in the Portfolio will
pay a proportionate share of the Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in the Portfolio, it would not be required to
sell its shares at the same public offering price as the Trust and may charge
different sales commissions. Therefore, investors in the Trust may experience
different returns from investors in another investment company which invests
exclusively in the Portfolio. As of the date of this Prospectus, in addition to
the Trust, Astra Adjustable U.S. Government Securities Trust I-A, II and IV also
invest exclusively in the Portfolio. In addition, the Portfolio may offer
beneficial interests to other institutional investors in the future. Information
regarding these other Trusts is available by calling the Trust's Shareholder
Servicing Agent at(800) 441-7267.
Investors in the Trust should be aware that the Trust's Investment in the
Portfolio may be materially affected by the actions of large investors in the
Portfolio, if any. For example, as with all open-end investment companies, if a
large investor were to redeem its interest in the Portfolio, the Portfolio's
remaining investors could experience higher pro rata operating expenses, thereby
producing lower returns. As a result, the Portfolio's security holdings may
become less diverse, resulting in increased risk. Institutional investors in the
Portfolio that have a greater pro rata ownership interest in the Portfolio than
the Trust could have effective voting control over the operation of the
Portfolio. Certain changes in the Portfolio's fundamental objectives, policies
and restrictions could require the Trust to redeem its interest in the
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Portfolio.
6
<PAGE>
Should such a distribution occur, the Trust could incur brokerage fees or other
transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
for the Trust and could effect adversely the liquidity of the Trust.
See "Management Fees," "Administrative Fees" and "Distribution Plan" for a
complete description of the management and other expenses associated with the
Trust's investment in the Portfolio.
THE TRUST'S INVESTMENT OBJECTIVE
- ----------------
The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. The Trust pursues its investment
objective by investing in the Portfolio which has the same investment objective
as that of the Trust. The Portfolio invests at least 65% of its total assets in
adjustable rate U.S. Government Mortgage Securities. The Portfolio invests the
remainder of its assets in Multi-Class Residential Mortgage Securities.
Multi-Class Residential Mortgage Securities are issued or sponsored by
commercial banks, savings and loan associations or other financial institutions,
have no governmental guarantee and are senior or subordinated to other mortgage
securities arising out of the same pool of mortgages. The Portfolio expects that
a substantial portion of its investment in Multi-Class Residential Mortgage
Securities will be composed of Subordinated Residential Mortgage Securities. The
mortgage securities in which the Portfolio invests represent a participation in
mortgage loans secured by property consisting of single family and multi-family
residential property. The Portfolio only invests in those mortgage securities
with underlying mortgages representing first liens on the properties securing
such mortgages. There is, of course, no assurance that the Portfolio's objective
will be achieved.
DUE TO INCREASINGLY ADVERSE MARKET CONDITIONS FOR ADJUSTABLE RATE MORTGAGE
SECURITIES, INCLUDING SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES, THE
PORTFOLIO HAS EXPERIENCED A NET REDUCTION IN THE VALUES OF THE SECURITIES IT
HOLDS. ALTHOUGH THE MANAGER BELIEVES THAT UNDER NORMAL MARKET CONDITIONS THE
PORTFOLIO'S INVESTMENT OBJECTIVE CAN BE ACHIEVED, THERE CAN BE NO ASSURANCE THAT
THE ADVERSE MARKET CONDITIONS WILL NOT CONTINUE. IN ADDITION, AS THE TRUST HAS
EXPERIENCED AN INCREASE IN THE RATE OF REDEMPTIONS, CASH AND CASH EQUIVALENTS
HAVE BEEN MAINTAINED IN ORDER TO MEET SUCH REDEMPTIONS, WHICH HAS HAD THE EFFECT
OF REDUCING YIELD. THE MANAGER INTENDS TO MAINTAIN THIS POSITION UNTIL SUCH TIME
AS THE MARKET FOR ADJUSTABLE RATE MORTGAGE SECURITIES NORMALIZES AND REDEMPTION
RATES STABILIZE.
Traditionally, the mortgage securities in which most mutual funds invested were
exclusively U.S. Government Mortgage Securities representing interests in pools
of fixed rate mortgages. The Portfolio believes that by investing primarily in
mortgage securities which have variable rates of interest, it will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. Unlike fixed-rate mortgages which generally decline in value during
periods of rising interest rates, adjustable rate mortgage securities allow the
Portfolio to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and lower price fluctuations. Furthermore, if prepayments of
principal are made on the underlying mortgages during periods of rising interest
rates, the Portfolio generally is able to reinvest such amounts in securities
with a higher current rate of return. However, the Portfolio will not benefit
from increases in interest rates to the extent that interest rates rise to the
point where they cause the current coupon of adjustable rate mortgages held as
investments to exceed the maximum allowable annual or lifetime reset limits (or
"cap rates") for a particular mortgage. In this event, the value of the mortgage
securities in the Portfolio would likely decrease. Also, the Portfolio's net
asset value could vary due to market yield changes during interim periods
between coupon reset dates, which typically range from one month to five years.
Furthermore, during periods of declining interest rates, income to the Portfolio
derived from ARMS will decrease in contrast to the income on fixed rate
mortgages which will remain constant. In addition, ARMS also have less potential
for appreciation in value when interest rates decline than do fixed rate
investments which tend to increase in value as interest rates decline. See "U.S.
Government Mortgage Securities," "Characteristics of the Adjustable Rate
Mortgage Securities In Which The Portfolio Invests" and "Illiquid Securities."
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Multi-Class Residential Mortgage Securities may constitute up to 35% of the
Portfolio's assets. Unlike U.S. Government Mortgage Securities, the payment of
principal and interest on Multi-Class Residential Mortgage Securities is not
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
Accordingly, yields on Multi-Class Residential Mortgage Securities have been
historically higher than the yields on U.S. Government Mortgage Securities.
However, the risk of loss due to default on such instruments is higher since
they are not guaranteed by the U.S. Government.
The Portfolio expects that a substantial portion of its assets invested in
Multi-Class Residential Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. Subordinated Residential Mortgage Securities
are subordinated in some manner as to the payment of principal and/or interest
to the holders of more senior mortgage securities. Accordingly, losses on the
underlying mortgage loans are generally borne by the holders of Subordinated
Residential Mortgage Securities before they are borne by the holders of more
senior mortgage securities arising out of the same pool. The holders of
Subordinated Residential Mortgage Securities are therefore compensated with a
higher stated yield than are the holders of more senior Multi-Class Residential
Mortgage Securities. The return on Subordinated Residential Mortgage Securities
is decreased by any loss incurred pursuant to the terms of the Subordinated
Residential Mortgage Security.
A Multi-Class Residential Mortgage Security that is senior to a Subordinated
Residential Mortgage Security will not bear a loss resulting from the occurrence
of a default on an underlying mortgage until all credit enhancement protecting
such senior holder is exhausted. For example, the senior holder will only suffer
a credit loss after any subordinated interests have been exhausted pursuant to
the terms of the Subordinated Residential Mortgage Security. See "Multi-Class
Residential Mortgage Securities." The primary credit risk to the Portfolio by
investing in Subordinated Residential Mortgage Securities is potential losses
resulting from defaults by the borrowers under the underlying mortgages. The
Portfolio would generally realize such a loss in connection with a Subordinated
Residential Mortgage Security only if the subsequent foreclosure sale of the
property securing a mortgage loan does not produce an amount at least equal to
the sum of the unpaid principal balance of the loan as of the date the borrower
went into default, the interest that was not paid during the foreclosure period
and all foreclosure expenses. The senior Multi-Class Residential Mortgage
Securities in which the Portfolio invests are rated at least "A" by Standard &
Poor's Corporation or Moody's Investors Service. The Subordinated Residential
Mortgage Securities in which the Portfolio invests are generally unrated and the
Manager is not in the business of determining credit ratings. However, the
Manager believes that the Subordinated Residential Mortgage Securities in which
the Portfolio invests generally present credit risks similar to that of
corporate debt securities rated "BBB" or "Baa" by Standard and Poor's
Corporation or Moody's Investors Service, respectively, although it notes that
certain recently rated "BBB" mortgage securities have a loss protection somewhat
greater and a yield somewhat lower than the Subordinated Residential Mortgage
Securities in which the Portfolio typically invests.
Debt rated "BBB" by Standard & Poor's Corporation is regarded as having adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. Debt rated "Baa" by Moody's Investors Service is considered a medium
grade obligation; i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such debt lacks outstanding investment
characteristics and in fact has speculative characteristics as well.
The Manager seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans that underlie the pool of mortgages securing both the senior and
Subordinated Residential Mortgage Securities. The Manager has developed a set of
guidelines to assist in the analysis of the mortgage loans underlying
Subordinated Residential Mortgage Securities. Each
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pool purchase is reviewed against the guidelines. The Portfolio seeks
opportunities to acquire Subordinated Residential Mortgage Securities where, in
the view of the Manager, the potential for a higher yield on such instruments
outweighs any additional risk presented by the instruments. The Manager seeks to
increase yield to shareholders by taking advantage of perceived inefficiencies
in the market for Subordinated Residential Mortgage Securities.
The Trust and the Portfolio are registered as a "non-diversified" investment
company. Nevertheless, in accordance with requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, the Trust and the Portfolio may not
purchase the securities of any one issuer if, as a result of such purchase, more
than 5% of the Trust's or the Portfolio's total assets would be invested in the
securities of such issuer at the end of any fiscal quarter, except that with
respect to 50% of the Trust's or the Portfolio's total assets, the Trust or the
Portfolio may invest up to 25% of its total assets in the securities of any one
issuer. Securities of the U.S. Government and securities of other regulated
investment companies are not subject to any investment limitations. Since the
Portfolio may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the value of the Portfolio's
investments will be more affected by any single adverse economic, political or
regulatory occurrence than will a diversified investment company.
The Portfolio intends to concentrate its investments in the asset-backed
securities industry. This means that at least 25% of the Portfolio's investments
will be in companies which issue asset-backed securities, such as Multi-Class
Residential Mortgage Securities and residential mortgage loan pools. However,
due to adverse economic conditions or for defensive purposes, the Portfolio may
temporarily have less than 25% of the total value of its assets in that
industry. The Portfolio will follow this policy at all times because it is
fundamental and may not be changed without a majority vote of the Portfolio's
shares.
The Portfolio may from time to time borrow money for the purpose of
acquiring additional portfolio investments. Borrowings and the issuance of
indebtedness create an opportunity to be more fully invested and to earn greater
income per share. Any such borrowing or issuance is a speculative technique in
that it will increase the Portfolio's exposure to capital risk. See "Borrowing."
U.S. GOVERNMENT MORTGAGE SECURITIES
The largest issuers or guarantors of mortgage securities today are the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA creates mortgage securities from pools of U.S. Government-guaranteed or
insured (Federal Housing Authority or Veterans Administration) mortgages
originated by mortgage bankers, commercial banks, and savings and loan
associations. FNMA and FHLMC issue mortgage securities from pools of
conventional and federally-insured and/or guaranteed residential mortgages
obtained from various entities, including savings and loan associations, savings
banks, commercial banks, credit unions, and mortgage bankers.
The mortgage securities either issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA, FHLMC, or FNMA fees
and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA and backed by the full faith and credit
of the U.S. Government. FNMA guarantees full and timely payment of all interest
and principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage securities from FNMA and FHLMC are not backed
by the full faith and credit of the U.S. Government; however, their close
relationship with the U.S. Government makes them high quality securities with
minimal credit risks. The yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S. Government Mortgage
Securities with comparable maturities. The Portfolio intends to invest in U.S.
Government Mortgage Securities which are ARMS (see "Characteristics of the
Adjustable Rate Mortgage Securities in Which the Portfolio Invests").
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MULTI-CLASS RESIDENTIAL MORTGAGE SECURITIES
Multi-Class Residential Mortgage Securities are securities representing
interests in pools of mortgage loans to residential home buyers made by lenders
such as commercial banks, savings and loan associations and mortgage bankers.
Unlike U.S. Government Mortgage Securities, such as those issued by GNMA, the
payment of principal and interest on Multi-Class Residential Mortgage Securities
is not guaranteed by the U.S. Government or any of its agencies or
instrumentalities. The yields on Multi-Class Residential Mortgage Securities,
however, have been historically higher than the yields on U.S. Government
Mortgage Securities. The Multi-Class Residential Mortgage Securities in which
the Portfolio invests may be ARMS.
Multi-Class Residential Mortgage Securities are issued with one or more classes
subordinate in a specified manner as to the payment of principal and interest.
As a result, losses on the underlying mortgage loans are borne by the holders of
the Subordinated Residential Mortgage Securities before the holders of more
senior mortgage securities. Accordingly, the stated yield of Subordinated
Residential Mortgage Securities is greater than that of more senior Multi-Class
Residential Mortgage Securities arising out of the same pool. The return on
Subordinated Residential Mortgage Securities is, in turn, decreased by any
realized losses incurred pursuant to the terms of the Subordinated Residential
Mortgage Security. While the Portfolio invests in both senior Multi-Class
Residential Mortgage Securities and Subordinated Residential Mortgage
Securities, the Portfolio expects that at least a substantial portion of its
investment in Multi-Class Residential Mortgage Securities will be composed of
Subordinated Residential Mortgage Securities.
Multi-Class Residential Mortgage Securities represent a beneficial interest in a
pool of mortgage loans typically held by a trust. The beneficial interests are
evidenced by certificates issued pursuant to a pooling and servicing agreement.
The certificates are usually issued in multiple classes with the specific rights
of each class set forth in the pooling and servicing agreement and the offering
documents for the security. The pooling and servicing agreement is entered into
by a trustee and a party who is responsible for pooling and conveying the
mortgage assets to the trust, sometimes referred to as the depositor. Various
administrative services related to the underlying mortgage loans, such as
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts and collection of insurance claims are provided by
servicers. A master servicer, who may be the depositor or an affiliate of the
depositor, is generally responsible for supervising and enforcing the
performance by the servicers of their duties and maintaining the insurance
coverages required by the terms of the certificates. In some cases, the master
servicer acts as a servicer of all or a portion of the mortgage loans. (See the
Statement of Additional Information for further discussion of these matters.)
A type of Subordinated Residential Mortgage Security is sometimes called a
"Special Hazard Certificate." With these securities, a holder bears some or all
losses resulting from special hazard losses to the property securing the
mortgages underlying the other class or classes of Multi-Class Residential
Mortgage Securities arising out of the same pool of mortgages. Special hazard
risks may include damage to mortgage properties caused by earthquakes,
landslides, vandalism, or other risks not covered by other requisite insurance
policies.
The Portfolio seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans underlying the Subordinated Residential Mortgage Securities that
it acquires. The Portfolio invests in Subordinated Residential Mortgage
Securities when, in the judgment of the Manager, the difference in stated yield
on Subordinated Residential Mortgage Securities over that of the senior mortgage
securities exceeds the marginal risk assumed by the holders of the Subordinated
Residential Mortgage Securities. "See Risks of Subordinated Residential Mortgage
Securities."
The Portfolio seeks to purchase Multi-Class Residential Mortgage Securities with
underlying mortgage loans secured by property located in geographic regions that
present favorable economic conditions. In this regard, the Manager considers and
analyzes residential housing trends, employment information, demographic data
and other information it deems relevant in evaluating a geographic region.
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The Portfolio may invest in Multi-Class Residential Mortgage Securities that
represent an interest in mortgage pass-through securities.
CHARACTERISTICS OF THE ADJUSTABLE RATE
MORTGAGE SECURITIES IN WHICH THE PORTFOLIO INVESTS
General. ARMS are pass-through mortgage securities which are collateralized by
mortgages with adjustable rather than fixed interest rates. Mortgages which
collateralize ARMS have become an increasingly important form of residential
financing. Generally, ARMS are collateralized by mortgages that have a specified
maturity date and which amortize principal much in the fashion of a fixed rate
mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that ARMS will behave like fixed rate mortgages in that
current levels of prepayments of principal on the underlying mortgages could
accelerate. Furthermore, during periods of declining interest rates, income to
the Portfolio derived from ARMS will decrease in contrast to the income on fixed
rate mortgages which will remain constant. In addition, ARMS also have less
potential for appreciation in value when interest rates decline than do fixed
rate investments which tend to increase in value as interest rates decline.
However, one difference between mortgages which collateralize ARMS and fixed
rate mortgages is that for certain types of ARMS, the rate of amortization of
principal, as well as interest payments, can and does change in accordance with
movements in a particular, prespecified, published interest rate index. The
amount of interest due to an ARMS' security holder is calculated by adding a
specified additional amount, the "margin," to the index, subject to limitations
or "caps" on the maximum and minimum interest rate that is charged to the
mortgagor during the life of the mortgage or to maximum and minimum changes to
that interest rate during a given period. It is these special characteristics
which are unique to adjustable rate mortgages that the Portfolio's Manager
believes make them attractive investments in seeking to accomplish the
Portfolio's objective.
The market value of ARMS, like other U.S. Government securities, will generally
vary inversely with changes in market interest rates, declining when interest
rates rise and rising when interest rates decline. However, ARMS, while having
less risk of a decline during periods of rapidly rising rates, may also have
less potential for capital appreciation than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. In addition, to the extent ARMS are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holders' principal investment to the extent of the premium
paid. On the other hand, if ARMS are purchased at a discount, both a scheduled
payment of principal and an unscheduled prepayment of principal will increase
current and total returns and will accelerate the recognition of income, which
when distributed to shareholders, will be taxable as ordinary income.
The adjustable interest rate feature of the underlying mortgages generally will
act as a buffer to reduce sharp changes in the Portfolio's net asset value in
response to normal interest rate fluctuations. As the interest rates on the
mortgages underlying the Portfolio's investments are reset periodically, yields
of portfolio securities will gradually align themselves to reflect changes in
market rates and should cause the net asset value of the Portfolio to fluctuate
less dramatically than it would if the Portfolio invested in more traditional
long-term, fixed-rate debt securities. However, during periods of rising
interest rates, changes in the coupon rate lag behind changes in the market rate
possibly resulting in a slightly lower net asset value until the coupon resets
to market rates, which could take as long as one month to five years. Thus,
investors could suffer some principal loss if they sold their shares of a Trust
before the interest rates on the underlying mortgages held by the Portfolio are
adjusted to reflect current market rates. During periods of extreme fluctuations
in interest rates, the Portfolio's net asset value will fluctuate as well. Since
most mortgage securities in the Portfolio's portfolio will generally have annual
reset caps of 100 to 200 basis points, fluctuation in interest rates above these
levels could cause such mortgage securities to "cap out" and to behave more like
long-term fixed-rate debt securities and consequently to decrease in value.
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Historically, ARMS have had a higher default rate than fixed rate mortgages.
Recently, however, most ARMS originators have changed their underwriting
procedures to ensure that applicants qualify for their mortgage amounts based on
the "fully indexed" interest rate of the mortgage. In the past, many originators
would qualify applicants based on the initial interest rate of the mortgage
(commonly called a "teaser rate") which in most instances was substantially
lower than the "fully indexed" interest rate. This procedure resulted in higher
default and delinquency rates for ARMS than for fixed rate mortgages once the
mortgages adjusted up to the "fully indexed" interest rate. The Manager believes
that the curtailment of this practice by most originators will, over time, lead
to a substantial narrowing in the default rates between fixed and adjustable
rate mortgages.
Caps and Floors. The underlying mortgages which collateralize the ARMS in which
the Portfolio invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (1) per reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization. Negative amortization occurs when a loan payment does not keep
pace with interest rates and is less than the interest due for the time period
covered by such payment. The result is that the amount of the deficiency is
added to the unpaid principal balance on the loan, increasing the outstanding
amount of the loan notwithstanding the fact that the amount due has been paid.
Resets. The interest rates paid on the ARMS in which the Portfolio invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure such as a cost of funds index. Commonly utilized indices
include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolio may invest in collateralized mortgage obligations ("CMOs").
Collateralized mortgage obligations are debt obligations collateralized either
by mortgage loans or mortgage pass-through securities (such collateral
collectively being called "Mortgage Assets"). Payments of principal and interest
on the Mortgage Assets and any reinvestment income thereon provide the funds to
pay debt service on the CMOs. CMOs may be issued by the U.S. Government, its
agencies or instrumentalities or by private originators of or investors in
mortgage loans, including savings and loan associations, mortgage bankers,
commercial banks, investment bankers and special purpose subsidiaries of such
entities. Typically, CMOs are collateralized by GNMA certificates or other
government mortgage-backed securities, but they may also be collateralized by
whole loans or private mortgage pass-through securities. CMOs purchased by the
Portfolio will be, at the time of purchase, rated at least A by either Standard
& Poor's Corporation or Moody's Investors Service, or, if unrated, such
instruments will be, in the opinion of the Manager, of comparable quality to
such securities.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs (other than any
"principal-only" class) on a monthly, quarterly or semi-annual basis. The
principal and
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interest on the Mortgage Assets may be allocated among the several classes of a
CMO in many ways. In a common structure, payments of principal (including any
prepayments) on the Mortgage Assets are applied to the classes of the series of
a CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMO until
all other classes having an earlier stated maturity or final distribution date
have been paid in full.
STRIPPED MORTGAGE-BACKED SECURITIES
The Portfolio may invest in stripped mortgage-backed securities ("SMBS").
Stripped mortgage-backed securities are derivative multi-class mortgage
securities and may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and/or principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on both PO and IO classes
are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets. If the underlying
Mortgage Assets of an IO class of SMBS experience greater than anticipated
prepayments of principal, an investor may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category. SMBS experience greater volatility in market value than
mortgage securities in general. SMBS purchased by the Portfolio will be, at the
time of purchase, rated at least A by either Standard & Poor's Corporation or
Moody's Investors Service, or, if unrated, such instruments will be, in the
opinion of the Manager, of comparable quality to such securities.
The staff (the "staff") of the Securities and Exchange Commission (the "SEC")
takes the position that SMBS issued by the U.S. Government or its agencies or
instrumentalities which are backed by fixed-rate mortgages may be considered
liquid securities as determined under guidelines and standards established by
the Board of Trustees. The Staff considers SMBS not issued by the U.S.
Government or its agencies or instrumentalities and SMBS not backed by fixed
rate mortgages as illiquid securities. The Portfolio will treat these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments. See "Illiquid Securities."
RISKS OF MORTGAGE SECURITIES
The yield characteristics of the mortgage securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Portfolio purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if the Portfolio purchases these
securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. Amounts
available for reinvestment are likely to be greater during a period of declining
interest rates and, as a result, are likely to be reinvested at lower interest
rates than during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Portfolio at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full.
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The mortgage securities in which the Portfolio invests differ from conventional
bonds in that principal is paid back over the life of the mortgage securities
rather than at maturity. As a result, the holder of the mortgage securities
(i.e., the Portfolio) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest which is lower than the rate on the existing mortgage securities.
For this reason, mortgage securities are less effective than other types of U.S.
Government securities as a means of "locking in" long-term interest rates. See
"Illiquid Securities."
RISKS OF SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES
Subordinated Residential Mortgage Securities generally are likely to be more
sensitive to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional debt securities
and mortgage securities. In addition, while Subordinated Residential Mortgage
Securities have a higher stated yield than traditional mortgage securities,
holders of Subordinated Residential Mortgage Securities bear a greater risk of
loss than do holders of senior or more traditional mortgage obligations. Such
holders bear all or a portion of losses arising from the mortgage pool prior to
senior holders bearing any such losses. The primary credit risk arising from a
holder's subordination is the potential loss caused by a default on the part of
the borrower of the mortgages securing the instrument. This risk is usually
greater during a period of declining or stagnant real estate values. There may
be certain costs and delays associated with foreclosure. There is no assurance
that the subsequent sale of the property will produce an amount equal to the sum
of the unpaid principal balance of the loan as of the date the borrower went
into default, the interest that was not paid during the foreclosure period and
all foreclosure expenses, in which case the Portfolio may, depending on the
nature of its subordination, suffer a loss equal to the difference between this
amount and the liquidation proceeds. A Subordinated Residential Mortgage
Security may provide that a holder bears a portion or all of the risk of such
losses resulting from (i) the decrease in value of the property caused by
special hazard risks and/or (ii) all other losses resulting from the default by
a borrower. Accordingly, distributions on Subordinated Residential Mortgage
Securities may be reduced by realized losses.
The Portfolio, however, seeks to limit the risks presented by such instruments
by reviewing and analyzing the characteristics of the mortgage loans underlying
the Subordinated Residential Mortgage Securities that it acquires and evaluating
the likelihood of losses occurring. The Portfolio seeks opportunities to acquire
Subordinated Residential Mortgage Securities where in the view of the Manager,
the potential for a higher marginal yield on such instruments outweighs any
additional risk presented by such instrument. In addition, the Manager seeks to
increase yield to shareholders by taking advantage of perceived inefficiencies
in the market for Subordinated Residential Mortgage Securities. See "Illiquid
Securities."
OTHER INVESTMENT POLICIES
Interest Rate Swaps and Hedging Transactions. The Portfolio may enter into
various hedging transactions, such as engaging in interest rate swaps and
interest rate futures transactions and purchasing and selling interest rate
collars, caps and floors to protect against and potentially benefit from
fluctuations in interest rates and to preserve a return or spread on a
particular investment or portion of its portfolio. Hedging transactions may also
be used to attempt to protect against possible declines in the market value of
the Portfolio's assets resulting from downward trends in the debt securities
markets (generally due to a rise in interest rates), to protect the Portfolio's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities or to establish a position in the securities markets as
a temporary substitute for purchasing particular
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securities. Any or all of these techniques may be used at any time. There is no
particular strategy that requires use of one technique rather than another. Use
of any hedging transaction is a function of market conditions. Further hedging
transactions may be used by the Portfolio in the future as they are developed or
deemed by the Board of Trustees of AIST to be appropriate, and to be in the best
interest of investors in the Portfolio. The Portfolio intends to use these
transactions as a hedge against interest rate fluctuations and not as
speculative investments. The Portfolio reserves the right, but has no current
intention, to engage in options and futures transactions other than futures
transactions on interest rates.
Interest rate swaps involve the exchange with another party of commitments to
pay or receive interest, e.g., an exchange of fixed rate payments for variable
rate payments. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. An interest rate collar
combines the elements of purchasing a cap and selling a floor. The collar
protects against an interest rate rise above the maximum amount but gives up the
benefits of an interest rate decline below the minimum amount. The Portfolio
will not enter into swaps, caps, collars or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the
net assets of the Portfolio.
An interest rate futures contract provides for the future sale and purchase of a
specified amount of a certain debt security at a stated date, place and price.
The Portfolio may enter into interest rate futures contracts to protect against
fluctuations in interest rates effecting the value of debt securities that the
Portfolio either holds or intends to acquire. The Portfolio will only enter into
futures transactions on a national exchange. The Portfolio's use of such
instruments will in all cases be consistent with the applicable regulatory
requirements and, in particular, the rules and regulations of the Commodity
Futures Trading Commission with which the Portfolio must comply in order to
avoid registration as a commodity pool operator under the Commodity Exchange Act
and any applicable state law.
Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, AMC and the Portfolio believe such obligations do not
constitute senior securities. The staff of the SEC is presently considering its
position with respect to swaps, caps, collars and floors as senior securities.
Pending a determination by the Staff, the Portfolio will either treat caps,
collars and floors as being subject to its senior securities restrictions or
will refrain from engaging in caps, collars and floors. Once the Staff has
expressed a position with respect to swaps, caps, collars and floors, the
Portfolio intends to engage in swaps, caps, collars and floors, if at all, in a
manner consistent with such position. The Portfolio will not treat swaps covered
in accordance with applicable regulatory requirements as senior securities. The
Portfolio will usually enter into interest rate swaps on a net basis, i.e.,
where the two parties make net payments with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. The net amount of
the excess, if any, of the Portfolio's obligations over its entitlement with
respect to each interest rate swap will be accrued and an amount of cash, U.S.
Government Securities, or other liquid high grade debt obligations having an
aggregate net asset value at least equal to the accrued excess will be
maintained by the Portfolio's custodian in a segregated account. If the
Portfolio enters into a swap on other than a net basis, the Portfolio will
maintain in the segregated account the full amount of the Portfolio's
obligations under each such swap. The Portfolio may enter into swaps, caps,
collars and floors with member banks of the Federal Reserve System, members of
the New York Stock Exchange or other entities determined by AMC, pursuant to
procedures adopted and reviewed on an ongoing basis by the Board of Trustees, to
be credit worthy. If a default occurs by the other party to such transaction,
the Portfolio will have contractual remedies pursuant to the agreements related
to
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the transaction but such remedies may be subject to bankruptcy and insolvency
laws which could affect the Portfolio's rights as a creditor.
The swap market has grown substantially in recent years with a large number of
banks and financial services firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, collars and floors are more recent innovations
and they are less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to purchase
interest rate caps, collars or floors at prices or on terms AMC believes are
advantageous to the Portfolio. In addition, although the terms of interest rate
swaps, caps, collars and floors may provide for termination, there can be no
assurance that the Portfolio will be able to terminate an interest rate swap or
to sell or offset interest rate caps, collars or floors that it has purchased.
Interest rate swaps, caps, collars and floors are considered by the Staff to be
illiquid securities and, therefore, the Portfolio may not invest more than 15%
of its assets in such instruments. See "Illiquid Securities."
The successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Portfolio's portfolio
securities and depends on AMC's ability to predict correctly the direction and
degree of movements in interest rates. Although the Portfolio believes that use
of the hedging and risk management techniques described above will benefit the
Portfolio, if AMC's judgment about the direction or extent of the movement in
interest rates is incorrect, the Portfolio's overall performance would be worse
than if it had not entered into any such transactions. For example, if the
Portfolio had purchased an interest rate swap or an interest rate floor to hedge
against its expectation that interest rates would decline but instead interest
rates rose, the Portfolio would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates because it
would have to pay amounts to its counterparts under the swap agreement or would
have paid the purchase price of the interest rate floor. The Portfolio believes
that AMC possesses the skills necessary for the successful utilization of
hedging and risk management transactions.
Other risks associated with the use of futures contracts are: (1) imperfect
correlation between the change in the market value of the underlying commodity
and the prices of futures contracts and options with the result that futures and
options may fail as hedging techniques in cases where the price movements of the
securities underlying the futures and options do not follow the price movements
of the Portfolio's portfolio securities subject to a hedge; and (ii) possible
lack of a liquid secondary market for a futures position when liquidation of
that position is desired with the result that the Portfolio will likely be
unable to control losses by closing its position where a liquid secondary market
does not exist. In addition, because of the margin deposits normally required in
futures trading, a high degree of leverage is typical of a futures trading
account. As a result, a relatively small price movement in a futures contract
may result in substantial losses to the trader (i.e., the Portfolio).
Furthermore, many futures exchanges and boards of trade limit the amount of
fluctuations permitted in futures contract prices during a single trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Portfolio to substantial losses.
New financial products continue to be developed and the Portfolio may invest in
any such products to the extent consistent with its investment objective and the
regulatory and federal tax requirements applicable to investment companies.
When-Issued and Forward Commitment Securities. The Portfolio may purchase
securities on a when-issued basis and may purchase or sell securities on a
forward commitment basis in order to hedge against anticipated changes in
interest rates and prices and/or secure a favorable rate of return. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date
which may be a month or more after the date of the transaction. At
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the time the Portfolio makes the commitment to purchase securities on a
when-issued or forward commitment basis, it will record the transaction and
thereafter reflect the value of such securities in determining its net asset
value. At the time the Portfolio enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash, U.S.
Government securities or other liquid high grade debt obligations equal to the
value of the when-issued or forward commitment securities will be established
and maintained with the custodian and will be "marked to market" daily.
When-issued securities and forward commitments may be sold prior to the
settlement date. If the Portfolio disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may experience a gain or loss due to market
fluctuation. On the delivery date, the Portfolio will meet its obligations from
securities that are then maturing or sales of the securities held in the
segregated asset account and/or from then available cash flow. There is always a
risk that the securities may not be delivered and that the Portfolio may incur a
loss or will have lost the opportunity to otherwise invest the amount set aside
for such transaction in the segregated asset account. Settlements in the
ordinary course of business, which may take substantially more than five
business days for mortgage-related securities, are not treated by the Portfolio
as when-issued or forward commitment transactions and accordingly are not
subject to the foregoing limitations even though some of the risks described
above may be present in such transactions. Securities purchased on a
when-issued, delayed delivery or forward commitment basis do not generally earn
interest until their scheduled delivery date. The Portfolio is not subject to
any percentage limit on the amount of its assets which may be invested in
when-issued purchase obligations.
Borrowing. The Portfolio may from time to time borrow money for the purpose of
acquiring additional portfolio investments when it believes that the interest
payments and other costs with respect to such borrowings or indebtedness will be
exceeded by the anticipated total return (a combination of income and
appreciation) on such investments. The amount of any such borrowing or issuance
will depend upon market or economic conditions existing at that time. The
Portfolio may also borrow in order to assure that it remains fully invested by
using borrowed cash to purchase portfolio investments with the intent of
repaying the borrowings from the proceeds of expected sales of Portfolio shares.
The Portfolio may borrow money from banks on a secured or unsecured basis at
variable or fixed rates. However, as prescribed by the Investment Company Act of
1940, the Portfolio will be required to maintain specified asset coverage of at
least 300% with respect to any such bank borrowing immediately following any
such borrowing or issuance. If at any time asset coverage falls below 300%, the
Portfolio must, within three days (not including Sundays and holidays), reduce
the amount of its borrowings until it has 300% coverage. The Portfolio may be
required to dispose of portfolio investments on unfavorable terms if market
fluctuations or other factors reduce the required asset coverage to less than
the prescribed amount.
In addition, the Portfolio may on a temporary basis issue a note or other
evidence of indebtedness representing up to 5% of its assets at the time the
loan is made. Such a borrowing must be privately arranged and not intended to be
publicly distributed and is presumed to be for temporary purposes if it is
repaid within 60 days.
While, as stated above, the Portfolio will borrow money for the purpose of
acquiring additional portfolio investments only when it believes that such
borrowing will produce additional income to the Portfolio, the interest cost on
the capital raised through leverage may exceed the interest on the assets
purchased. The Portfolio may also be required to maintain minimum average
balances in connection with borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements will increase the cost
of borrowing over the stated interest rate. Borrowings and the issuance of
indebtedness create an opportunity to be more fully invested and to earn greater
income per share. However, any such borrowing or issuance is a speculative
technique in that it will increase the Portfolio's exposure to capital risk.
Such risks may be mitigated through the use of borrowings and issuances of
indebtedness that have floating rates of interest. Unless the income and
appreciation, if any, on assets acquired with borrowed funds or offering
proceeds
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exceed the cost of borrowing or issuing debt, the use of leverage will diminish
the investment performance of the Portfolio compared with what it would have
been without leverage.
The Portfolio will not always borrow money or issue debt to finance additional
investments. The Portfolio's willingness to borrow money and issue debt for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are the investment outlook, market conditions and
interest rates. To the extent that the Portfolio invests borrowed money in
short-term fixed-rate debt obligations, successful use of a leveraging strategy
depends on AMC's ability to correctly predict interest rates and market
movements over these short-term periods. There is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
Loans of Portfolio Securities. The Portfolio may make loans of its portfolio
securities under certain circumstances. With the approval of the Trustees of
AIST and subject to various conditions which may be imposed from time to time
under various securities regulations, the Portfolio may lend its portfolio
securities to qualified broker/dealers or other institutional investors provided
that such loans do not exceed 10% of the value of the Portfolio's total assets
at the time of the most recent loan, that the borrower deposits and maintains
with the Portfolio at least 102% cash collateral and provided the portfolio
securities loaned are "marked to market" daily. There are risks of delay in
recovery and loss of rights and collateral should the borrower fail financially.
The lending of securities is a common practice in the securities industry. The
Portfolio will engage in security loan arrangements with the primary objective
of increasing its income through investment of the cash collateral in short-term
interest bearing obligations, but will do so only to the extent consistent with
its tax status as a regulated investment company. The Portfolio will continue to
be entitled to all interest on any loaned securities.
Illiquid Securities. The Portfolio may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. The Portfolio expects that the Subordinated
Residential Mortgage Securities in which it invests generally will be restricted
securities.
The Portfolio will not invest more than 15% of its assets in illiquid
investments. The Portfolio will adhere to a more restrictive limitation on its
investment in illiquid securities as required by the securities laws of those
jurisdictions where shares of the Trust are registered for sale. Illiquid
securities include securities that are not readily marketable and restricted
securities, unless the Trustees of AIST determine, based upon a continuing
review of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Trustees of AIST may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Trustees of AIST, however, retain
oversight and will be ultimately responsible for the determinations. Since it is
not possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Trustees of AIST
will carefully monitor the Portfolio's investments in these securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. In such an event, the Trustees will consider
appropriate remedies to maximize the Portfolio's liquidity and its ability to
meet redemption requests within seven days.
The Trust has experienced an increase in the rate of redemptions. As a result,
the Portfolio has increasingly been managed to provide adequate cash reserves to
satisfy redemption requests, resulting in decreased ability to seek high current
income with low volatility of principal, which is the Trust's fundamental
investment objective. Investing a larger percentage of Portfolio assets in cash
and short-term instruments results in lower yields than those typically received
on investments in mortgage securities. Moreover, adverse market
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conditions have resulted in a decrease in the value of subordinated adjustable
rate mortgage (ARM) securities of the type in which the Trust has invested.
Significant increases in interest rates in 1994 resulted in a general decline in
bond prices. In an environment of rapidly rising interest rates, while the
interest rates on the underlying ARMs continue to reset, the value of ARM
securities decline, because interest rates rise faster than resets occur.
Typically it takes 45-60 days before interest rate resets are reflected in the
Portfolio. In addition, the mortgages underlying the Portfolio's securities
typically reset once a year, so it may be a full year before certain of the
Portfolio's mortgages reset to reflect any increases in the interest rates.
In 1995 U.S. short- and long-term interest rates generally declined. However,
performance of the Portfolio was negatively affected by the lingering effects of
the recessionary environment in California, which proved to be much deeper and
more prolonged than originally anticipated. In particular, real estate values
fell or remained at depressed levels, which led to increased credit risk and, in
turn, resulted in increased default losses on a number of the subordinated
mortgage securities backed by Southern California real estate held by the
Portfolio.
The performance of the Portfolio has been negatively affected by the interest
rate conditions in the ARM securities market. As a result of the 1994 interest
rate increases and declining bond prices, combined with negative publicity on
the mortgage securities market and the higher than expected price volatility
experienced with many mortgage-backed securities, mortgage funds industry-wide
continued to experience heavy redemptions in 1995. As a result, ARM funds
continued to liquidate subordinated mortgage securities to meet redemption
requests. This resulted in an increased supply of subordinated mortgage
securities in the market, bringing wider spreads over the relevant indices and
reduced prices.
The increase in redemptions along with adverse interest rate conditions in 1994
and deteriorating credit risks have caused the market for subordinated mortgage
securities to be less liquid. Over the long term, AMC believes that the market
will value portfolio securities based primarily upon fundamental considerations
of credit quality, prepayment rates and other such factors, with less emphasis
on market conditions. Yet there can be no assurance that such will be the case.
Further fluctuations in net asset value may occur as a result of such factors as
deteriorating or improving market conditions and liquidity and credit experience
of portfolio securities.
The Staff has taken the position that special hazard certificates, interest rate
swaps, caps, collars and floors and SMBS not issued by the U.S. Government or
its agencies or instrumentalities and SMBS not backed by fixed rate mortgages
should be deemed illiquid. Accordingly, the Portfolio currently treats these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments.
The purchase price and subsequent valuation of restricted securities normally
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction makes them less liquid. The amount of the
discount from the prevailing market price is expected to vary depending upon the
type of security, the character of the issuer, the party who bears the expenses
of registering the restricted securities and prevailing supply and demand
conditions.
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Portfolio Turnover. The Portfolio's portfolio turnover rate may vary from year
to year, as well as within a year. The annual rate of the Portfolio's portfolio
turnover for the fiscal years ended October 31, 1994 and 1995 was 83% and 108%,
respectively. A higher portfolio turnover rate may result in higher brokerage
commissions and other transactional expenses which must be borne, directly or
indirectly, by a Portfolio and ultimately by a Trust's shareholders. The
Portfolio anticipates that its annual portfolio turnover rate generally will not
exceed 100%. See "Execution of Portfolio Transactions" in the Statement of
Additional Information. The Portfolio turnover rate for the Trust as set forth
in "Financial Highlights" reflects the purchase and redemption by the Trust of
shares of the Portfolio.
Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolio may invest its assets without limit in short-term U.S. Government
and U.S. Government agency securities including, among others, FNMA and FHLMC
short-term agency discount notes.
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
Income dividends will be declared and paid monthly. The Trust intends to declare
or distribute sufficient dividends from its net investment income and/or net
capital gain income in order to avoid the imposition of a 4% excise tax.
CHOOSING A DISTRIBUTION OPTION
When you buy shares of the Trust you may choose from the following distribution
options:
(1) The Share Option reinvest your income dividends and/or capital gains
distributions, if any, in additional shares. If no option is selected, income
dividends (and capital gains, if any) will be reinvested in additional shares of
the Trust. Income dividends and/or capital gains will be reinvested at the net
asset value as of the reinvestment date for the distribution.
(2) With the Cash Option, you may receive income dividends and/or capital gains
distributions in cash. If you select this option and the U.S. Postal Service
cannot deliver your checks, or if your checks remain uncashed for 6 months, your
money will be reinvested in your account at the then-current net asset value and
your election will be converted to the Share Option.
(3) If you are also a shareholder in any of the other Astra Funds distributed by
the Distributor, the Transfer Option permits you to have income dividends and/or
capital gain distributions of the Trust automatically invested in shares of any
of those Astra Funds of which you are a shareholder at the applicable net asset
value. If you select this option, the minimum investment requirements for
additions to an existing account will be waived.
Once again, you must specify which option you desire when you place your order
or submit your application. The tax consequences of distributions (described
below) are the same whether you choose to receive them in cash or to reinvest
them in additional shares of the Trust or another Astra Fund.
If for any fiscal year of the Trust, the amount of distributions paid or deemed
paid for such year exceeds its investment company taxable income plus net
realized capital gains for such year, the amount of such excess would be treated
as a return of capital to all those shareholders who held shares of the Trust
during the year. In such case, each distribution paid or deemed paid for that
year would be treated, in the same proportion, in part as a distribution of
taxable income and in part as a return of capital. Shareholders would incur no
current Federal income tax on the portion of such distributions which are
treated as a return of capital, but each shareholder's basis in his Trust shares
would be reduced by that amount. This reduction of basis would operate
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to increase the shareholder's capital gain (or decrease their capital loss) upon
subsequent redemption of his shares.
TAXES
Taxation of the Trust. The Trust is treated as a separate entity for federal
income tax purposes. The Trust intends to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By distributing all of its net investment income and net
realized short-term and long-term capital gains for a fiscal year in accordance
with the timing requirements imposed by the Code and by meeting certain other
requirements relating to the sources of its income and diversification of its
assets, the Trust should not be liable for Federal income or excise taxes.
Taxation of Shareholders. For Federal income tax purposes, any income dividends
which you receive from the Trust, as well as any distributions derived from the
excess of net short-term capital gain over net long-term capital loss, are
treated as ordinary income whether you have elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as long-term capital
gain regardless of the length of time you have owned your Trust shares and
regardless of whether you receive such distributions in cash or in additional
shares. Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons, may not be
paid to the shareholder until the following January, will be treated for tax
purposes as if received by the shareholder on December 31 of the calendar year
in which they are declared.
Redemptions and exchanges of Trust shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of the same
Trust are purchased (through reinvestment of dividends or otherwise) within 30
days before or after such redemption. Any loss realized upon the redemption of
shares within six months from the date of their purchase will be treated as a
long-term capital loss to the extent of amounts treated as distributions of net
long-term capital gain during such six-month period.
The Trust may be required to report to the Internal Revenue Service any taxable
dividend or other reportable payment (including share redemption proceeds) and
withhold 31% of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer identification number and
made certain required certifications that appear in the shareholder application
form. A shareholder may also be subject to backup withholding if the IRS or a
broker notifies the Trust that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
underreporting of interest or dividend income.
Shareholders should consult their tax advisors with respect to the applicability
of state and local income taxes to distributions and redemption proceeds
received from the Trust. Distributions by the Trust to shareholders who are
nonresident aliens or foreign corporations may be subject to U.S. withholding
taxes. Such shareholders should consult with their financial or tax advisors
regarding the applicability of U.S. withholding taxes to distributions received
by them from the Trust.
SHAREHOLDER'S GUIDE
HOW TO BUY SHARES OF THE TRUST
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The Trust offers shares that may be purchased only through the exchange of
shares of Astra Adjustable Rate Securities Trust I and Astra Short-Term
Multi-Market Income Fund II, the transfer of dividends from other Funds
distributed by the Distributor or the reinstatement of shares of the Trust
previously redeemed. The minimum initial investment is $5,000 ($2,000 for IRAs).
You will receive a confirmation of each new transaction in your account, which
will also show you the number of Trust shares you own and the number of shares
being held in safekeeping by the Trust's Transfer
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Agent for your account. You may rely on these confirmations in lieu of
certificates as evidence of your ownership. Certificates representing shares of
the Trust will not be issued unless you request them in writing.
LETTER OF INTENT AND RIGHTS OF ACCUMULATION
For purposes of Rights of Accumulation and the Letter of Intent privilege, Trust
shares held by investors may be combined with shares of other Astra Funds for a
reduced sales charge in an Astra Fund which imposes an initial sales charge but
will not affect any CDSC which may be imposed on the redemption of Trust shares.
HOW TO REDEEM SHARES OF THE TRUST
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Shares of the Trust are redeemed at the net asset value next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business, reduced by the amount of any applicable
contingent deferred sales charge described below and the amount of any Federal
income tax required to be withheld.
If the shareholder holds his Trust shares for more than four years after their
purchase, he will not have to pay any charge when he redeems those shares.
Shares of the Trust redeemed within the first four years of their purchase
(except shares acquired through the reinvestment of distributions) will be
subject to a contingent deferred sales charge. A contingent deferred sales
charge is not imposed on (a) shares of the Trust in the account which were
purchased more than four years prior to the redemption, (b) all shares of the
Trust in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, of value of all other
shares of the Trust in the account (namely those purchased within the four years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge; i.e., each redemption will be
assumed to have been made first from the exempt amounts referred to in clauses
(a), (b) and (c) above, and second through liquidation of those shares in the
account referred to in clause (c) on a first-in-first-out basis. Any contingent
deferred sales charge which is required to be imposed on share redemptions for
shares of the Trust will be made in accordance with the following schedule:
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
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First .......................................................... 4%
Second ......................................................... 3%
Third .......................................................... 2%
Fourth ......................................................... 1%
Fifth and following ............................................ 0%
The contingent deferred sales charge will be paid to the Distributor and may
affect the amount of (i) Uncovered Distribution Charges calculated under the
Trust's Distribution Plan, (ii) the advisory fee payable to AMC and (iii) the
daily compensation payable to the Distributor under the Trust's Distribution
Plan (See "Distribution Plan").
No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust purchased by officers, directors and bona fide
full-time employees of ASIS, and with certain exceptions, officers, directors
and full-time employees and sales representatives of AMC, the Distributor or
affiliated companies thereof (or any trust, pension, profit-sharing or other
benefit plan for such persons), broker-dealers having sales agreements with the
Distributor, all for their own accounts or for their spouse and children, and
employees of such broker-dealer firms (for their own accounts only), and
discretionary advisory accounts of AMC (if such purchasers state in writing that
the purchases are for their own investment purposes only and the purchaser
represents that the shares will not be resold except to the Trust).
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No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust which were acquired via certain exchange
transactions as fully described in the Exchange Privilege section of this
Prospectus.
The contingent deferred sales charge will be waived for certain redemptions of
shares of the Trust (i) upon the death or permanent disability of a shareholder,
or (ii) in connection with mandatory distributions from an IRA or other
qualified retirement plan. The contingent deferred sales charge will be waived
in the case of a redemption of shares of the Trust following the death or
permanent disability of a shareholder if the redemption is made within one year
of death or initial determination of permanent disability. The waiver is
available for total or partial redemptions of shares of the Trust owned by an
individual or an individual in joint tenancy (with rights of survivorship), but
only for redemptions of shares held at the time of death or initial
determination of permanent disability. The contingent deferred sales charge will
also be waived in the case of a total or partial redemption of shares of the
Trust in connection with any mandatory distribution from a tax-deferred
retirement plan or an IRA. The waiver does not apply in the case of a tax-free
rollover or transfer of assets, other than one following a separation from
services. The shareholder must notify the Trust's Transfer Agent either directly
or through the Distributor, at the time of redemption, that the shareholder is
entitled to a waiver of the contingent deferred sales charge. The relevant
information as requested in the Contingent Deferred Sales Charge Waiver Form,
included in this Prospectus on page 35, must be provided to the Trust's Transfer
Agent at the time of the redemption request. The waiver will be granted subject
to confirmation of the Investor's entitlement.
TYPES OF REDEMPTIONS
REDEMPTIONS BY MAIL
A written request for redemption (or an endorsed share certificate, if issued)
must be received by the Transfer Agent to constitute a valid tender for
redemption. It will also be necessary for corporate investors and other
associations to have an appropriate certification authorizing redemptions by a
corporation or an association on file before a redemption request will be
considered in proper form. The Transfer Agent may also require a signature
guarantee by an eligible guarantor as stipulated in Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. To determine whether a signature guarantee or
other documentation is required, shareholders may call the Trust's Shareholder
Servicing Agent at (800) 441-7267.
REDEMPTION OF SHARES BY SECURITIES DEALERS
Brokers, dealers, or other sales agents may communicate redemption orders by
wire or telephone. These firms may charge for their services in connection with
your redemption request but neither the Trust nor the Distributor impose any
such charges other than the contingent deferred sales charge described above in
connection with the redemption of shares of the Trust.
EXPEDITED TELEPHONE REDEMPTION
You may have the payment of redemption requests (of $5,000 or more) wired or
mailed directly to a domestic commercial bank account that you have previously
designated. Normally, such payments will be transmitted on the second business
day following receipt of the request (provided redemptions may be made). If no
share certificates have been issued, you may request a wire redemption by
telephone or wire to the Transfer Agent. For telephone redemptions, call the
Transfer Agent at (800) 441-7267. You must complete the "Expedited Redemptions"
section of the Additional Account Privileges Form for the privilege to be
applicable to you.
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SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to have regular monthly or quarterly payments in any
fixed amount in excess of $100 made to him or her, or to anyone else properly
designated as long as the account has a value (i.e., net asset value before any
contingent deferred sales charge with respect to shares of the Trust) of at
least $10,000. During the withdrawal period, you may purchase additional shares
for deposit to your account if the additional purchases are equal to at least
one year's scheduled withdrawals, or $1,200, whichever is greater.
There are no separate charges to you under this Plan, however, all shares of the
Trust may be subject to the applicable contingent deferred sales charge. A
number of full and fractional shares equal in value, after taking into account
any applicable contingent deferred sales charge, to the amount of the requested
payment will be redeemed. Such redemptions are normally processed on the fifth
day prior to the end of the month or quarter. Checks are then mailed on or about
the first of the following month. Shareholders who elect to have a Systematic
Withdrawal Plan must have all dividends and capital gains reinvested. To
establish systematic cash withdrawals, please complete the systematic cash
withdrawal section on the Additional Account Privileges Form.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Trust's Transfer Agent. As shares of a Trust are
redeemed under the plan, you may realize a capital gain or loss to be reported
for income tax purposes. A Systematic Withdrawal Plan may be terminated or
modified at any time upon written notice by you or the Trust.
GENERAL
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent. The Trust may delay the mailing
of a redemption check until the check used to purchase the shares being redeemed
has cleared, which may take up to 15 days or longer. The Trust may suspend the
right of redemption under certain extraordinary circumstances in accordance with
the Rules of the SEC. Due to the relatively high cost of handling small
investments, the Trust reserves the right upon 30-days' written notice to
redeem, at net asset value, the shares of any shareholder whose account (except
for IRAs) has a value of less than $5,000 other than as a result of a decline in
the net asset value per share.
SHAREHOLDER SERVICES AND PRIVILEGES
- ------------
EXCHANGE PRIVILEGE
Shares of the Trust which have been held for a minimum of 30 days may be
exchanged for shares of Astra Adjustable Rate Securities Trust I and Astra
Short-Term Multi-Market Income Fund II at the then current net asset values of
the respective funds. Such exchanged shares will not be reduced by the otherwise
applicable contingent deferred sales charge at the time of such exchange. Shares
of Astra Adjustable Rate Securities Trust I and Astra Short-Term Multi-Market
Income Fund II which have been held for a minimum of 30 days may be exchanged
for shares of the Trust at the then current net asset values of the respective
funds. Such exchanged shares will not be reduced by the otherwise applicable
contingent deferred sales charge at the time of such exchange. Shares acquired
as a result of such exchange and subsequently redeemed will be subject to the
then applicable contingent deferred sales charge. For purposes of computing the
holding period for the contingent deferred sales charge on the acquired shares,
the holding period of the exchanged shares and the acquired shares will be
"tracked" and will be deemed to commence as of the date the exchanged shares
were purchased.
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Shares of the Trust held for at least 4 years (or, if exchanged, with a combined
holding period of 4 years) may be exchanged into any other Astra fund which
offers an exchange privilege, at then current net asset values and will not be
subject to a contingent deferred sales charge. The value of shares being
exchanged must meet the minimum investment requirement of the fund into which
they are being exchanged.
General. The prospectuses of the other funds should be reviewed before effecting
any exchange. Relative to the Trust, you should note that any such exchange,
which may only be made in states where shares of the other funds are qualified
for sale, may create a gain or loss to be recognized for Federal income tax
purposes. Exchanges may be authorized by telephone. You will automatically be
assigned this privilege unless you check the box on the Application which
indicates that you do not wish to have the privilege (see "Telephone Exchange
Privilege" section of Application). In addition, if you exchange by mail, the
exchange will be effected, upon receipt of written instructions signed by all
account owners and accompanied by any outstanding share certificates properly
endorsed, into an identically registered account. The exchange privilege may be
modified at any time or discontinued upon 60 days' written notice to
shareholders.
REINSTATEMENT PRIVILEGE
If you have redeemed your shares of the Trust, you may reinstate up to the full
amount of the proceeds of such redemption, at net asset value at the time of
reinstatement. The amount of any contingent deferred sales charge on the shares
of the Trust will also be reinstated. Such reinstated shares of the Trust will
retain their original cost and purchase date only for purposes of the contingent
deferred sales charge.
In order to exercise this privilege, a written order for the purchase of shares
must be received by the Trust's Transfer Agent, or be postmarked, within 30 days
after the date of redemption. This privilege can be used by you only once per
calendar year. If you incur a loss on the redemption and use the reinstatement
privilege, some or all of the loss may not be allowed as a tax deduction. See
the Statement of Additional Information for further discussion.
RETIREMENT PLANS
The Trust has available prototype qualified retirement plans for both
corporations and self-employed individuals. The Trust has available prototype
Individual Retirement Account ("IRA") plans (for both individuals and employers)
and Simplified Employee Pension ("SEP") plans as well as Section 403(b)(7)
Tax-Sheltered Retirement Plans which are designed for employees of public
educational institutions and certain non-profit, tax-exempt organizations.
Investors Fiduciary Trust Company acts as the custodian under these plans. For
information, including the custodian's fees, see the Statement of Additional
Information and call or write the Distributor.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
- --------------
The Trust and its Transfer Agent will not be responsible for the authenticity of
phone instructions or losses, if any, resulting from unauthorized shareholder
transactions if the Trust or its Transfer Agent reasonably believe that such
instructions were genuine. The Trust and its Transfer Agent have established
procedures that the Trust believes are reasonably appropriate to confirm that
instructions communicated by telephone are genuine. These procedures include:
(i) recording telephone instructions for exchanges and expedited redemptions;
(ii) requiring the caller to give certain specific identifying information; and
(iii) providing written confirmations to shareholders of record not later than
five days following any such telephone transactions.If the Trust and its
Transfer Agent do not employ these procedures, they may be liable for any losses
due to unauthorized or fraudulent telephone instructions.
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HOW THE TRUST VALUES ITS SHARES
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The net asset value and offering price of shares of the Trust are determined
once daily as of the close of trading on the New York Stock Exchange during the
Trust's "business day," which is any day on which the Exchange is open for
business. The net asset value of the Trust serves as the basis for the purchase
and redemption price of Trust shares. The net asset value is also used in
calculating the fee paid to the Manager.
CALCULATION OF NET ASSET VALUE
Net asset value is calculated by dividing the value of the Trust's portfolio
securities, plus any cash or other assets less all liabilities, by the number of
shares outstanding. Since the Trust will invest in the Portfolio, if the
securities owned by the Portfolio increase in value, the value of the Trust
shares which the shareholder owns will increase. If the securities owned by the
Portfolio decrease in value, the value of the shareholder's shares will also
decline. In this way, shareholders participate in any change in the value of the
securities owned by the Portfolio. The securities held in the Portfolio's
portfolio will be valued by using market quotations, or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Securities for which reliable quotations or pricing
services are not readily available and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees of AIST, which procedures may include the
delegation of certain responsibilities regarding valuation to the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees of
AIST regarding portfolio valuation determination. Short-term securities with
less than sixty days remaining to maturity when acquired by the Portfolio will
be valued on an amortized cost basis by the Portfolio when the Trustees of AIST
have determined that amortized cost is fair value. If the Portfolio acquires
such securities with more than sixty days remaining to maturity, they will be
valued at current market value (using the mean of the bid and the asked prices)
until the 60th day prior to maturity, and will then be valued on an amortized
cost basis based upon the value on such date unless the Trustees of AIST
determine during such 60-day period that this amortized cost basis does not
represent fair value.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the Trust's performance including current yield, various
expressions of total return and current distribution rate. These may
occasionally cite statistics to reflect its volatility or risk.
The Trust may furnish average annual total return and total return quotations
calculated at net asset value and at maximum offering price for various periods.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
offering price for one, five and ten-year periods, or portion thereof, to the
extent applicable, through the end of the most recent calendar quarter, assuming
reinvestment of all distributions and deduction of any applicable contingent
deferred sales charge. Total return equals the total of all income and capital
gain distributions paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price. Current yield
reflects the income per share earned by the Trust's portfolio investments. It is
calculated by dividing the Trust's net investment income per share during a
recent 30-day period by the maximum offering price on the last day of that
period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see the
Statement of Additional Information) is not indicative of the dividends or
distributions which were or will be paid to the Trust's
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shareholders. Dividends or distributions paid to shareholders are reflected in
the current distribution rate which may be quoted to shareholders. The current
distribution rate is computed by dividing the annualized amount of dividends per
share paid by the Trust during the past one month by the current offering price.
The current distribution rate differs from the current yield computation because
it may include distributions to shareholders from sources other than dividends
and interest, short term capital gain and net equalization credits and is
calculated over a different period of time.
Advertisements and communications may compare the Trust's performance with that
of other mutual funds (except money market funds), as reported by Lipper
Analytical Services, Inc. or similar independent services or financial
publications. From time to time, advertisements and other Trust materials and
communications may cite statistics to reflect the Trust's performance over time,
utilizing comparisons to indexes including those based on U.S. Treasury
securities and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly used indexes include the
one, three, five, ten and thirty-year constant maturity Treasury rates, the
three-month and 180-day Treasury bill rate, rates on longer-term Treasury
certificates, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
London Interbank Offered Rate (LIBOR), the prime lending rate of one or several
banks, or commercial paper rates. Some indexes, such as the one-year constant
maturity Treasury rate, closely mirror changes in market interest rate levels.
Others, such as the 11th District Federal Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
In addition, advertisements and other communications may cite current and
compounded yield and distribution rates. Quotations of historical total returns,
yields and distribution rates are not indicative of future dividend income or
total return, but are an indication of the return to shareholders only for the
limited historical period used. The Trust's yield, total return or distribution
rate will depend on the particular investments in its portfolio, its total
operating expenses and other conditions. For further information, including the
formulas and discussions of the yield and total return calculations see the
Statement of Additional Information.
In each case performance figures are based upon past performance, reflect all
recurring charges against Trust income and, as appropriate, may or may not
assume the payment of the applicable contingent deferred sales charge on the
redemption of shares. The investment results of the Trust, like all others, will
fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Trust's yield,
distribution rate or total return may be in any future period.
THE ASTRA GROUP
- --------------
Atlas Holdings Group, Inc. (the "Atlas Group") is a financial services holding
company and has its principal business address at 9595 Wilshire Boulevard, Suite
1001, Beverly Hills, CA 90212. It comprises several affiliated companies,
including AMC and the Distributor (whose principal business address is 750 B
Street, Suite 2350, San Diego, California 92101) which provide advisory,
distribution and administrative services to the Trust. Atlas Holdings Group,
Inc. is a Delaware corporation of which Palomba Weingarten, Chairman of the
Board of Trustees of ASIS and AIST, is the sole stockholder and Chief Executive
Officer.
AMC provides a number of mutual funds, and may provide other personal and
institutional accounts, with portfolio management services. It maintains a staff
of experienced investment personnel and support facilities. Current assets under
management are approximately $200 million.
The Distributor distributes shares for all of Astra Group's mutual funds. AMC
and the Distributor are wholly-owned subsidiaries of Atlas Holding Group, Inc.
These companies are part of the umbrella name "Astra Group."
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PORTFOLIO MANAGEMENT
- --------------
Investment management decisions made by AMC are made by a committee with no one
person being solely responsible for making recommendations to the committee.
MANAGEMENT FEES
- --------------
The Trustees of AIST establish the Portfolio's investment policies and supervise
and review the operations and management of the Portfolio. See "Trustees and
Officers" in the Statement of Additional Information for a complete description
of the Trustees of the Trust and the Portfolio. For furnishing the Portfolio
with investment advice and investment management and administrative services
with respect to the Portfolio's assets, including making specific
recommendations as to the purchase and sale of portfolio securities, furnishing
requisite office space and personnel, and in general supervising and managing
the Portfolio's investments subject to the ultimate supervision and direction of
ASIS' Trustees, AMC is paid monthly a fee equal to 0.55% per annum of the
average daily net assets of the Portfolio on the first $500 million of assets.
The annual rate is reduced to 0.50% on net assets from $500 million to $1
billion; and to 0.45% on net assets over $1 billion. AMC will reduce its
aggregate fees for any fiscal year, or reimburse the Portfolio or Trust, to the
extent required so that aggregate expenses do not exceed the expense limitations
applicable under the securities laws or regulations of those states or
jurisdictions in which the Trust's shares are registered or qualified for sale.
Expenses for purposes of these expense limitations include the management fee,
but exclude brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, paid or incurred by the Trust or the Portfolio. In
addition, the state with the most restrictive expense limitation allows the
Trust to exclude distribution expenses. AMC has also agreed to reduce its
management and/or administrative fees to the extent necessary to ensure that the
total operating expenses of the Trust and the Portfolio are not higher than what
the Trust's total operating expenses would have been under the terms of AMC's
prior management agreement with the Trust. During the fiscal year ended October
31, 1995, the total expenses paid by the Trust were approximately 1.55% of its
average daily net assets.
ADMINISTRATIVE FEES
- --------------
ASIS has retained the services of Atlas Group as administrator for the Trust,
but has not retained the services of an investment adviser since the Trust seeks
to achieve its investment objective by investing in the Portfolio. Pursuant to
an administration agreement ("Administration Agreement") Atlas Group supervises
the overall administration of the Trust. These administrative services include
supervising the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations, supervising the maintenance
of books and records and other general and administrative responsibilities. For
providing these services, Atlas Group receives a fee from the Trust of 0.10% per
annum of its average daily net assets.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trust) has agreed to pay PFPC
a monthly fee at the annual rate of .07% of the average net assets of the Trust
subject to certain minimums, exclusive of out-of-pocket expenses.
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DISTRIBUTION PLAN
- --------------
The Trust finances activities which are primarily intended to result in the sale
of Trust shares and has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (the "Plan"). Rule 12b-1 permits mutual funds, such as the Trust,
to finance distribution activities and bear expenses associated with the
distribution of its shares provided that any payments made by the Fund are made
pursuant to a written plan adopted in accordance with the Rule.
The Plan provides for two categories of payments. First, the Plan provides daily
compensation to the principal underwriter for its distribution services and
facilities ("daily compensation"). Pursuant to the Plan, but subject to the .75%
limitation described below, the Trust will pay the principal underwriter daily
compensation in the form of (i) sales commissions equal to 4% of the amount
received by the Trust for each share sold (excluding reinvestment of dividends
and distributions) ("Underwriter's Sales Commissions") and (ii) an interest fee
calculated by applying the rate of 1% over the prime rate then reported in The
Wall Street Journal to the outstanding balance of Uncovered Distribution Charges
of the principal underwriter (as described below). The principal underwriter
currently expects to pay sales commissions to dealers at the time of sale of up
to 3% of the purchase price of the shares sold by such dealer. The principal
underwriter will use its own funds or funds facilitated by the principal
underwriter (which may be borrowed or otherwise financed) to pay such sales
commissions. In addition to the daily compensation to the principal underwriter,
the Plan also provides for the payment to the principal underwriter of a trail
or maintenance fee, accrued daily and paid monthly, in an amount equal to an
annual rate of 0.25% of the Trust's daily net assets, which may be paid to
dealers at an annual rate not to exceed 0.25% of the Trust's daily net assets
owned by clients of the dealers.
Because the payment of Underwriter's Sales Commissions and interest fees to the
principal underwriter in the form of daily compensation is subject to the .75%
limitation in the Plan, it will take the principal underwriter a number of years
to recoup the sales commissions paid to dealers and its other sales expenses
from the daily compensation payments received by it from the Trust pursuant to
the Plan. Such daily compensation will be accrued daily (at the rate of 1/365 of
.75% of the Trust's net assets) and paid monthly, but will be automatically
discontinued during any period in which there are no outstanding Uncovered
Distribution Charges under the Plan. Notwithstanding the discontinuation of
Uncovered Distribution Charges, the Trust may continue to pay the .25% trail or
maintenance fee. Uncovered Distribution Charges are calculated daily and
briefly, are equivalent on any given day to all Underwriter's Sales Commissions
(sales commissions previously due less amounts received pursuant to the Plan)
and the interest fee to which the principal underwriter is entitled under the
Plan less all contingent deferred sales charges previously paid to the principal
underwriter. The Astra organization may be considered to have realized a profit
under the Plan if at any point in time the aggregate amounts of all daily
compensation and contingent deferred sales charge payments previously made to
the principal underwriter have exceeded the total expenses incurred by the Astra
organization in distributing shares of the Trust. Total expenses for this
purpose will include an allocable portion of the overhead costs of such
organization.
The amount of daily compensation payable to the principal underwriter with
respect to each day will be accrued on such day as a liability of the Trust and
will accordingly reduce the Trust's net assets upon such accrual. However, in
accordance with generally accepted accounting principles, the Trust does not
accrue future daily compensation as a liability of the Trust or reduce the
Trust's current net assets in respect of daily compensation which may become
payable under the Plan in the future because the standards for accrual of a
liability under such accounting principles have not been satisfied. As of
October 31, 1995, the Trust had total net assets of $94,913,874 and Uncovered
Distribution Charges aggregated $11,143,216. Notwithstanding the existence of
such Uncovered Distribution Charges, the amount of daily compensation payable on
each day is limited to 1/365 of .75% of the Trust's net assets on such day. The
level of the Trust's net assets changes
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each day and depends upon the amount of sales and redemptions of the Trust's
shares, the changes in the value of the Trust's portfolio investments, the
expenses of the Trust accrued on such day, income on portfolio investments
accrued on such day, and dividends and distributions declared by the Trust.
The Plan provides that the Trust will make no daily compensation payments to the
principal underwriter during any period in which there are no outstanding
Uncovered Distribution Charges of the principal underwriter. Such daily
compensation will be paid to the principal underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
The Plan provides that it shall continue in effect for as long as such
continuance is approved at least annually by the vote of a majority of the
Trustees of ASIS and a majority of the Trustees of ASIS who are not interested
persons of ASIS and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees"). The Plan may be terminated at any time by a vote of a majority of
the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting
securities of the Trust.
Periods with a high level of sales of the Trust's shares accompanied by a low
level of redemptions of the Trust's shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the principal underwriter.
Conversely, periods with a low level of sales of the Trust's shares accompanied
by a high level of early redemptions of the Trust's shares resulting in the
imposition of contingent deferred sales charges will tend to reduce the time
during which there will exist Uncovered Distribution Charges of the principal
underwriter.
Because of the .75% limitation on the amount of daily compensation
paid to the principal underwriter during any fiscal year, a high level of sales
of the Trust's shares during the first few years of the Trust's operations would
cause a large portion of the daily compensation attributable to a sale of the
Trust's shares to be accrued and paid by the Trust to the principal underwriter
in fiscal years subsequent to the years in which such shares were sold. This
spreading of Underwriter's Sales Commission payments under the plan over an
extended period would result in the incurrence and payment of increased interest
fees under the Plan.
The Plan authorizes payments which may be equivalent, on an aggregate basis
during any fiscal year of the Trust, of up to 1% of the Trust's average daily
net assets for such year. The Trust believes that the rate of these payments may
be higher than the rate of payments made under distribution plans adopted by
many other investment companies pursuant to Rule 12b-1. It is anticipated that
the Astra organization will benefit by reason of the operation of the Plan
through increases in the Trust's assets (thereby increasing the advisory fees
paid to AMC) resulting from sale of the Trust's shares and through daily
compensation and contingent deferred sales charges paid to the principal
underwriter. The Astra organization may be considered to have realized a profit
under the Plan if at any point in time the aggregate amount of all daily
compensation and contingent deferred sales charge payments previously made to
the principal underwriter have exceeded the total expenses previously incurred
by such organization in distributing shares of the Trust. It is anticipated that
the Trust will benefit by having the continuous cash flow resulting from the
sale of new shares which will be used to meet shareholder redemptions and to
take advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities.
The Trust has limited the offering of its shares. The Trust may, in its absolute
discretion, continue unrestricted sales or suspend, discontinue or further limit
the offering of its shares at any time. In determining whether any such action
should be taken, the Trust's management intends to consider all relevant
factors, including, without limitation, the size of the Trust, the investment
climate and market conditions, the volume of sales and redemptions of Trust
shares, and the amount of Uncovered Distribution Charges of the principal
underwriter. The Plan may continue in effect and payments may be made under the
Plan following any such suspension, discontinuance or limitation of the offering
of Trust shares. However, the Trust is not contractually obligated to
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continue the Plan for any particular period of time. Suspension of the offering
of Trust shares would not, of course, affect a shareholder's ability to redeem
his shares.
GENERAL INFORMATION
- --------------
The Trust is a series of ASIS which was organized as a Massachusetts business
trust on July 19, 1989. The Trust consists of an unlimited number of shares of
beneficial interest without par value.
All shares of the Trust have equal voting rights. In the event of dissolution or
liquidation, holders of the Trust's shares will receive pro rata, subject to the
rights of creditors, proceeds of the sale of the assets held. There are no
preemptive or conversion rights applicable to any of the shares. ASIS shares do
not have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for Trustees can elect all Trustees and the remaining shareholders
would not be able to elect any Trustees. The shares, when issued, will be fully
paid and non-assessable. The Board of Trustees of ASIS may create additional
series (or classes of series) of ASIS shares without shareholder approval. Any
series of shares may be terminated by a vote of shareholders of such series
entitled to vote or by the Trustees of ASIS by written notice to shareholders of
such series.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent. If requested by shareholders of at least 10% of the outstanding
shares of ASIS, ASIS will call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or trustees and will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
As used in this Prospectus, the term "Majority Vote" means the affirmative vote
of (a) more than 50% of the outstanding shares of a Trust or ASIS, as
appropriate, or (b) 67% or more of the shares present at a meeting if more than
50% of the outstanding shares of the Trust or ASIS, as appropriate, are
represented at the meeting in person or by proxy, whichever is less.
Whenever the Trust is requested to vote on any proposal of the Portfolio, the
Trust will hold a meeting of its shareholders and will cast its votes as
instructed by its shareholders. As is true for all investment companies, a
majority of the outstanding voting securities can control the results of any
shareholder vote. Because Portfolio investors' votes are proportionate to their
percentage interests in the Portfolio, one or more other Portfolio investors
could, in certain instances, approve an action which a majority of the
outstanding voting securities of the Trust had voted against. This could result
in the Trust redeeming its investment in the Portfolio, which could result in
increased expenses for the Trust. Whenever the shareholders of the Trust are
called to vote on matters relating to the Portfolio, the Trustees of ASIS shall
vote shares for which they receive no voting instructions in the same proportion
as the shares for which they do receive voting instructions.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires the
notice of such disclaimer be given to all parties in each agreement, obligation
or instrument entered into or executed by ASIS or the Trustees. The Declaration
of Trust provides for indemnification out of the property of ASIS property for
all loss and expense of any shareholder of ASIS held liable on account of being
or having been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which ASIS would be unable to meet its obligations wherein the complaining
party was held not to be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees of ASIS will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for
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indemnification by ASIS of the Trustees and officers of ASIS except with respect
to any matter as to which such person did not act in good faith in the
reasonable belief that his action was in or not opposed to the best interests of
ASIS. Such person may not be indemnified against any liability to ASIS or its
shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The Declaration of Trust also authorizes
the purchase of liability insurance on behalf of Trustees and officers.
Any conflict of interest arising between ASIS and AIST will be resolved by the
Trustees of ASIS and AIST in accordance with their fiduciary responsibilities
imposed by the Investment Company Act of 1940 and Massachusetts law. Absent the
adoption of procedures reasonably appropriate to deal with conflicts of
interest, state securities regulations generally do not permit the Trustees of
the Portfolio to be the same individuals as the Trustees of ASIS. The Trustees
of ASIS and AIST, including a majority of disinterested Trustees (as that term
is defined in the Investment Company Act of 1940, as amended), have adopted
procedures that they believe are reasonably appropriate to deal with any
potential conflicts of interest up to and including creating a separate Board of
Trustees.
OTHER INFORMATION
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust,
Pilgrim Strategic Investment Series ("PSIS") (and certain series funds of PSIS)
(predecessors to "Astra") and certain Trustees and Officers of the Trust are
defendants. These actions, which were consolidated on March 31, 1995, in an
action entitled In Re: Pilgrim Securities Litigation, principally allege
violations of the Securities Act of 1933 and the Investment Company Act of 1940
and relate primarily to disclosure concerning pricing and liquidity of portfolio
securities. Management believes the Complaints are without merit and intends to
vigorously defend these actions.
Investors in the Trust will be informed of its progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolio's portfolio as the close of business on the
last day of each month may be obtained by written request to the Trust, together
with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Trust's Shareholder Servicing
Agent at (800-441-7267).
This Prospectus is not an offering of the securities herein described in any
state in which such offering may not lawfully be made. No salesman, dealer or
other person is authorized to give any information or make any representation
other than those contained in this Prospectus.
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ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
[LOGO] ADDITIONAL ACCOUNT PRIVILEGES
PLEASE MAIL THE COMPLETED FORM TO:
DST SYSTEMS, INC.
P.O. BOX 419174
KANSAS CITY, MO 64141
EXISTING ACCOUNT NO:______________________________
EXISTING ACCOUNT REGISTRATION:____________________
__________________________________________________
__________________________________________________
================================================================================
DISTRIBUTION
INSTRUCTIONS
If you wish your cash distributions electronically credited to your bank
account, please attach a voided check for this account.
If no box is checked, all distributions will be reinvested in additional shares
of the Trust.
INCOME DIVIDENDS: (elect one)
[] Reinvest dividends [] Pay dividends in cash [] Use Dividend Transfer Option
CAPITAL GAINS DISTRIBUTION: (elect one)
[] Reinvest capital gains [] Pay capital gains in cash [] Use Dividend Transfer
Option
If you wish to utilize the Dividend Transfer Option, please designate the Astra
Fund account you wish to have your dividends reinvested in:
_________________________ ___________________________________________________
Fund Name Existing Acct. No.
[] Check this box if you wish your cash distributions to be sent to a payee
or address other than that listed in the "ACCOUNT REGISTRATION" section
above and indicate the payee and address below:
________________________________________________________________________________
Payee
________________________________________________________________________________
Street Address
________________________________________________________________________________
Account Number If Applicable
________________________________________________________________________________
City, State and Zip Code
================================================================================
SPECIAL SERVICES:
EXPEDITED
REDEMPTIONS
Please indicate a commercial bank and ATTACH A VOIDED CHECK for this account.
"FOR DEALER ONLY" section must be completed.
TELEPHONE EXCHANGE PRIVILEGE--Telephone exchanges may be made by calling DST
Systems, Inc., at (800) 441-7267 before the close of the NYSE on any business
day the NYSE is open.
I (we) authorize the Trust's Transfer Agent to act upon telephone or wire
instructions from any person to have amounts redeemed from my (our) account in
the Trust and [] WIRED to the bank account designated below. ($5,000 minimum)
Name of Bank Branch
________________________________________________________________________________
Bank Address
________________________________________________________________________________
________________________________________________________________________________
Name of Account Account Number
________________________________________________________________________________
You will automatically be assigned this privilege unless you instruct the Trust
otherwise by checking the box below. Shares may only be exchanged between
accounts with identical registrations. Any certificates for shares must be
deposited prior to any exchange of such shares. Certain Restrictions apply to
this privilege. Please read the Prospectus carefully.
[] I do not wish to have the Telephone Exchange Privilege.
================================================================================
SYSTEMATIC
WITHDRAWAL
PLAN
I (we) authorize the Trust's Transfer Agent, to liquidate shares in and withdraw
cash from my account 5 business days prior to the beginning of _________________
(month) to provide [] Monthly or [] Quarterly Systematic Withdrawal Plan
payments ("SWP") in the amount of $_______________________ ($100 minimum) to the
registered shareholder or to the following designated payee
Full Name/Corporate Name
________________________________________________________________________________
Name of Payee or Payee Bank Bank Account Number (if any)
________________________________________________________________________________
Street Address
________________________________________________________________________________
City, State, Zip
________________________________________________________________________________
Authorized Signature(s)
33
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED TO A
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)
If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth on pages 22-23 of the
prospectus, you must complete this Contingent Deferred Sales Charge Waiver Form
and send it to the Trust's Transfer Agent at its address given below. The waiver
will only be granted upon confirmation of your entitlement.
Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:
[ ] Redemption is made upon the death or permanent disability of shareholder.
(Enclose either a certified death certificate or certification of permanent
disability (see below), whichever is appropriate).
[ ] Redemption is made in connection with mandatory distributions from an IRA
or other qualified retirement plan (Enclose a certified birth certificate
for IRA or other qualified retirement plan accounts. Where IFTC acts as
custodian, please contact the Trust for a Distribution Request Form which
must accompany this Contingent Deferred Sales Charge Waiver Form).
___________________________________________________________________________
___________________________________________________________________________
Signature__________________________________________________________________
(Exactly as on Account Registration)
DATE_______________________________________________________________________
Name(s)____________________________________________________________________
(Please Print)
MAIL THE COMPLETED WAIVER FORM TO:
DST SYSTEMS, INC., P.O. BOX 419174, KANSAS CITY, MO 64141
DEFINITION OF DISABILITY
An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.
CERTIFICATION OF DISABILITY
I___________________________________________certify that________________________
Physician Name Investor/Patient
is under the regular care of_______________________________________and is unable
Licensed Physician
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of disability________________________
Physician Signature_______________________________________Date__________________
35
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
36
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE SUBSTITUTE FORM W-9
The Fund, and other payers, must, according to IRS regulations, withhold
20% of reportable dividends (whether paid or accrued) and redemption payments if
a shareholder fails to provide a taxpayer identification number, and a
certification that he is not subject to backup withholding in the Substitute
Form W-9 included as a part of this Letter of Transmittal.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in the
manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under section
3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you fail
to certify to the payer that you are not subject to backup withholding under (3)
above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, application for a Social Security Number Card, or Form
SS-4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in the space provided for a taxpayer identification
number on the application.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
4 Show the name of the owner.
5 List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL
payments. Write "exempt payee" after paragraph (2) of the Certification and
Signature section if your account falls into one of the following categories. We
will still need your taxpayer identification number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
================================================================================
GUIDELINES FOR DETERMINING PROPER NUMBER FOR THIS TYPE OF ACCOUNT:
1. An individual's account
2. Two or more individuals (joint account)
3. Husband and wife (joint account)
4. Custodian account to a minor (Uniform Gift to Minors Act)
5. Adult and minor
6. Account in the name of guardian or committee for a designated ward, minor or
incompetent person
7. a. The usual revocable savings trust account (grantor is also trustee)
b. So-called trust account that is not a legal or valid trust under state
law
8. Sole proprietorship account
GIVE THE
SOCIAL SECURITY
NUMBER OF--
The individual
The actual owner of the account or, if combined funds any one of the
individuals(superior1)
The actual owner of the account or, if joint funds, either person(superior1)
The minor(superior2)
The adult or if the minor is the only contributor, the minor(superior1)
The ward, minor, or incompetent person(superior3)
The grantor-trustee(superior5)
The actual owner(superior1)
The owner(superior4)
FOR THIS TYPE OF ACCOUNT:
9. A valid trust, estate or pension trust
10. Corporate account
11. Religious, charitable, or educational organization account
12. Partnership account held in the name of the business
13. Association, club or other tax-exempt organization
14. A broker or registered nominee
15. Account with the Department of Agriculture in the name of a public entity
(such as a State or local government, school district, or prison) that
receives agricultural program payments
GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
Legal entity (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)(superior5)
The corporation
The organization
The partnership
The organization
The broker or nominee
The public entity
37
<PAGE>
[LOGO]
750 B Street
Suite 2350
San Diego, California 92101
Astra
Adjustable
U.S. Government
Securities Trust I
Astra Adjustable U.S. Government Prospectus
Securities Trust I February 28, 1996
INVESTMENT MANAGER
Astra Management Corporation
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp.
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
[ARTWORK--EAGLE]
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
(800) 441-7267
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
CUSTODIAN
PNC Bank, National Association
Airport Business Center
200 Stevens Drive
Lester, Pennsylvania 19113
LEGAL COUNSEL
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
USG I 296 xx (c) 1996 Atlas Holdings Group, Inc.
<PAGE>
Prospectus
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
750 B STREET, SUITE 2350, SAN DIEGO, CALIFORNIA 92101 o 1-800-219-1080
- --------------------------------------------------------------------------------
O HOW THE TRUSTS WORK PAGE 8
O SHAREHOLDER'S GUIDE PAGE 23
- -------------------------------------------------------------------------------
Astra Adjustable U.S. Government Securities Trust I-A ("Trust I-A") and Astra
Adjustable U.S. Government Securities Trust II ("Trust II") (collectively the
"Trusts" or individually a "Trust") are non-diversified series of Astra
Strategic Investment Series ("ASIS"), an open-end management investment company
(mutual fund), that seek high current income consistent with low volatility of
principal. EACH TRUST, UNLIKE MANY OTHER INVESTMENT COMPANIES WHICH DIRECTLY
ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, SEEKS TO ACHIEVE THIS
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN ASTRA INSTITUTIONAL
ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO (THE "PORTFOLIO"), AN OPEN-END
MANAGEMENT INVESTMENT COMPANY WHICH IS A NON-DIVERSIFIED SERIES OF ASTRA
INSTITUTIONAL SECURITIES TRUST ("AIST") WITH THE SAME INVESTMENT OBJECTIVE AS
EACH OF THE TRUSTS. AS A RESULT, THE INVESTMENT EXPERIENCE OF EACH TRUST WILL
CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE PORTFOLIO.
ACCORDINGLY, INVESTORS SHOULD CAREFULLY CONSIDER THE INVESTMENT APPROACH. FOR
ADDITIONAL INFORMATION REGARDING THIS CONCEPT, SEE "HOW THE TRUSTS WORK--SPECIAL
INFORMATION REGARDING THE TRUSTS' STRUCTURE." The Portfolio seeks to achieve its
investment objective, which is identical to the investment objective of the
Trusts, by investing at least 65% of its assets in adjustable rate mortgage
securities which are issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Mortgage Securities"). The Portfolio
invests the remainder of its assets generally in mortgage securities issued or
sponsored by commercial banks, savings and loan associations, mortgage bankers
or other financial institutions, that have no government guarantee and that are
senior or subordinated to other mortgage securities arising out of the same pool
of mortgages ("Multi-Class Residential Mortgage Securities"). The portion of
assets invested in Subordinated Residential Mortgage Securities may entail
greater risk than the portion invested in senior Mortgage Securities or U.S.
Government Mortgage Securities.
The Trusts believe that by investing in the Portfolio which invests primarily in
mortgage securities which have variable rates of interest, they will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. In addition, by selectively investing a portion of its assets in
Multi-Class Residential Mortgage Securities, the Portfolio will seek to achieve
a higher yield than that of traditional mutual funds which invest primarily or
exclusively in U.S. Government Mortgage Securities. There can, of course, be no
assurance that each Trust's objective will be attained.
Shares of Trust I-A enjoy the benefit of permitting all of the investor's money
to work from the time the investment is made. The higher distribution fee paid
by Trust I-A, however, will cause Trust I-A to have a higher expense ratio than
shares of Trust II. In choosing between an investment in Trust II or Trust I-A
an investor should consider which method of purchasing shares is most beneficial
given the length of time the investor expects to hold the shares. Investors
should consider whether during the anticipated life of their investment the
initial sales charge and accumulated distribution fees imposed on shares of
Trust II would be less or greater than the accumulated continuing distribution
fees plus the contingent deferred sales charges imposed on shares of Trust I-A
and to what extent such differential would be offset or increased by the higher
yield of Trust II shares.
Trust II offers shares that may be purchased at a price equal to their net asset
value per share plus a varying sales charge, depending on the amount of
purchase. Trust I-A offers shares that may be purchased at a price equal to
their net asset value per share and imposes a contingent deferred sales charge
which will be assessed on most redemptions made within four years of purchase.
Trust II incurs, subject to certain limitations, an annual distribution fee of
.25% of its average daily net assets. Trust I-A incurs, subject to certain
limitations, an annual distribution fee of 1.00% of its average daily net
assets.
(Continued on page 2)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1996
<PAGE>
(Continued from Cover Page)
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY.
This Prospectus must be delivered to the investor prior to consummation of sale.
This Prospectus sets forth concisely information about the Trusts that
prospective investors should know before investing. It should be retained for
future reference. A Statement of Additional Information relating to the Trusts,
dated February 28, 1996, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement is available
without charge upon request to a Trust at the address or telephone number above.
TABLE OF CONTENTS
- ------------
Page
----
Key Features 3
- --------------------------------------------------------------------------------
Special Information Regarding the Trusts' Structure 8
- --------------------------------------------------------------------------------
The Trusts' Investment Objective 9
- --------------------------------------------------------------------------------
Distributions and Taxes 22
- --------------------------------------------------------------------------------
How to Buy Shares of the Trusts 23
- --------------------------------------------------------------------------------
How to Redeem Shares of the Trusts 28
- --------------------------------------------------------------------------------
Shareholder Services and Privileges 30
- --------------------------------------------------------------------------------
Expedited Redemption and Telephone Exchange Information 31
- --------------------------------------------------------------------------------
How the Trusts Value Their Shares 31
- --------------------------------------------------------------------------------
The Astra Group 33
- --------------------------------------------------------------------------------
Portfolio Management 33
- --------------------------------------------------------------------------------
Management Fees 34
- --------------------------------------------------------------------------------
Administrative Fees 34
- --------------------------------------------------------------------------------
Distribution Plans 35
- --------------------------------------------------------------------------------
General Information 38
- --------------------------------------------------------------------------------
New Account Application 41
- --------------------------------------------------------------------------------
Additional Account Privileges 45
- --------------------------------------------------------------------------------
2
<PAGE>
KEY FEATURES
- ------------
WHAT IS THE TRUSTS' INVESTMENT OBJECTIVE?
The investment objective of each Trust is to seek a high level of current income
consistent with low volatility of principal. See "The Trusts' Investment
Objective" for a discussion of current adverse market conditions and the effect
of redemption requests on portfolio yield.
Each Trust seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio which has the same investment objective as
that of each Trust. Since the investment characteristics of each Trust will
correspond to those of the Portfolio, this prospectus discusses the various
investments of and techniques employed by the Portfolio.
LESS FLUCTUATION IN NET ASSET VALUE
At least 65% of the Portfolio's assets are invested in adjustable rate mortgage
securities ("ARMS") representing an interest in mortgages, which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities"). The adjustable rate feature of the underlying
mortgages to these instruments generally will act as a buffer to reduce sharp
changes in the Portfolio's net asset value in response to normal interest rate
fluctuations. The Portfolio expects that the adjustable rate feature of the U.S.
Government Mortgage Securities will help the Portfolio achieve lower volatility
of principal than a long-term bond fund whose portfolio instruments have a fixed
rate of interest. The Portfolio only invests in those mortgage securities with
underlying mortgages representing first liens on the properties securing such
mortgages. See "U.S. Government Mortgage Securities," "Adjustable Rate Mortgage
Securities" and "Illiquid Securities."
The performance of the Trusts have been negatively affected by adverse
conditions in the market for ARM securities. Because of rising interest rates
and declining bond prices, combined with negative publicity on the mortgage
securities market and the higher than expected price volatility experienced with
many derivative mortgage-backed securities, mortgage funds industry-wide have
experienced heavy redemptions. As a result, many ARM funds have been forced to
liquidate ARM securities in order to meet redemption requests. This has resulted
in an increased supply of ARM securities in the market, bringing about wider
spreads over the relevant indices and reduced prices. Moreover, adverse market
conditions have resulted in a decrease in the value of certain ARM securities of
the type in which the Trusts have invested. Further fluctuations in net asset
value may occur as a result of such factors as deteriorating or improving market
conditions and liquidity and credit experience of portfolio securities. See
"Illiquid Securities."
HIGH CURRENT INCOME
The remainder of the Portfolio's assets are invested in residential mortgage
securities collateralized by pools of single family, multi-family and mobile
home park residential mortgages issued or sponsored by financial institutions
such as commercial banks, savings and loan associations and mortgage bankers,
that have no government guarantee and that are senior or subordinated to other
mortgage securities arising out of the same pool of mortgages ("Multi-Class
Residential Mortgage Securities"). A substantial portion of the Portfolio's
investment in Multi-Class Residential Mortgage Securities is expected to be
Multi-Class Residential Mortgage Securities that are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
securities ("Subordinated Residential Mortgage Securities"). By investing in
Subordinated Residential Mortgage Securities, the Portfolio seeks to increase
yield to shareholders. The Portfolio seeks to limit the risks presented by such
instruments by reviewing and analyzing the characteristics of the mortgage
3
<PAGE>
loans underlying the Subordinated Residential Mortgage Securities that it may
acquire. The Portfolio purchases Subordinated Residential Mortgage Securities
when, in the view of the Trusts' investment manager, Astra Management
Corporation ("AMC" or the "Manager"), the potential for a higher marginal yield
on such instruments outweighs any additional risk presented by the instruments.
See "Multi-Class Residential Mortgage Securities."
The Trusts have experienced a significant increase in the rate of redemptions.
As a result, the Portfolio has increasingly been managed to provide adequate
cash reserves to satisfy redemption requests, resulting in a decreased ability
to seek high current income with low volatility of principal, which are the
Trusts' fundamental investment objective. Investing a larger percentage of
portfolio assets in cash and short-term instruments results in lower yields than
those typically received on investments in mortgage securities. See "Illiquid
Securities."
HOW DO I BUY AND SELL (REDEEM) MY SHARES OF THE TRUSTS?
Shares of Trust I-A are available through selected broker-dealers and other
financial services firms at the net asset value per share. Shares of Trust II
are available through such financial services firms at the net asset value per
share plus a varying sales charge, depending on the amount of purchase. The
minimum initial investment is $5,000 ($2,000 for IRAs). Shares of Trust II are
redeemable at the net asset value per share on any business day. Shares of Trust
I-A are redeemable at the net asset value per share on any business day, reduced
by the amount of any applicable contingent deferred sales charge. Payments to
you can be made either through brokers, directly to you, or to your designated
bank. In addition, for the convenience of shareholders, each Trust provides
certain shareholder services and privileges which may be suited to your
particular investment needs. See "Shareholder's Guide."
WHEN DO I RECEIVE INCOME?
You may elect to receive monthly dividends from net investment income in cash or
have them reinvested in additional shares at net asset value. See "Choosing a
Distribution Option."
WHO IS ASTRA GROUP?
Astra Management Corporation ("AMC"), the Portfolio's investment manager and
Astra Fund Distributors Corp. (the "Distributor"), the Trusts' principal
underwriter, are part of Atlas Holdings Group, Inc. ("Atlas Group"), a financial
services holding company which provides financial services to mutual funds.
Atlas Group has total combined assets under management of approximately $200
million. AMC and the Distributor are part of the umbrella name "Astra Group."
4
<PAGE>
FEE TABLE
The following fee table is provided to assist investors in understanding the
various costs and expenses which may be borne directly or indirectly by an
investment in a Trust (including costs and expenses charged by both the Trusts
and the Portfolio.) The percentages shown below expressing Annual Trust
Operating Expenses are based on actual amounts incurred by the Trusts for the
fiscal year ended October 31, 1995.
Shareholder Transaction Expenses Trust I-A Trust II
- -------------------------------- --------- --------
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price) .................... NONE 3%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) .................. NONE NONE
Deferred Sales Charge
1st year ............................................. 4%
2nd year ............................................. 3%
3rd year ............................................. 2% NONE
4th year ............................................. 1%
5th year and thereafter .............................. 0%
Redemption Fees ........................................ NONE NONE
Annual Trust Operating Expenses
- -------------------------------
(as a percentage of average net assets)
Management Fees (See Management Fees)* .................. 0.55% 0.55%
12b-1 Fees (See "Distribution Plan")** .................. 1.00% 0.25%
Administration Fees (See "Administration Fees")* ........ 0.10% 0.10%
Other Expenses .......................................... 0.79% 1.53%
---- ----
Total Trust Operating Expenses*** ....................... 2.44% 2.43%
==== ====
- ----------
* ASIS' Trustees believe that the aggregate per share operating expenses of
each Trust and the Portfolio will be less than or approximately equal to the
expenses that each Trust would incur if it retained the services of an
investment adviser and its assets were invested directly in the type of
securities held by the Portfolio.
** As a result of 12b-1 fees, a long-term shareholder in the Trusts may pay
more than the economic equivalent of the maximum sales charges permitted by
the Rules of the National Association of Securities Dealers, Inc. The
Distribution Plan for Trust I-A provides for, among other things, the
payment of interest at a specified rate on the balance of unreimbursed
distribution expenses. Please see "Distribution Plans" at page 35.
*** More complete descriptions of the following expenses are set forth on the
following pages: (i) Management Fees--page 34, (ii) 12b-1 Fees--pages 35
thru 37, and (iii) Administration Fees--page 34.
EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and redemption
at the end of each time period, an investor in a Trust would have paid
transaction and operating expenses at the end of each year as follows:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Trust I-A $65 $ 96 $131 $279
Trust II $54 $104 $156 $299
You would pay the following expenses on the same investment assuming no
redemption.
1 year 3 years 5 years 10 years
------ ------- ------- --------
Trust I-A $25 $76 $131 $279
This Example should not be considered as representative of past or future
expenses and actual expenses may be greater or less than those shown. The
foregoing table has not been audited by Tait, Weller & Baker, the Trusts'
independent certified public accountants.
5
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights relating to the Trusts have been audited by
Tait, Weller & Baker, independent certified public accountants, whose reports
thereon appear in each Trust's Annual Report to Shareholders for the fiscal year
ended October 31, 1995 and are incorporated by reference in this Prospectus. A
copy of the Trusts' Annual Report to Shareholders may be obtained without charge
by contacting the Trusts' Shareholder Servicing Agent at (800) 441-7267.
<TABLE>
<CAPTION>
May 19, 1992
(commencement of
Year ended October 31, operations) to
---------------------------------------- October 31,
1995 1994 1993 1992
------- -------- ------- ---------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ...... $ 6.380 $ 7.180 $ 7.310 $ 7.340
------- -------- -------- --------
Income (loss) from investment
operations--
Net investment income ................... 0.246 (e) 0.256 0.355 0.207
Net realized and unrealized loss
on investments ......................... (0.741)(e) (0.726) (0.041) (0.004)
------- -------- -------- --------
Total from investment operations ...... (0.495) (0.470) 0.314 0.203
------- -------- -------- --------
Less distributions--
Distributions from net investment
income .................................. 0.252 0.308 0.410 0.207
Distributions from paid-in capital ....... 0.033 0.022 0.034 0.026
------- -------- -------- --------
Total distributions ................... 0.285 0.330 0.444 0.233
------- -------- -------- --------
Net asset value, end of period ............ $ 5.600 $ 6.380 $ 7.180 $ 7.310
======= ======== ======== ========
TOTAL RETURN (f) .......................... (7.79)% (6.77)% 4.53% 6.16%(a)
RATIO/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ........................... $65,881 $187,510 $378,912 $220,256
Ratio to average net assets--
Expenses ................................. 1.58%(b) 1.42%(b) 1.21%(b) 1.36%(a)(b)(c)
Net investment income .................... 4.27% 3.68% 4.81% 5.59%(a)(d)
Portfolio turnover rate ................... 3% 3% 1% 0%
</TABLE>
- ----------
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust I-A.
(c) Ratio of expenses to average net assets prior to expense waivers was
1.39%(a).
(d) Ratio of net investment income to average net assets prior to expense
waivers was 5.56%(a).
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
Further information about the Trust's performance is contained in the Trust's
Annual Report to Shareholders for the fiscal year ended October 31, 1995, which
may be obtained by shareholders without charge.
6
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights relating to the Trusts have been audited by
Tait, Weller & Baker, independent certified public accountants, whose reports
thereon appear in each Trust's Annual Report to Shareholders for the fiscal year
ended October 31, 1995 and are incorporated by reference in this Prospectus. A
copy of the Trusts' Annual Report to Shareholders may be obtained without charge
by contacting the Trusts' Shareholder Servicing Agent at (800) 441-7267.
<TABLE>
<CAPTION>
November 27, 1991
(commencement of
Year ended October 31, operations) to
------------------------------------------------- October 31,
1995 1994 1993 1992
------- -------- -------- ------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ......... $ 6.470 $ 7.240 $ 7.320 $ 7.350
------- -------- -------- --------
Income (loss) from investment
operations--
Net investment income ...................... 0.251(e) 0.293 0.410 0.505
Net realized and unrealized loss
on investments ............................ (0.749)(e) (0.730) (0.044) (0.033)
------- -------- -------- --------
Total from investment
operations .............................. (0.498) (0.437) 0.366 0.472
------- -------- -------- --------
Less distributions--
Distributions from net investment
income ..................................... 0.260 0.303 0.415 0.502
Distributions from realized gains
on investments ............................. -- -- 0.003 --
Distributions from paid-in capital .......... 0.042 0.030 0.028 --
------- -------- -------- --------
Total distributions ...................... 0.302 0.333 0.446 0.502
------- -------- -------- --------
Net asset value, end of period ............... $ 5.670 $ 6.470 $ 7.240 $ 7.320
======= ======== ======== ========
TOTAL RETURN (f) ............................. (7.74)% (6.25)% 5.12% 7.13%(a)
RATIO/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) .............................. $5,134 $12,359 $99,888 $88,901
Ratio to average net assets--
Expenses .................................... 1.57%(b) 0.76%(b) 0.51%(b) 0.57%(a)(b)(c)
Net investment income ....................... 4.27% 4.27% 5.57% 7.09%(a)(d)
Portfolio turnover rate ...................... 7% 12% 79% 97%
</TABLE>
- ----------
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust II.
(c) Ratio of expenses to average net assets prior to expense waivers was
0.59%(a).
(d) Ratio of net investment income to average net assets prior to expense
waivers was 7.07%(a).
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
Further information about the Trust's performance is contained in the Trust's
Annual Report to Shareholders for the fiscal year ended October 31, 1995, which
may be obtained by shareholders without charge.
7
<PAGE>
HOW THE TRUSTS WORK
SPECIAL INFORMATION REGARDING THE TRUSTS' STRUCTURE
- ------------
The investment objective of each Trust is to seek a high level of current income
consistent with low volatility of principal. Each Trust's Investment objective
is fundamental and may not be changed without shareholder approval. Each Trust
pursues its investment objective by investing all of its investable assets in
the Portfolio which has the same investment objective as that of each Trust.
Either Trust may withdraw its investment in the Portfolio at any time without
shareholder approval if the Board of Trustees of ASIS decides that it is in the
best interests of either or both of the Trusts to do so. Upon any such
withdrawal, the Trustees would consider what action might be taken, including
the investment of the assets of either or both of the Trusts in another
registered investment company having the same investment objective as the Trusts
or the retention of an investment adviser to manage either or both of the
Trusts' assets in accordance with its investment objective. The investment
objective of the Trusts and the Portfolio can only be changed with shareholder
approval. Written notice shall be provided to shareholders of a Trust at least
thirty days prior to any changes in a Trust's or the Portfolio's investment
objective. If the objective of the Portfolio changes and the shareholders of a
Trust do not approve a parallel change in the Trust's investment objective, such
Trust would seek an alternative investment vehicle or directly retain its own
investment adviser. There can be, of course, no assurance that the Trusts' and
the Portfolio's objective will be achieved.
Investors should be aware that the Trusts, unlike mutual funds which directly
acquire and manage their own portfolio of securities, seek to achieve their
investment objective by investing all of their investable assets in the
Portfolio, which is a separate investment company, as previously described. The
fundamental and nonfundamental investment restrictions of the Trusts are
identical to those of the Portfolio. The Trustees of ASIS believe that by
investing all of its investable assets in the Portfolio, the Trusts expect to be
in a position to realize directly or indirectly certain economies of scale, in
that a larger investment portfolio may achieve a lower ratio of operating
expenses to net assets. Since the Trusts will invest only in the Portfolio, the
Trusts' shareholders will acquire only an indirect interest in the investments
of the Portfolio. Historically, the Pilgrim Group Inc., Astra's predecessor, had
sponsored traditionally structured funds and, therefore, Astra has limited
experience with funds that invest all of their assets in a separate portfolio.
In addition to selling its interests to the Trusts, the Portfolio may sell its
interests to other affiliated or nonaffiliated investment companies and/or
other institutional investors. All institutional investors in the Portfolio will
pay a proportionate share of the Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in the Portfolio, it would not be required to
sell its shares at the same public offering price as the Trusts and may charge
different sales commissions. Therefore, investors in the Trusts may experience
different returns from investors in another investment company which invests
exclusively in the Portfolio. As of the date of this Prospectus, in addition to
the Trusts, Astra Adjustable U.S. Government Securities Trust I and IV also
invest exclusively in the Portfolio. In addition, the Portfolio may offer
beneficial interests to other institutional investors in the future. Information
regarding these other Trusts is available by calling the Trusts' Shareholder
Servicing Agent at (800) 441-7267.
Investors in the Trusts should be aware that the Trusts' investment in the
Portfolio may be materially affected by the actions of large investors in the
Portfolio, if any. For example, as with all open-end investment companies, if a
large investor were to redeem its interest in the Portfolio, the Portfolio's
remaining investors could experience higher pro rata operating expenses, thereby
producing lower returns. As a result, the Portfolio's security holdings may
become less diverse, resulting in increased risk. Institutional investors in the
Portfolio that have a greater pro rata ownership interest in the Portfolio than
the Trusts could have effective voting control over the operation of the
Portfolio. Certain changes in the Portfolio's fundamental objectives, policies
8
<PAGE>
and restrictions could require a Trust to redeem its interest in the Portfolio.
Any such redemption could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio.
Should such a distribution occur, the Trusts could incur brokerage fees or other
transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
for the Trusts and could affect adversely the liquidity of the Trusts.
See "Management Fees", "Administrative Fees" and "Distribution Plans" for a
complete description of the management and other expenses associated with the
Trusts' investment in the Portfolio.
THE TRUSTS' INVESTMENT OBJECTIVE
- ------------
The investment objective of each Trust is to seek a high level of current income
consistent with low volatility of principal. Each Trust pursues its investment
objective by investing all of its investable assets in the Portfolio which has
the same investment objective as that of each Trust. The Portfolio invests at
least 65% of its total assets in adjustable rate U.S. Government Mortgage
Securities. The Portfolio invests the remainder of its assets in Multi-Class
Residential Mortgage Securities. Multi-Class Residential Mortgage Securities are
issued or sponsored by commercial banks, savings and loan associations or other
financial institutions, have no governmental guarantee and are senior or
subordinated to other mortgage securities arising out of the same pool of
mortgages. The Portfolio expects that a substantial portion of its investment in
Multi-Class Residential Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. The mortgage securities in which the Portfolio
invests represent a participation in mortgage loans secured by property
consisting of single family, multi-family and mobile home park, residential
property. The Portfolio only invests in those mortgage securities with
underlying mortgages representing first liens on the properties securing such
mortgages. There is, of course, no assurance that the Portfolio's objective will
be achieved.
DUE TO INCREASINGLY ADVERSE MARKET CONDITIONS FOR ADJUSTABLE RATE MORTGAGE
SECURITIES, INCLUDING SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES, THE
PORTFOLIO HAS EXPERIENCED A NET REDUCTION IN THE VALUES OF THE SECURITIES IT
HOLDS. ALTHOUGH THE MANAGER BELIEVES THAT UNDER NORMAL MARKET CONDITIONS THE
PORTFOLIO'S INVESTMENT OBJECTIVE CAN BE ACHIEVED, THERE CAN BE NO ASSURANCE THAT
THE ADVERSE MARKET CONDITIONS WILL NOT CONTINUE. IN ADDITION, AS THE TRUSTS HAVE
EXPERIENCED AN INCREASE IN THE RATE OF REDEMPTIONS, CASH AND CASH EQUIVALENTS
HAVE BEEN MAINTAINED IN ORDER TO MEET SUCH REDEMPTIONS, WHICH HAS HAD THE EFFECT
OF REDUCING YIELD. THE MANAGER INTENDS TO MAINTAIN THIS POSITION UNTIL SUCH TIME
AS THE MARKET FOR ADJUSTABLE RATE MORTGAGE SECURITIES NORMALIZES AND REDEMPTION
RATES STABILIZE.
Traditionally, the mortgage securities in which most mutual funds invested were
exclusively U.S. Government Mortgage Securities representing interests in pools
of fixed rate mortgages. The Portfolio believes that by investing primarily in
mortgage securities which have variable rates of interest, it will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. Unlike fixed-rate mortgages which generally decline in value during
periods of rising interest rates, adjustable rate mortgage securities allow the
Portfolio to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and lower price fluctuations. Furthermore, if prepayments of
principal are made on the underlying mortgages during periods of rising interest
rates, the Portfolio generally is able to reinvest such amounts in securities
with a higher current rate of return. However, the Portfolio will not benefit
from increases in interest rates to the extent that interest rates rise to the
point where they cause the current coupon of adjustable rate mortgages held as
investments to exceed the maximum allowable annual or lifetime reset limits (or
"cap rates") for a particular mortgage. In this event, the value of the mortgage
securities in the Portfolio would likely decrease. Also, the Portfolio's net
asset value could vary due to market yield changes during interim periods
between coupon reset dates, which typically range from one month to five years.
Furthermore, during periods of declining interest rates, income to the Portfolio
derived
9
<PAGE>
from ARMS will decrease in contrast to the income on fixed rate mortgages which
will remain constant. In addition, ARMS have less potential for appreciation in
value when interest rates decline than do fixed rate investments which tend to
increase in value as interest rates decline. See "U.S. Government Mortgage
Securities," "Characteristics of the Adjustable Rate Mortgage Securities in
which the Portfolio Invests" and "Illiquid Securities."
Multi-Class Residential Mortgage Securities may constitute up to 35% of the
Portfolio's assets. Unlike U.S. Government Mortgage Securities, the payment of
principal and interest on Multi-Class Residential Mortgage Securities is not
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
Accordingly, yields on Multi-Class Residential Mortgage Securities have been
historically higher than the yields on U.S. Government Mortgage Securities.
However, the risk of loss due to default on such instruments is higher since
they are not guaranteed by the U.S. Government.
The Portfolio expects that a substantial portion of its assets invested in
Multi-Class Residential Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. Subordinated Residential Mortgage Securities
are subordinated in some manner as to the payment of principal and/or interest
to the holders of more senior mortgage securities. Accordingly, losses on the
underlying mortgage loans are generally borne by the holders of Subordinated
Residential Mortgage Securities before they are borne by the holders of more
senior mortgage securities arising out of the same pool. The holders of
Subordinated Residential Mortgage Securities are therefore compensated with a
higher stated yield than are the holders of more senior Multi-Class Residential
Mortgage Securities. The return on Subordinated Residential Mortgage Securities
is decreased by any loss incurred pursuant to the terms of the Subordinated
Residential Mortgage Security.
A Multi-Class Residential Mortgage Security that is senior to a Subordinated
Residential Mortgage Security will not bear a loss resulting from the occurrence
of a default on an underlying mortgage until all credit enhancement protecting
such senior holder is exhausted. For example, the senior holder will only suffer
a credit loss after any subordinated interests have been exhausted pursuant to
the terms of the Subordinated Residential Mortgage Security. See "Multi-Class
Residential Mortgage Securities." The primary credit risk to the Portfolio by
investing in Subordinated Residential Mortgage Securities is potential losses
resulting from defaults by the borrowers under the underlying mortgages. The
Portfolio would generally realize such a loss in connection with a Subordinated
Residential Mortgage Security only if the subsequent foreclosure sale of the
property securing a mortgage loan does not produce an amount at least equal to
the sum of the unpaid principal balance of the loan as of the date the borrower
went into default, the interest that was not paid during the foreclosure period
and all foreclosure expenses. The senior Multi-Class Residential Mortgage
Securities in which the Portfolio invests are rated at least A by Standard &
Poor's Corporation or Moody's Investors Service. The Subordinated Residential
Mortgage Securities in which the Portfolio invests are generally unrated and the
Manager is not in the business of determining credit ratings. However, the
Manager believes that the Subordinated Residential Mortgage Securities in which
the Portfolio invests generally present credit risks similar to that of
corporate debt securities rated BBB or Baa by Standard and Poor's Corporation or
Moody's Investors Service, respectively, although it notes that certain recently
rated BBB mortgage securities have a first loss protection somewhat greater and
a yield somewhat lower than the Subordinated Residential Mortgage Securities in
which the Portfolio typically invests.
Debt rated "BBB" by Standard and Poor's Corporation is regarded as having
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. Debt rated "Baa" by Moody's Investors Service is considered a medium
grade obligation; i.e., it is neither highly protected nor poorly
10
<PAGE>
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt lacks
outstanding investment characteristics and in fact has speculative
characteristics as well.
The Manager seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans that underlie the pool of mortgages securing both the senior and
Subordinated Residential Mortgage Securities. The Manager has developed a set of
guidelines to assist in the analysis of the mortgage loans underlying
Subordinated Residential Mortgage Securities. Each pool purchase is reviewed
against the guidelines. The Portfolio seeks opportunities to acquire
Subordinated Residential Mortgage Securities where, in the view of the Manager,
the potential for a higher yield on such instruments outweighs any additional
risk presented by the instruments. The Manager seeks to increase yield to
shareholders by taking advantage of perceived inefficiencies in the market for
Subordinated Residential Mortgage Securities.
Each Trust and the Portfolio are registered as a "non-diversified" investment
company. Nevertheless, in accordance with requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, each Trust and the Portfolio may not
purchase the securities of any one issuer if, as a result of such purchase, more
than 5% of a Trust's or the Portfolio's total assets would be invested in the
securities of such issuer at the end of any fiscal quarter, except that with
respect to 50% of either of the Trusts' or the Portfolio's total assets, a Trust
or the Portfolio may invest up to 25% of its total assets in the securities of
any one issuer. Securities of the U.S. Government and securities of other
regulated investment companies are not subject to any investment limitations.
Since the Portfolio may invest a relatively high percentage of its assets in the
obligations of a limited number of issuers, the value of the Portfolio's
investments will be more affected by any single adverse economic, political or
regulatory occurrence than will a diversified investment company.
The Portfolio intends to concentrate its investments in the asset-backed
securities industry. This means that at least 25% of the Portfolio's investments
will be in companies which issue asset-backed securities, such as Multi-Class
Residential Mortgage Securities and residential mortgage loan pools. However,
due to adverse economic conditions or for defensive purposes, the Portfolio may
temporarily have less than 25% of the total value of its assets in that
industry. The Portfolio will follow this policy at all times because it is
fundamental and may not be changed without a majority vote of the Portfolio's
shares.
The Portfolio may from time to time borrow money for the purpose of acquiring
additional portfolio investments. Borrowings and the issuance of indebtedness
create an opportunity to be more fully invested and to earn greater income per
share. Any such borrowing or issuance is a speculative technique in that it will
increase the Portfolio's exposure to capital risk. See "Borrowing."
U.S. GOVERNMENT MORTGAGE SECURITIES
The largest issuers or guarantors of mortgage securities today are the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA creates mortgage securities from pools of Government-guaranteed or insured
(Federal Housing Authority or Veterans Administration) mortgages originated by
mortgage bankers, commercial banks, and savings and loan associations. FNMA and
FHLMC issue mortgage securities from pools of conventional and federally-insured
and/or guaranteed residential mortgages obtained from various entities,
including savings and loan associations, savings banks, commercial banks, credit
unions, and mortgage bankers.
The mortgage securities either issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA, FHLMC, or FNMA fees
and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Certificate
11
<PAGE>
(i.e., the Portfolio). The principal and interest on GNMA securities are
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. FNMA guarantees full and timely payment of all interest and
principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage securities from FNMA and FHLMC are not backed
by the full faith and credit of the U.S. Government; however, their close
relationship with the U.S. Government makes them high quality securities with
minimal credit risks. The yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S. Government Mortgage
Securities with comparable maturities. The Portfolio intends to invest in U.S.
Government Mortgage Securities which are ARMS (see "Characteristics of the
Adjustable Rate Mortgage Securities in Which the Portfolio Invests").
MULTI-CLASS RESIDENTIAL MORTGAGE SECURITIES
Multi-Class Residential Mortgage Securities are securities representing
interests in pools of mortgage loans to residential home buyers made by lenders
such as commercial banks, savings and loan associations and mortgage bankers.
Unlike U.S. Government Mortgage Securities, such as those issued by GNMA, the
payment of principal and interest on Multi-Class Residential Mortgage Securities
is not guaranteed by the U.S. Government or any of its agencies or
instrumentalities. The yields on Multi-Class Residential Mortgage Securities,
however, have been historically higher than the yields on U.S. Government
Mortgage Securities. The Multi-Class Residential Mortgage Securities in which
the Portfolio invests may be ARMS.
Multi-Class Residential Mortgage Securities are issued with one or more classes
subordinate in a specified manner as to the payment of principal and interest.
As a result, losses on the underlying mortgage loans are borne by the holders of
the Subordinated Residential Mortgage Securities before the holders of more
senior mortgage securities. Accordingly, the stated yield of Subordinated
Residential Mortgage Securities is greater than that of more senior Multi-Class
Residential Mortgage Securities arising out of the same pool. The return on
Subordinated Residential Mortgage Securities is, in turn, decreased by any
realized losses incurred pursuant to the terms of the Subordinated Residential
Mortgage Security. While the Portfolio invests in both senior Multi-Class
Residential Mortgage Securities and Subordinated Residential Mortgage
Securities, the Portfolio expects that at least a substantial portion of its
investment in Multi-Class Residential Mortgage Securities will be composed of
Subordinated Residential Mortgage Securities.
Multi-Class Residential Mortgage Securities represent a beneficial interest in a
pool of mortgage loans typically held by a trust. The beneficial interests are
evidenced by certificates issued pursuant to a pooling and servicing agreement.
The certificates are usually issued in multiple classes with the specific rights
of each class set forth in the pooling and servicing agreement and the offering
documents for the security. The pooling and servicing agreement is entered into
by a trustee and a party who is responsible for pooling and conveying the
mortgage assets to the trust, sometimes referred to as the depositor. Various
administrative services related to the underlying mortgage loans, such as
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts and collection of insurance claims are provided by
servicers. A master servicer, who may be the depositor or an affiliate of the
depositor, is generally responsible for supervising and enforcing the
performance by the servicers of their duties and maintaining the insurance
coverages required by the terms of the certificates. In some cases, the master
servicer acts as a servicer of all or a portion of the mortgage loans. (See the
Statement of Additional Information for further discussion of these matters.)
A type of Subordinated Residential Mortgage Security is sometimes called a
"Special Hazard Certificate." With these securities, a holder bears some or all
losses resulting from special hazard losses to the property securing the
mortgages underlying the other class or classes of Multi-Class Residential
Mortgage Securities arising out of the same pool of mortgages. Special hazard
risks may include damage to mortgage properties caused by earthquakes,
landslides, vandalism, or other risks not covered by other requisite insurance
policies.
12
<PAGE>
The Portfolio seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans underlying the Subordinated Residential Mortgage Securities that
it acquires. The Portfolio invests in Subordinated Residential Mortgage
Securities when, in the judgment of the Manager, the difference in stated yield
on Subordinated Residential Mortgage Securities over that of the Senior Mortgage
Securities exceeds the marginal risk assumed by the holders of the Subordinated
Residential Mortgage Securities. See "Risks of Subordinated Residential Mortgage
Securities."
The Portfolio seeks to purchase Multi-Class Residential Mortgage Securities with
underlying mortgage loans secured by property located in geographic regions that
present favorable economic conditions. In this regard, the Manager considers and
analyzes residential housing trends, employment information, demographic data
and other information it deems relevant in evaluating a geographic region. The
Manager also considers principal prepayment histories of borrowers of mortgages
secured by residential property located in the region.
The Portfolio may invest in Multi-Class Residential Mortgage Securities that
represent an interest in mortgage pass-through securities.
CHARACTERISTICS OF THE ADJUSTABLE RATE
MORTGAGE SECURITIES IN WHICH THE PORTFOLIO INVESTS
General. ARMS are pass-through mortgage securities which are collateralized by
mortgages with adjustable rather than fixed interest rates. Mortgages which
collateralize ARMS have become an increasingly important form of residential
financing. Generally, ARMS are collateralized by mortgages that have a specified
maturity date and which amortize principal much in the fashion of a fixed rate
mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that ARMS will behave like fixed rate mortgages in that
current levels of prepayments of principal on the underlying mortgages could
accelerate. Furthermore, during periods of declining interest rates, income to
the Portfolio derived from ARMS will decrease in contrast to the income on fixed
rate mortgages which will remain constant. In addition, ARMS also have less
potential for appreciation in value when interest rates decline than do fixed
rate investments which tend to increase in value as interest rates decline.
However, one difference between mortgages which collateralize ARMS and fixed
rate mortgages is that for certain types of ARMS, the rate of amortization of
principal, as well as interest payments, can and does change in accordance with
movements in a particular, prespecified, published interest rate index. The
amount of interest due to an ARMS' security holder is calculated by adding a
specified additional amount, the "margin," to the index, subject to limitations
or "caps" on the maximum and minimum interest rate that is charged to the
mortgagor during the life of the mortgage or to maximum and minimum changes to
that interest rate during a given period. It is these special characteristics
which are unique to adjustable rate mortgages that the Portfolio's Manager
believes make them attractive investments in seeking to accomplish the
Portfolio's objective.
The market value of ARMS, like other U.S. Government securities, will generally
vary inversely with changes in market interest rates, declining when interest
rates rise and rising when interest rates decline. However, ARMS, while having
less risk of a decline during periods of rapidly rising rates, may also have
less potential for capital appreciation than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. In addition, to the extent ARMS are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holders' principal investment to the extent of the premium
paid. On the other hand, if ARMS are purchased at a discount, both a scheduled
payment of principal and an unscheduled prepayment of principal will increase
current and total returns and will accelerate the recognition of income which
when distributed to shareholders will be taxable as ordinary income.
The adjustable interest rate feature of the underlying mortgages generally will
act as a buffer to reduce sharp changes in the Portfolio's net asset value in
response to normal interest rate fluctuations. As the interest rates
13
<PAGE>
on the mortgages underlying the Portfolio's investments are reset periodically,
yields of portfolio securities will gradually align themselves to reflect
changes in market rates and should cause the net asset value of the Portfolio to
fluctuate less dramatically than it would if the Portfolio invested in more
traditional long-term, fixed-rate debt securities. However, during periods of
rising interest rates, changes in the coupon rate lag behind changes in the
market rate possibly resulting in a slightly lower net asset value until the
coupon resets to market rates, which could take as long as one month to five
years. Thus, investors could suffer some principal loss if they sold their
shares of a Trust before the interest rates on the underlying mortgages held by
the Portfolio are adjusted to reflect current market rates. During periods of
extreme fluctuations in interest rates, the Portfolio's net asset value will
fluctuate as well. Since most mortgage securities in the Portfolio's portfolio
will generally have annual reset caps of 100 to 200 basis points, fluctuation in
interest rates above these levels could cause such mortgage securities to "cap
out" and to behave more like long-term fixed-rate debt securities and
consequently to decrease in value.
Historically, ARMS have had a higher default rate than fixed rate mortgages.
Recently, however, most ARMS originators have changed their underwriting
procedures to ensure that applicants qualify for their mortgage amounts based on
the "fully indexed" interest rate of the mortgage. In the past, many originators
would qualify applicants based on the initial interest rate of the mortgage
(commonly called a "teaser rate") which in most instances was substantially
lower than the "fully indexed" interest rate. This procedure resulted in higher
default and delinquency rates for ARMS than for fixed rate mortgages once the
mortgages adjusted up to the "fully indexed" interest rate. The Manager believes
that the curtailment of this practice by most originators will, over time, lead
to a substantial narrowing in the default rates between fixed and adjustable
rate mortgages.
Caps and Floors. The underlying mortgages which collateralize the ARMS in which
the Portfolio invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (1) per reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization. Negative amortization occurs when a loan payment does not keep
pace with interest rates and is less than the interest due for the time period
covered by such payment. The result is that the amount of the deficiency is
added to the unpaid principal balance on the loan, increasing the outstanding
amount of the loan notwithstanding the fact that the amount due has been paid.
Resets. The interest rates paid on the ARMS in which the Portfolio invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure such as a cost of funds index. Commonly utilized indices
include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolio may invest in collateralized mortgage obligations ("CMOs").
Collateralized mortgage obligations are debt obligations collateralized either
by mortgage loans or mortgage pass-through securities (such collateral
collectively being called "Mortgage Assets.") Payments of principal and interest
on the Mortgage Assets and any reinvestment income thereon provide the funds to
pay debt service on the CMOs.
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CMOs may be issued by the U.S. Government, its agencies or instrumentalities or
by private originators of or investors in mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment bankers and
special purpose subsidiaries of such entities. Typically, CMOs are
collateralized by GNMA certificates or other government mortgage-backed
securities, but they may also be collateralized by whole loans or private
mortgage pass-through securities. CMOs purchased by the Portfolio will be, at
the time of purchase, rated at least A by either Standard & Poor's Corporation
or Moody's Investors Service, or, if unrated, such instruments will be, in the
opinion of the Manager, of comparable quality to such securities.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs (other than any
"principal-only" class) on a monthly, quarterly or semi-annual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a CMO in many ways. In a common structure, payments of principal
(including any prepayments) on the Mortgage Assets are applied to the classes of
the series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
STRIPPED MORTGAGE-BACKED SECURITIES
The Portfolio may invest in stripped mortgage-backed securities ("SMBS").
Stripped mortgage-backed securities are derivative multi-class mortgage
securities and may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and/or principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the principal-
only or "PO" class). The yields to maturity on both PO and IO classes are
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying Mortgage Assets. If the underlying Mortgage Assets of an
IO class of SMBS experience greater than anticipated prepayments of principal,
an investor may fail to recoup fully its initial investment in these securities
even if the securities are rated in the highest rating category. SMBS experience
greater volatility in market value than mortgage securities in general. SMBS
purchased by the Portfolio will be, at the time of purchase, rated at least A by
either Standard & Poor's Corporation or Moody's Investors Service, or, if
unrated, such instruments will be, in the opinion of the Manager, of comparable
quality to such securities.
The staff (the "Staff") of the Securities and Exchange Commission (the "SEC")
takes the position that SMBS issued by the U.S. Government or its agencies or
instrumentalities which are backed by fixed-rate mortgages may be considered
liquid securities as determined under guidelines and standards established by
the Board of Trustees. The Staff considers SMBS not issued by the U.S.
Government or its agencies or instrumentalities and SMBS not backed by fixed
rate mortgages as illiquid securities. The Portfolio will treat these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments. See "Illiquid Securities".
RISKS OF MORTGAGE SECURITIES
The yield characteristics of the mortgage securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage securities,
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usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if the Portfolio purchases these securities at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if the Portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity. Amounts
available for reinvestment are likely to be greater during a period of declining
interest rates and, as a result, are likely to be reinvested at lower interest
rates than during a period of rising interest rates. Accelerated prepayments on
securities purchased by the Portfolio at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full.
The mortgage securities in which the Portfolio invests differ from conventional
bonds in that principal is paid back over the life of the mortgage securities
rather than at maturity. As a result, the holder of the mortgage securities
(i.e., the Portfolio) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest which is lower than the rate on the existing mortgage securities.
For this reason, mortgage securities are less effective than other types of U.S.
Government securities as a means of "locking in" long-term interest rates. See
"Illiquid Securities."
RISKS OF SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES
Subordinated Residential Mortgage Securities generally are likely to be more
sensitive to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional debt securities
and mortgage securities. In addition, while Subordinated Residential Mortgage
Securities have a higher stated yield than traditional mortgage securities,
holders of Subordinated Residential Mortgage Securities bear a greater risk of
loss than do holders of senior or more traditional mortgage obligations. Such
holders bear all or a portion of losses arising from the mortgage pool prior to
senior holders bearing any such losses. The primary credit risk arising from a
holder's subordination is the potential loss caused by a default on the part of
the borrower of the mortgages securing the instrument. This risk is usually
greater during a period of declining or stagnant real estate values. There may
be certain costs and delays associated with foreclosure. There is no assurance
that the subsequent sale of the property will produce an amount equal to the sum
of the unpaid principal balance of the loan as of the date the borrower went
into default, the interest that was not paid during the foreclosure period and
all foreclosure expenses, in which case the Portfolio may, depending on the
nature of its subordination, suffer a loss equal to the difference between this
amount and the liquidation proceeds. A Subordinated Residential Mortgage
Security may provide that a holder bears a portion or all of the risk of such
losses resulting from (i) the decrease in value of the property caused by
special hazard risks and/or (ii) all other losses resulting from the default by
a borrower. Accordingly, distributions on Subordinated Residential Mortgage
Securities may be reduced by realized losses.
The Portfolio, however, seeks to limit the risks presented by such instruments
by reviewing and analyzing the characteristics of the mortgage loans underlying
the Subordinated Residential Mortgage Securities that it acquires and evaluating
the likelihood of losses occurring. The Portfolio seeks opportunities to acquire
Subordinated Residential Mortgage Securities where in the view of the Manager,
the potential for a higher marginal yield on such instruments outweighs any
additional risk presented by such instrument. In addition, the Manager seeks to
increase yield to shareholders by taking advantage of perceived inefficiencies
in the market for Subordinated Residential Mortgage Securities. See "Illiquid
Securities."
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OTHER INVESTMENT POLICIES
Interest Rate Swaps and Hedging Transactions. The Portfolio may enter into
various hedging transactions, such as engaging in interest rate swaps and
interest rate futures transactions and purchasing and selling interest rate
collars, caps and floors to protect against and potentially benefit from
fluctuations in interest rates and to preserve a return or spread on a
particular investment or portion of its portfolio. Hedging transactions may also
be used to attempt to protect against possible declines in the market value of
the Portfolio's assets resulting from downward trends in the debt securities
markets (generally due to a rise in interest rates), to protect the Portfolio's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities or to establish a position in the securities markets as
a temporary substitute for purchasing particular securities. Any or all of these
techniques may be used at any time. There is no particular strategy that
requires use of one technique rather than another. Use of any hedging
transaction is a function of market conditions. Further hedging transactions may
be used by the Portfolio in the future as they are developed or deemed by the
Board of Trustees of AIST to be appropriate, and to be in the best interest of
investors in the Portfolio. The Portfolio intends to use these transactions as a
hedge against interest rate fluctuations and not as speculative investments. The
Portfolio reserves the right, but has no current intention, to engage in options
and future transactions other than futures transactions on interest rates.
Interest rate swaps involve the exchange with another party of commitments to
pay or receive interest, e.g., an exchange of fixed rate payments for variable
rate payments. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. An interest rate collar
combines the elements of purchasing a cap and selling a floor. The collar
protects against an interest rate rise above the maximum amount but gives up the
benefits of an interest rate decline below the minimum amount. The Portfolio
will not enter into swaps, caps, collars or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the
net assets of the Portfolio.
An interest rate futures contract provides for the future sale and purchase of a
specified amount of a certain debt security at a stated date, place and price.
The Portfolio may enter into interest rate futures contracts to protect against
fluctuations in interest rates effecting the value of debt securities that the
Portfolio either holds or intends to acquire. The Portfolio will only enter into
futures transactions on a national exchange. The Portfolio's use of such
instruments will in all cases be consistent with the applicable regulatory
requirements and, in particular, the rules and regulations of the Commodity
Futures Trading Commission with which the Portfolio must comply in order to
avoid registration as a commodity pool operator under the Commodity Exchange Act
and any applicable state law.
Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, AMC and the Portfolio believe such obligations do not
constitute senior securities. The staff (the "Staff") of the Securities and
Exchange Commission (the "SEC") is presently considering its position with
respect to swaps, caps, collars and floors as senior securities. Pending a
determination by the Staff, the Portfolio will either treat caps, collars and
floors as being subject to its senior securities restrictions or will refrain
from engaging in caps, collars and floors. Once the Staff has expressed a
position with respect to swaps, caps, collars and floors, the Portfolio intends
to engage in swaps, caps, collars and floors, if at all, in a manner consistent
with such position. The Portfolio will not treat swaps covered in accordance
with applicable regulatory requirements as senior securities. The Portfolio will
usually enter into interest rate swaps on a net basis, i.e., where the two
parties make net payments with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. The net amount of the excess,
if any, of the Portfolio's obligations over its entitlement with respect to each
interest rate swap will be accrued and an amount of cash, U.S. Government
Securities or other
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liquid high grade debt obligations having an aggregate net asset value at least
equal to the accrued excess will be maintained by the Portfolio's custodian in a
segregated account. If the Portfolio enters into a swap on other than a net
basis, the Portfolio will maintain in the segregated account the full amount of
the Portfolio's obligations under each such swap. The Portfolio may enter into
swaps, caps, collars and floors with member banks of the Federal Reserve System,
members of the New York Stock Exchange or other entities determined by AMC,
pursuant to procedures adopted and reviewed on an ongoing basis by the Board of
Trustees, to be credit worthy. If a default occurs by the other party to such
transaction, the Portfolio will have contractual remedies pursuant to the
agreements related to the transaction but such remedies may be subject to
bankruptcy and insolvency laws which could affect the Portfolio's rights as a
creditor.
The swap market has grown substantially in recent years with a large number of
banks and financial services firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, collars and floors are more recent innovations
and they are less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to purchase
interest rate caps, collars or floors at prices or on terms AMC believes are
advantageous to the Portfolio. In addition, although the terms of interest rate
swaps, caps, collars and floors may provide for termination, there can be no
assurance that the Portfolio will be able to terminate an interest rate swap or
to sell or offset interest rate caps, collars or floors that it has purchased.
Interest rate swaps, caps, collars and floors are considered by the Staff to be
illiquid securities and, therefore, the Portfolio may not invest more than 15%
of its assets in such instruments. See "lliquid Securities."
The successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Portfolio's portfolio
securities and depends on AMC's ability to predict correctly the direction and
degree of movements in interest rates. Although the Portfolio believes that use
of the hedging and risk management techniques described above will benefit the
Portfolio, if AMC's judgment about the direction or extent of the movement in
interest rates is incorrect, the Portfolio's overall performance would be worse
than if it had not entered into any such transactions. For example, if the
Portfolio had purchased an interest rate swap or an interest rate floor to hedge
against its expectation that interest rates would decline but instead interest
rates rose, the Portfolio would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates because it
would have to pay amounts to its counterparts under the swap agreement or would
have paid the purchase price of the interest rate floor. The Portfolio believes
that AMC possesses the skills necessary for the successful utilization of
hedging and risk management transactions.
Other risks associated with the use of futures contracts are: (i) imperfect
correlation between the change in the market value of the underlying commodity
and the prices of futures contracts and options with the result that futures and
options may fail as hedging techniques in cases where the price movements of the
securities underlying the futures and options do not follow the price movements
of the Portfolio's portfolio securities subject to a hedge; and (ii) possible
lack of a liquid secondary market for a futures position when liquidation of
that position is desired with the result that the Portfolio will likely be
unable to control losses by closing its position where a liquid secondary market
does not exist. In addition, because of the margin deposits normally required in
futures trading, a high degree of leverage is typical of a futures trading
account. As a result, a relatively small price movement in a futures contract
may result in substantial losses to the trader (i.e., the Portfolio).
Furthermore, many futures exchanges and boards of trade limit the amount of
fluctuations permitted in futures contract prices during a single trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Portfolio to substantial losses.
New financial products continue to be developed and the Portfolio may invest in
any such products to the extent consistent with its investment objective and the
regulatory and federal tax requirements applicable to investment companies.
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When-Issued and Forward Commitment Securities. The Portfolio may purchase
securities on a when-issued basis and may purchase or sell securities on a
forward commitment basis in order to hedge against anticipated changes in
interest rates and prices and/or secure a favorable rate of return. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date
which may be a month or more after the date of the transaction. At the time the
Portfolio makes the commitment to purchase securities on a when-issued or
forward commitment basis, it will record the transaction and thereafter reflect
the value of such securities in determining its net asset value. At the time the
Portfolio enters into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash, U.S. Government securities or
other liquid high grade debt obligations equal to the value of the when-issued
or forward commitment securities will be established and maintained with the
custodian and will be marked to market daily. When-issued securities and forward
commitments may be sold prior to the settlement date. If the Portfolio disposes
of the right to acquire a when-issued security prior to its acquisition or
disposes of its right to deliver or receive against a forward commitment, it may
experience a gain or loss due to market fluctuation. On the delivery date, the
Portfolio will meet its obligations from securities that are then maturing or
sales of the securities held in the segregated asset account and/or from then
available cash flow. There is always a risk that the securities may not be
delivered and that the Portfolio may incur a loss or will have lost the
opportunity to otherwise invest the amount set aside for such transaction in the
segregated asset account. Settlements in the ordinary course of business, which
may take substantially more than five business days for mortgage-related
securities, are not treated by the Portfolio as when-issued or forward
commitment transactions and accordingly are not subject to the foregoing
limitations even though some of the risks described above may be present in such
transactions. Securities purchased on a when-issued, delayed delivery or forward
commitment basis do not generally earn interest until their scheduled delivery
date. The Portfolio is not subject to any percentage limit on the amount of its
assets which may be invested in when-issued purchase obligations.
Borrowing. The Portfolio may from time to time borrow money for the purpose of
acquiring additional portfolio investments when it believes that the interest
payments and other costs with respect to such borrowings or indebtedness will be
exceeded by the anticipated total return (a combination of income and
appreciation) on such investments. The amount of any such borrowing or issuance
will depend upon market or economic conditions existing at that time. The
Portfolio may also borrow in order to assure that it remains fully invested by
using borrowed cash to purchase portfolio investments with the intent of
repaying the borrowings from the proceeds of expected sales of Portfolio shares.
The Portfolio may borrow money from banks on a secured or unsecured basis at
variable or fixed rates. However, as prescribed by the Investment Company Act of
1940, the Portfolio will be required to maintain specified asset coverage of at
least 300% with respect to any such bank borrowing immediately following any
such borrowing or issuance. If at any time asset coverage falls below 300%, the
Portfolio must, within three days (not including Sundays and holidays) reduce
the amount of its borrowings until it has 300% coverage. The Portfolio may be
required to dispose of portfolio investments on unfavorable terms if market
fluctuations or other factors reduce the required asset coverage to less than
the prescribed amount.
In addition, the Portfolio may on a temporary basis issue a note or other
evidence of indebtedness representing up to 5% of its assets at the time the
loan is made. Such a borrowing must be privately arranged and not intended to be
publicly distributed and is presumed to be for temporary purposes if it is
repaid within 60 days.
While, as stated above, the Portfolio will borrow money for the purpose of
acquiring additional portfolio investments only when it believes that such
borrowing will produce additional income to the Portfolio, the interest cost on
the capital raised through leverage may exceed the interest on the assets
purchased. The Portfolio may also be required to maintain minimum average
balances in connection with borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements will increase the cost
of borrowing over the stated interest rate. Borrowings and the issuance of
indebtedness create an opportunity
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to be more fully invested and to earn greater income per share. However, any
such borrowing or issuance is a speculative technique in that it will increase
the Portfolio's exposure to capital risk. Such risks may be mitigated through
the use of borrowings and issuances of indebtedness that have floating rates of
interest. Unless the income and appreciation, if any, on assets acquired with
borrowed funds or offering proceeds exceeds the cost of borrowing or issuing
debt, the use of leverage will diminish the investment performance of the
Portfolio compared with what it would have been without leverage.
The Portfolio will not always borrow money or issue debt to finance additional
investments. The Portfolio's willingness to borrow money and issue debt for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are the investment outlook, market conditions and
interest rates. To the extent that the Portfolio invests borrowed money in
short-term fixed-rate debt obligations, successful use of a leveraging strategy
depends on AMC's ability to correctly predict interest rates and market
movements over these short-term periods. There is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
Loans of Portfolio Securities. The Portfolio may make loans of its portfolio
securities under certain circumstances. With the approval of the Trustees of
AIST and subject to various conditions which may be imposed from time to time
under various securities regulations, the Portfolio may lend its portfolio
securities to qualified broker/dealers or other institutional investors provided
that such loans do not exceed 10% of the value of the Portfolio's total assets
at the time of the most recent loan, that the borrower deposits and maintains
with the Portfolio at least 102% cash collateral and provided the portfolio
securities loaned are "marked to market" daily. There are risks of delay in
recovery and loss of rights and collateral should the borrower fail financially.
The lending of securities is a common practice in the securities industry. The
Portfolio will engage in security loan arrangements with the primary objective
of increasing its income through investment of the cash collateral in short-term
interest bearing obligations, but will do so only to the extent consistent with
its tax status as a regulated investment company. The Portfolio will continue to
be entitled to all interest on any loaned securities.
Illiquid Securities. The Portfolio may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. The Portfolio expects that the Subordinated
Residential Mortgage Securities in which it invests generally will be restricted
securities.
The Portfolio will not invest more than 15% of its assets in illiquid
investments. The Portfolio will adhere to a more restrictive limitation on its
investment in illiquid securities as required by the securities laws of those
jurisdictions where shares of the Trusts are registered for sale. Illiquid
securities include securities that are not readily marketable and restricted
securities, unless the Trustees of AIST determine, based upon a continuing
review of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Trustees of AIST may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Trustees of AIST, however, retain
oversight and will be ultimately responsible for the determinations. Since it is
not possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Trustees of AIST
will carefully monitor the Portfolio's investments in these securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. In such event, the Trustees will consider
appropriate remedies to maximize the Portfolio's liquidity and its ability to
meet redemption requests within seven days.
The Trusts have experienced an increase in the rate of redemptions. As a result,
the Portfolios have increasingly been managed to provide adequate cash reserves
to satisfy redemption requests, resulting in decreased ability to seek high
current income with low volatility of principal, which is the Trusts'
fundamental investment
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objective. Investing a larger percentage of portfolio assets in cash and
short-term instruments results in lower yields than those typically received on
investments in mortgage securities. Moreover, adverse market conditions have
resulted in a decrease in the value of subordinated adjustable rate mortgage
(ARM) securities of the type in which the Trusts have invested.
Significant increases in interest rates in 1994 resulted in a general decline in
bond prices. In an environment of rapidly rising interest rates, while the
interest rates on the underlying ARMs continue to reset, the value of ARM
securities decline, because interest rates rise faster than resets occur.
Typically it takes 45-60 days before interest rate resets are reflected in the
Portfolio. In addition, the mortgages underlying the Portfolio's securities
typically reset once a year, so it may be a full year before certain of the
Portfolio's mortgages reset to reflect any increases in the interest rates.
In 1995 U.S. short- and long-term interest rates generally declined. However,
performance of the Portfolio was negatively affected by the lingering effects of
the recessionary environment in California, which proved to be much deeper and
more prolonged than originally anticipated. In particular, real estate values
fell or remained at depressed levels, which led to increased credit risk and, in
turn, resulted in increased default losses on a number of the subordinated
mortgage securities backed by Southern California real estate held by the
Portfolio.
The performance of the Portfolio has been negatively affected by the interest
rate conditions in the ARM securities market. As a result of the 1994 interest
rate increases and declining bond prices, combined with negative publicity on
the mortgage securities market and the higher than expected price volatility
experienced with many mortgage-backed securities, mortgage funds industry-wide
continued to experience heavy redemptions in 1995. As a result, ARM funds
continued to liquidate subordinated mortgage securities to meet redemption
requests. This resulted in an increased supply of subordinated mortgage
securities in the market, bringing wider spreads over the relevant indices and
reduced prices.
The increase in redemptions along with adverse interest rate conditions in 1994
and deteriorating credit risks have caused the market for subordinated mortgage
securities to be less liquid. Over the long term, AMC believes that the market
will value portfolio securities based primarily upon fundamental considerations
of credit quality, prepayment rates and other such factors, with less emphasis
on market conditions. Yet there can be no assurance that such will be the case.
Further fluctuations in net asset value may occur as a result of such factors as
deteriorating or improving market conditions and liquidity and credit experience
of portfolio securities.
The Staff has taken the position that special hazard certificates, interest rate
swaps, caps, collars and floors and SMBS not issued by the U.S. Government or
its agencies, or instrumentalities and SMBS not backed by fixed-rate mortgages
should be deemed illiquid. Accordingly, the Portfolio currently treats these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments.
The purchase price and subsequent valuation of restricted securities normally
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction makes them less liquid. The amount of the
discount from the prevailing market price is expected to vary depending upon the
type of security, the character of the issuer, the party who bears the expenses
of registering the restricted securities and prevailing supply and demand
conditions.
Portfolio Turnover. The Portfolio's portfolio turnover rate may vary from year
to year, as well as within a year. The annual rate of the Portfolio's portfolio
turnover for the fiscal years ended October 31, 1994 and 1995 was 83% and 108%,
respectively. A higher portfolio turnover rate may result in higher brokerage
commissions
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and other transactional expenses which must be borne, directly or indirectly, by
a portfolio and ultimately by a Trust's shareholders. The Portfolio anticipates
that its annual portfolio turnover rate generally will not exceed 100%. See
"Execution of Portfolio Transactions" in the Statement of Additional
Information. The portfolio turnover rate for the Trust as set forth in
"Financial Highlights" reflects the purchase and redemption by the Trust of
shares of the Portfolio.
Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolio may invest its assets without limit in short-term U.S. Government
and U.S. Government agency securities including, among others, FNMA and FHLMC
short-term agency discount notes.
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
Income dividends will be declared and paid monthly. Each Trust intends to
declare or distribute sufficient dividends from its net investment income and/or
net capital gain income in order to avoid the imposition of a 4% excise tax.
CHOOSING A DISTRIBUTION OPTION
When you buy shares of the Trust you may choose from the following distribution
options:
(1) The Share Option reinvests your income dividends and/or capital gains
distributions, if any, in additional shares. If no option is selected, income
dividends (and capital gains, if any) will be reinvested in additional shares of
the Trust. Income dividends and/or capital gains will be reinvested at the net
asset value as of the reinvestment date for the distribution.
(2) With the Cash Option, you may receive income dividends and/or capital gains
distributions in cash. If you select this option and the U.S. Postal Service
cannot deliver your checks, or if your checks remain uncashed for 6 months, your
money will be reinvested in your account at the then-current net asset value and
your election will be converted to reinvesting both income dividends and capital
gain distributions in additional shares.
(3) If you are also a shareholder in any of the other Astra Funds distributed by
the Distributor, the Transfer Option permits you to have income dividends and/or
capital gain distributions of the Trust automatically invested in shares of any
of those Astra Funds of which you are a shareholder at the applicable net asset
value. If you select this option, the minimum investment requirements for
additions to an existing account will be waived.
Once again, you must specify which option you desire when you place your order
or submit your application. The tax consequences of distributions (described
below) are the same whether you choose to receive them in cash or to reinvest
them in additional shares of a Trust or another Astra Fund.
If for any fiscal year of a Trust, the amount of distributions paid or deemed
paid for such year exceeds its investment company taxable income plus net
realized capital gains for such year, the amount of such excess would be treated
as a return of capital to all those shareholders who held shares of a Trust
during the year. In such case, each distribution paid or deemed paid for that
year would be treated, in the same proportion, in part as a distribution of
taxable income and in part as a return of capital. Shareholders would incur no
current Federal income tax on the portion of such distributions which are
treated as a return of capital, but each shareholder's basis in his Trust shares
would be reduced by that amount. This reduction of basis would operate to
increase the shareholder's capital gain (or decrease their capital loss) upon
subsequent redemption of his shares.
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TAXES
Taxation of the Trusts. Each Trust is treated as a separate entity for federal
income tax purposes. Each Trust intends to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By distributing all of its net investment income and net
realized short-term and long-term capital gains for a fiscal year in accordance
with the timing requirements imposed by the Code and by meeting certain other
requirements relating to the sources of its income and diversification of its
assets, each Trust should not be liable for Federal income or excise taxes.
Taxation of Shareholders. For Federal income tax purposes, any income dividends
which you receive from a Trust, as well as any distributions derived from the
excess of net short-term capital gain over net long-term capital loss, are
treated as ordinary income whether you have elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as long-term capital
gain regardless of the length of time you have owned your Trust shares and
regardless of whether you receive such distributions in cash or in additional
shares. Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons, may not be
paid to the shareholder until the following January, will be treated for tax
purposes as if received by the shareholder on December 31 of the calendar year
in which they are declared.
Redemptions and exchanges of Trust shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of the same
Trust are purchased (through reinvestment of dividends or otherwise) within 30
days before or after such redemption. Any loss realized upon the redemption of
shares within six months from the date of their purchase will be treated as a
long-term capital loss to the extent of amounts treated as distributions of net
long-term capital gain during such six-month period.
The Trusts may be required to report to the Internal Revenue Service any taxable
dividend or other reportable payment (including share redemption proceeds) and
withhold 31% of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer identification number and
made certain required certifications that appear in the shareholder application
form. A shareholder may also be subject to backup withholding if the IRS or a
broker notifies a Trust that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
underreporting of interest or dividend income.
Shareholders should consult their tax advisors with respect to the applicability
of state and local income taxes to distributions and redemption proceeds
received from a Trust. Distributions by the Trusts to shareholders who are
nonresident aliens or foreign corporations may be subject to U.S. withholding
taxes. Such shareholders should consult with their financial or tax advisors
regarding the applicability of U.S. withholding taxes to distributions received
by them from a Trust.
SHAREHOLDER'S GUIDE
HOW TO BUY SHARES OF THE TRUSTS
- -------------
Shares of the Trusts are made available through selected financial service firms
such as broker-dealer firms and banks ("Firms") who have signed agreements with
the Distributor, the Trusts' principal underwriter. Shares may also be purchased
by check or wire directly to the Trusts' Transfer Agent. The minimum initial
investment by a shareholder in a Trust is $5,000 ($2,000 for IRAs). The minimum
subsequent investment is $250, but these requirements may be changed or waived
at any time at management's discretion. Any order for the purchase of shares may
be rejected in whole or in part. Trust I-A's offering price is the net asset
value next determined after an order is received. Trust II's offering price is
the net asset value next determined after an order is received, plus a varying
sales charge, depending upon the amount invested.
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The sales charge applicable to shares of Trust II is determined as follows:
SALES CHARGE
---------------------
AS % OF AS % OF DEALER
PUBLIC NET REALLOWANCE
OFFERING AMOUNT AS % OF
ON PURCHASES OF: PRICE INVESTED OFFERING PRICE
---------------- -------- -------- ---------------
$ 5,000-$ 99,999 .......... 3.00% 3.09% 3.00%
$100,000-$249,999 .......... 2.50% 2.56% 2.50%
$250,000-$499,999 .......... 2.00% 2.04% 2.00%
$500,000-$749,999 .......... 1.50% 1.52% 1.50%
$750,000-$999,999 .......... 1.00% 1.01% 1.00%
$1,000,000 and over* ....... None None *
- -----------
* On purchase of $1,000,000 and over, shares are acquired at net asset value
with no sales charges, but the Distributor, from its own assets, will pay
the selling firm .25% of the offering price.
The sales charge assessed upon the purchase of shares of Trust II is not an
expense of Trust II and has no effect on the net asset value of shares of Trust
II. The Distributor allows the selling firm to retain 100% of the sales charge.
This may result in the selling firm being considered an underwriter under the
Securities Act of 1933, as amended.
In connection with sales of shares of Trust I-A, the Distributor compensates the
Firms at a rate of 3.0% of purchase payments for shares subject to a contingent
deferred sales charge. The Distributor, at its expense, may also provide
additional promotional incentives to dealers in connection with sales of shares
of the Trusts and other Astra Funds.
You will receive a confirmation of each new transaction in your account, which
will also show you the number of Trust shares you own and the number of shares
being held in safekeeping by the Trust's Transfer Agent for your account. You
may rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of a Trust will not be issued unless
you request them in writing.
PURCHASES BY WIRE
Purchases by wire transfer should be directed to "Investors Fiduciary Trust Co.
ABA 101003621 for credit to Astra Adjustable U.S. Government Securities Trust
I-A or II (as applicable) A/C 890752-443-9 for further credit to shareholder A/C
# ______________, Shareholder Name: _______________________."
For initial purchase by Federal funds wire, you must first obtain an account
number by telephoning the Trusts' Shareholder Servicing Agent at 800-441-7267.
You may then instruct your bank to wire funds as described above. After you have
received an account number and have wired funds, you must complete the
application form that accompanies this Prospectus and send it to:
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
Attn: Order Department
This procedure is for the protection of shareholders. A Trust will not honor
orders for redemptions until it receives the proper authorizations. See the
Application included in this Prospectus.
For subsequent investments by wire, first telephone either Trust I-A or Trust
II, at 800-441-7267, to obtain a wire reference number prior to transmission.
This helps the Trusts to ensure the proper credit to your account.
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Shares purchased by Federal funds wire will be purchased at the close of
business on the day on which the Federal funds wire is received and, if the wire
is received before 11:00 A.M. New York time, the shares will be entitled to
dividends on that business day. Shares purchased by Federal funds wire received
after 11:00 A.M. New York time will be entitled to dividends on the next
business day.
PURCHASES THROUGH DEALER
Orders for purchase of shares placed through dealers will receive the net asset
value next computed following receipt of the order provided the dealer receives
the order prior to the close of the New York Stock Exchange and transmits it to
the Distributor prior to its close of business that same day (normally 3:00 p.m.
Pacific time). In order to establish an Individual Retirement Account whereby
Investors Fiduciary Trust Company acts as Custodian, dealers must provide the
Trusts' Transfer Agent with a completed IRA application signed by the investor
prior to settlement of such purchase orders.
Dealers are required to provide payment within five business days after placing
an order. DEALERS MAKING PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE
MUST REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
PURCHASES BY CHECK
An initial investment made by check must be accompanied by an Application,
completed in its entirety. Additional shares of a Trust may also be purchased by
sending a check payable to the appropriate Trust, along with information
regarding your account, including the account number, to the Transfer Agent. All
checks should be drawn only on U.S. banks in U.S. funds, in order to avoid fees
and delays. A charge may be imposed if any check submitted for investment does
not clear. Third party checks, except those payable to an existing shareholder
who is a natural person (as opposed to a corporation or partnership), credit
cards, and cash will not be accepted. When purchases are made by check or
periodic automatic investment, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 business days.
PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment plan (see "Pre-Authorized
Investment Plan" on the Additional Account Privileges Form) may be established
whereby your personal bank account is automatically debited and your Trust
Account is automatically credited with additional full and fractional shares
($250 subsequent minimum investment). For further information on pre-authorized
investment plans, please contact the Shareholder Servicing Agent.
The minimum investment requirements may be waived by a Trust for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
LETTER OF INTENT AND RIGHTS OF ACCUMULATION
TRUST II. An investor may immediately qualify for a reduced sales charge on a
purchase of shares of any Astra Fund which imposes an initial sales charge by
completing the Letter of Intent section of the Shareholder Application (the
"Letter of Intent" or "Letter"). By completing the Letter, the investor
expresses an intention to invest during the next 13 months a specified amount
which if made at one time would qualify for a reduced sales charge. At any time
within 90 days after the first investment which the investor wants to qualify
for the reduced sales charge, a signed Shareholder Application, with the Letter
of Intent section completed, may be filed with Trust II. After the Letter of
Intent is filed, each additional investment made will be entitled to the sales
charge applicable to the level of investment indicated on the Letter of Intent
as described above. Sales charge reductions based upon purchases in more than
one investment in the Astra Funds will be effective only after notification to
the Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Astra Funds acquired within 90 days before the Letter of Intent
is filed will be counted towards completion of
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the Letter of Intent but will not be entitled to a retroactive downward
adjustment of sales charge until the Letter of Intent is fulfilled. Any
redemptions made by the shareholder during the 13-month period will be
subtracted from the amount of the purchases for purposes of determining whether
the terms of the Letter of Intent have been completed. If the Letter of Intent
is not completed within the 13-month period, there will be an upward adjustment
of the sales charge as specified below, depending upon the amount actually
purchased (less redemptions) during the period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application: A minimum initial
investment equal to 25% of the intended total investment is required. Five
percent (5%) of the amount of the total intended purchase will be held in escrow
(the "Escrow Shares"), in the form of shares, in the investor's name to assure
that the full applicable sales charge will be paid if the intended purchase is
not completed. The Escrow Shares will be included in the total shares owned as
reflected on the monthly statement; income and capital gain distributions on the
Escrow Shares will be paid as directed by the investor. The Escrow Shares will
not be available for redemption by the investor until the Letter of Intent has
been completed, or the higher sales charge paid. If the total purchases, less
redemptions, equal the amount specified under the Letter, the Escrow Shares will
be released. If the total purchases, less redemptions, exceed the amount
specified under the Letter and is an amount which would qualify for a further
quantity discount, a retroactive price adjustment will be made by the
Distributor and the dealer with whom purchases were made pursuant to the Letter
of Intent to reflect such further quantity discount on purchases made within 90
days before, and on those made after filing the Letter. The resulting difference
in offering price will be applied to the purchase of additional shares at the
applicable offering price. If the total purchases, less redemptions, are less
than the amount specified under the Letter, the investor will remit to the
Distributor an amount equal to the difference in dollar amount of sales charge
actually paid and the amount of sales charge which would have applied to the
aggregate purchases if the total of such purchases had been made at a single
time. Upon such remittance the Escrow Shares held for the investor's account
will be released to the account in the name of the investor or to the investor's
order. If within 20 days after written request such difference in sales charge
is not paid, the redemption of an appropriate number of Escrow Shares to realize
such difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter of Intent, the additional sales charge due
will be deducted from the proceeds of the redemption and the balance will be
forwarded to the investor. By completing the Letter of Intent section of the
Shareholder Application, an Investor grants to the Distributor a security
interest in the Escrow Shares and agrees to irrevocably appoint the Distributor
as his attorney-in-fact with full power of substitution to surrender for
redemption any or all shares for the purpose of paying any additional sales
charge due. The investor or the securities dealer must inform DST or the
Distributor that this Letter is in effect each time a purchase is made.
The value of all shares of Trust II plus shares of the other funds distributed
by the Distributor can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase. The
reduced sales charges apply to quantity purchases made at one time or on a
cumulative basis over any period of time by (i) an investor, (ii) the investor's
spouse and children under the age of majority, (iii) the investor's custodian
accounts for the benefit of a child under the Uniform Gift to Minors Act, (iv) a
trustee or other fiduciary of a single trust estate or a single fiduciary
account (including pension, profit-sharing and/or other employee benefit plans
qualified under Section 401 of the Code), by trust companies' registered
investment advisors, banks and bank trust departments for accounts which they
exercise exclusive investment discretionary authority and which are held in a
fiduciary, agency, advisory, custodial or similar capacity. The reduced sales
charges also apply, on a non-cumulative basis, to purchases made at one time by
the customers of a single dealer, in excess of $1 million.
Shares of Trust II and any other Astra Fund purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales
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<PAGE>
charge and applicable offering price of the current purchase, provided such
transactions are not prohibited by one or more provisions of the Employee
Retirement Income Security Act or the Internal Revenue Code. Individuals and
employees should consult with their tax advisors concerning the tax rules
applicable to retirement plans before investing.
For purposes of Rights of Accumulation and the Letter of Intent privilege,
shares held by investors in any Astra Fund which imposes a contingent deferred
sales charge ("CDSC"), may be combined with shares of Trust II for a reduced
sales charge but will not affect any CDSC which may be imposed on the redemption
of shares of a fund which imposes a CDSC.
The Letter of Intent option may be modified or discontinued at any time.
COMBINED PURCHASE PRIVILEGE
The Combined Purchase Privilege is intended to allow qualifying investors a
reduced sales charge only in an Astra Fund which imposes an initial sales charge
and will not affect any CDSC which may be imposed on the redemption of Trust I-A
shares or the compensation to selling Firms on the sale of Trust I-A shares.
Investors may qualify for the Combined Purchase Privilege by combining purchases
of Trust I-A shares with shares of any Astra Fund, which imposes an initial
sales charge. Shares of Trust I-A may also be combined with shares of such other
Astra Funds for purposes of completing a Letter of Intent.
SPECIAL PURCHASES AT NET ASSET VALUE (Trust II Only)
Shares of Trust II may be purchased at net asset value by persons who have,
within the previous 30 days, redeemed their shares of any Astra Fund which
imposes a sales charge. The amount which may be purchased at net asset value is
limited to an amount up to, but not exceeding, the net amount of redemption
proceeds. Such purchases may also be handled by a securities dealer, who may
charge the shareholder a fee for this service.
Shares of Trust II may be purchased at net asset value where the amount invested
is documented to the Trust to be proceeds from the redemption (within 60 days of
the purchase of Trust II shares) of shares of unrelated investment companies and
where the investor paid an initial sales charge.
Shares of Trust II may also be purchased at net asset value by any charitable
organization, state, county or city, or any instrumentality, department,
authority or agency thereof which has determined that Trust II is a legally
permissible investment and which is prohibited by applicable investment law from
paying a sales charge or commission in connection with the purchase of shares of
any registered management company ("an eligible governmental authority"). If an
investment by an eligible governmental authority at net asset value is made
through a dealer who has executed a selling group agreement with respect to the
Astra Funds, the Distributor may pay such dealer .25% of the offering price.
Officers, directors and bona fide full-time employees of the Trusts and with
certain exceptions most officers, directors and full-time employees of AMC, the
Distributor, the Trusts' service agents, or affiliated corporations thereof or
any trust, pension, profit-sharing or other benefit plan for such persons,
broker-dealers, for their own accounts or for members of their families (defined
as current spouse, children, parents, grandparents, uncles, aunts, siblings,
nephews, nieces, step-relations, relations-in-law, and cousins) employees of
such broker-dealers (including their immediate families) and discretionary
advisory accounts of AMC, may purchase shares of the Trusts at net value without
a sales charge. Such a purchaser is required to sign a letter stating that the
purchase is for his own investment purposes only and that the securities will
not be resold except to a Trust. Relative to certain fee based Registered
Investment Advisors, Management may, under certain circumstances, allow such
Advisors to make investments on behalf of their clients at net asset value,
without any commission or concessions.
Additional terms concerning the offering of Trust II's shares are included in
the Statement of Additional Information.
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<PAGE>
HOW TO REDEEM SHARES OF THE TRUSTS
- -------------
TRUST I-A. Shares of Trust I-A are redeemed at the net asset value next
determined after receipt of a redemption request in good form on any day the New
York Stock Exchange is open for business, reduced by the amount of any
applicable contingent deferred sales charge described below and the amount of
any Federal income tax required to be withheld.
If the shareholder holds his Trust I-A shares for more than four years after
their purchase, he will not have to pay any charge when he redeems those shares.
Shares of Trust I-A redeemed within the first four years of their purchase
(except shares acquired through the reinvestment of distributions) will be
subject to a contingent deferred sales charge. A contingent deferred sales
charge is not imposed on (a) shares of Trust I-A in the account which were
purchased more than four years prior to the redemption, (b) all shares of Trust
I-A in the account acquired through reinvestment of monthly distributions and
capital gains distributions, and (c) the increase, if any, of value of all other
shares of Trust I-A in the account (namely those purchased within the four years
preceding the redemption) over the purchase price of such shares. Redemptions
are processed in a manner to maximize the amount of redemption which will not be
subject to a contingent deferred sales charge; i.e., each redemption will be
assumed to have been made first from the exempt amounts referred to in clauses
(a), (b) and (c) above, and second through liquidation of those shares in the
account referred to in clause (c) on a first-in-first-out basis. Any contingent
deferred sales charge which is required to be imposed on share redemptions for
shares of Trust I-A will be made in accordance with the following schedule:
Year of Contingent
Redemption Deferred Sales
After Purchase Charge
-------------- --------------
First ............................... 4%
Second .............................. 3%
Third ............................... 2%
Fourth .............................. 1%
Fifth and following ................. 0%
The contingent deferred sales charge will be paid to the Distributor and may
affect the amount of (i) Uncovered Distribution Charges calculated under the
Trust I-A's Distribution Plan, (ii) the advisory fee payable to AMC and (iii)
the daily compensation payable to the Distributor under Trust I-A's Distribution
Plan (See "Distribution Plan").
No contingent deferred sales charge will be payable in connection with the
redemption of shares of Trust I-A purchased by officers, directors and bona fide
full-time employees of ASIS, and with certain exceptions, officers, directors
and full-time employees and sales representatives of AMC, the Distributor or
affiliated companies thereof (or any trust, pension, profit-sharing or other
benefit of such persons), broker-dealers having sales agreements with the
Distributor, all for their own accounts or for their spouse and children, and
employees of such broker-dealer firms (for their own accounts only), and
discretionary advisory accounts of AMC (if such purchasers state in writing that
the purchases are for their own investment purposes only and the purchaser
represents that the shares will not be resold except to Trust I-A).
No contingent deferred sales charge will be payable in connection with the
redemption of shares of Trust I-A which were acquired via certain exchange
transactions as fully described in the Exchange Privilege Section of this
prospectus.
The contingent deferred sales charge will be waived for certain redemptions of
shares of Trust I-A (i) upon the death or permanent disability of a shareholder,
or (ii) in connection with mandatory distributions from an IRA or other
qualified retirement plan. The contingent deferred sales charge will be waived
in the case of a redemption of shares of Trust I-A following the death or
permanent disability of a shareholder if the redemption is made within one year
of death or initial determination of permanent disability. The waiver is
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<PAGE>
available for total or partial redemptions of shares of Trust I-A owned by an
individual or an individual in joint tenancy (with rights of survivorship), but
only for redemptions of shares held at the time of death or initial
determination of permanent disability. The contingent deferred sales charge will
also be waived in the case of a total or partial redemption of shares of Trust
I-A in connection with any mandatory distribution from a tax-deferred retirement
plan or an IRA. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation from services. The
shareholder must notify the Trusts' Transfer Agent either directly or through
the Distributor, at the time of redemption, that the shareholder is entitled to
a waiver of the contingent deferred sales charge. The relevant information as
requested in the Contingent Deferred Sales Charge Waiver Form, included in this
prospectus on page 45, must be provided to the Trusts' Transfer Agent at the
time of the redemption request. The waiver will be granted subject to
confirmation of the Investor's entitlement.
TRUST II. Shares of Trust II are redeemed at the net asset value next determined
after receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business. The shares of Trust II are not subject to a
contingent deferred sales charge.
TYPES OF REDEMPTIONS
REDEMPTIONS BY MAIL
A written request for redemption (or an endorsed share certificate, if issued)
must be received by the Transfer Agent to constitute a valid tender for
redemption. It will also be necessary for corporate investors and other
associations to have an appropriate certification authorizing redemptions by a
corporation or an association on file before a redemption request will be
considered in proper form. The Transfer Agent may also require a signature
guarantee by an eligible guarantor as stipulated in Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. To determine whether a signature guarantee or
other documentation is required, shareholders may call the Trusts' Shareholder
Servicing Agent at (800) 441-7267.
REDEMPTION OF SHARES BY SECURITIES DEALERS
Brokers, dealers, or other sales agents may communicate redemption orders by
wire or telephone. These firms may charge for their services in connection with
your redemption request but neither the Trusts nor the Distributor impose any
such charges other than the contingent deferred sales charge described above in
connection with the redemption of shares of Trust I-A.
EXPEDITED TELEPHONE REDEMPTIONS
You may have the payment of redemption requests (of $5,000 or more) wired or
mailed directly to a domestic commercial bank account that you have previously
designated. Normally, such payments will be transmitted on the second business
day following receipt of the request (provided redemptions may be made). If no
share certificates have been issued, you may request a wire redemption by
telephone or wire to the Transfer Agent. For telephone redemptions, call the
Transfer Agent at (800) 441-7267. You must complete the "Expedited Redemptions"
section of the Application for this privilege to be applicable to you.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to have regular monthly or quarterly payments in any
fixed amount in excess of $100 made to him or her, or to anyone else properly
designated as long as the account has a value (i.e., net asset value before any
contingent deferred sales charge with respect to shares of Trust I-A) of at
least $10,000. During the withdrawal period, you may purchase additional shares
for deposit to your account if the additional purchases are equal to at least
one year's scheduled withdrawals, or $1,200, whichever is greater.
There are no separate charges to you under this Plan, however, all shares of
Trust I-A may be subject to applicable contingent deferred sales charge. A
number of full and fractional shares equal in value, after taking
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<PAGE>
into account any applicable contingent deferred sales charge, to the amount of
the requested payment will be redeemed. Such redemptions are normally processed
on the fifth day prior to the end of the month or quarter. Checks are then
mailed on or about the first of the following month. Shareholders who elect to
have a Systematic Withdrawal Plan must have all dividends and capital gains
reinvested. To establish systematic cash withdrawals, please complete the
Systematic Withdrawal Plan section on the Additional Account Privileges Form.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Trusts' Transfer Agent. As shares of a Trust are
redeemed under the plan, you may realize a capital gain or loss to be reported
for income tax purposes. A Systematic Withdrawal Plan may be terminated or
modified at any time upon written notice by you or a Trust.
GENERAL
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent. A Trust may delay the mailing of
a redemption check until the check used to purchase the shares being redeemed
has cleared, which may take up to 15 days or longer. To reduce such delay, the
Trusts recommend that all purchases be made by bank wire Federal funds. A Trust
may suspend the right of redemption under certain extraordinary circumstances in
accordance with the Rules of the SEC. Due to the relatively high cost of
handling small investments, the Trusts reserve the right upon 30-days' written
notice to redeem, at net asset value, the shares of any shareholder whose
account (except for IRAs) has a value of less than $5,000 other than as a result
of a decline in the net asset value per share.
SHAREHOLDER SERVICES AND PRIVILEGES
- -------------
EXCHANGE PRIVILEGE
TRUST I-A. Shares of Trust I-A which have been held for a minimum of 30 days may
be exchanged for shares of any other Astra Fund which imposes a comparable
contingent deferred sales charge and offers an exchange privilege at the then
current net asset values of the respective funds and such exchanged shares will
not be subject to an amount of the otherwise applicable contingent deferred
sales charge at the time of such exchange. However, shares acquired as a result
of such exchange and subsequently redeemed will be subject to the then
applicable contingent deferred sales charge if such shares were held less than
four years since the purchase of Trust I-A's shares.
Shares of Trust I-A held for at least four years may be exchanged into any other
Astra Fund distributed by the Distributor which offers an exchange privilege at
the then current net asset value provided that the total value of shares being
exchanged meets the minimum investment requirement of the fund into which they
are being exchanged. If such shares are subsequently redeemed they will not be
subject to a CDSC.
Shares of the other funds which impose an initial sales charge and offer an
exchange privilege may be exchanged for shares of the Fund on the basis of
relative net asset values if the required holding period is satisfied as
provided for in the Exchange Privilege section of the respective funds'
prospectuses. If such shares are subsequently redeemed they will not be subject
to the CDSC.
TRUST II. Shares of Trust II may be exchanged for shares of any Astra Fund which
does not have the same investment objective and which offer such privilege at
the relative net asset values per share at the time of the exchange, provided
Trust II's shares have been held for a minimum of 30 days. The total value of
shares being exchanged must at least equal the minimum investment requirement of
the fund into which they are being exchanged.
Shares of the other funds distributed by the Distributor which do not have the
same investment objective and offer an exchange privilege may be exchanged for
shares of Trust II on the basis of relative net asset values if the
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required holding period is satisfied as provided for in the Exchange Privilege
section of the respective funds' prospectuses.
General. The prospectuses of the other funds should be reviewed before effecting
any exchange. With respect to both Trusts I-A and II you should note that any
exchange may only be made in states where shares of the other funds are
qualified for sale and may create a gain or loss to be recognized for Federal
income tax purposes. Exchanges may be authorized by telephone. You will
automatically be assigned this privilege unless you check the box on the
Application which indicates that you do not wish to have the privilege (see
"Telephone Exchange Privilege" section of Application). In addition, if you
exchange by mail, the exchange will be effected, upon receipt of written
instructions signed by all account owners and accompanied by any outstanding
share certificates properly endorsed, into an identically registered account.
The exchange privilege may be modified at any time or discontinued upon 60 days'
written notice to Shareholders.
REINSTATEMENT PRIVILEGE
TRUST I-A. If you have redeemed your shares of Trust I-A, you may reinvest up to
the full amount of the proceeds of such redemption, at net asset value at the
time of reinvestment. The amount of any contingent deferred sales charge on the
shares of Trust I-A will also be reinvested. Such reinvested shares of Trust I-A
will retain their original cost and purchase date only for purposes of the
contingent deferred sales charge.
In order to exercise this privilege, a written order for the purchase of shares
must be received by the Trust's Transfer Agent, or be postmarked, within 30 days
after the date of redemption. This privilege can be used only once per calendar
year. If you incur a loss on the redemption and use the reinstatement privilege,
some or all of the loss may be allowed as a tax deduction. See Statement of
Additional Information for further discussion.
RETIREMENT PLANS
The Trusts have available prototype qualified retirement plans for both
corporations and self-employed individuals. The Trusts also have available
prototype Individual Retirement Account ("IRA") plans (for both individuals and
employers) and Simplified Employee Pension ("SEP") plans as well as Section
403(b)(7) Tax-Sheltered Retirement Plans which are designed for employees of
public educational institutions and certain non-profit, tax-exempt
organizations. Investors Fiduciary Trust Company acts as the custodian under the
plans. For information, including the custodian's fees and forms necessary to
adopt the plans, see the Statement of Additional Information and call or write
the Distributor.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
- -------------
The Trusts and their Transfer Agent will not be responsible for the authenticity
of phone instructions or losses, if any, resulting from unauthorized shareholder
transactions if the Trusts or their Transfer Agent reasonably believe that such
instructions were genuine. The Trusts and their Transfer Agent have established
procedures that the Trusts believe are reasonably appropriate to confirm that
instructions communicated by telephone are genuine. These procedures include:
(i) recording telephone instructions for exchanges and expedited redemptions;
(ii) requiring the caller to give certain specific identifying information; and
(iii) providing written confirmations to shareholders of record not later than
five days following any such telephone transactions. If the Trusts and their
Transfer Agent do not employ these procedures, they may be liable for any losses
due to unauthorized or fraudulent telephone instructions.
HOW THE TRUSTS VALUE THEIR SHARES
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The net asset value and offering price of shares of each Trust are determined
once daily as of the close of trading on the New York Stock Exchange during a
Trust's "business day," which is any day on which the Exchange is open for
business. The net asset value of a Trust serves as the basis for the purchase
and redemption price of Trust shares. The net asset value is also used in
calculating the fee paid to the Manager.
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CALCULATION OF NET ASSET VALUE
Net asset value is calculated by dividing the value of a Trust's portfolio
securities, plus any cash or other assets less all liabilities, by the number of
shares outstanding. Since each Trust will invest in the Portfolio, if the
securities owned by the Portfolio increase in value, the value of the Trust
shares which the shareholder owns will increase. If the securities owned by the
Portfolio decrease in value, the value of the shareholder's shares will also
decline. In this way, shareholders participate in any change in the value of the
securities owned by the Portfolio. The securities held in the Portfolio's
portfolio will be valued by using market quotations, or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to instruments or securities with
similar characteristics. Securities for which reliable quotations or pricing
services are not readily available and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees of AIST, which procedures may include the
delegation of certain responsibilities regarding valuation to the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees of
AIST regarding portfolio valuation determination.
Short-term securities with less than sixty days remaining to maturity when
acquired by the Portfolio will be valued on an amortized cost basis by the
Portfolio when the Trustees of AIST have determined that amortized cost is fair
value. If the Portfolio acquires such securities with more than sixty days
remaining to maturity, they will be valued at current market value (using the
mean of the bid and the asked price) until the 60th day prior to maturity, and
will then be valued on an amortized cost basis based upon the value on such date
unless the Trustees of AIST determine during such 60-day period that this
amortized cost basis does not represent fair value.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of a Trust's performance including current yield, various
expressions of total return and current distribution rate. These may
occasionally cite statistics to reflect its volatility or risk.
Each Trust may furnish average annual total return and total return quotations
calculated at net asset value and at maximum offering price for various periods.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
offering price for one, five and ten-year periods, or portion thereof, to the
extent applicable, through the end of the most recent calendar quarter, assuming
reinvestment of all distributions and deduction of any applicable contingent
deferred sales charge. For such purposes, total return equals the total of all
income and capital gain distributions paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by a Trust's portfolio
investments. It is calculated by dividing the Trust's net investment income per
share during a recent 30-day period by the maximum offering price on the last
day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see the
Statement of Additional Information) is not indicative of the dividends or
distributions which were or will be paid to a Trust's shareholders. Dividends or
distributions paid to shareholders are reflected in the current distribution
rate which may be quoted to shareholders. The current distribution rate is
computed by dividing the annualized amount of dividends per share paid by a
Trust during the past 30 days by the current offering price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, short term capital gain and net equalization credits and is calculated
over a different period of time.
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Advertisements and communications may compare a Trust's performance with that of
other mutual funds (except money market funds), as reported by Lipper Analytical
Services, Inc. or similar independent services or financial publications. From
time to time, advertisements and other Trust materials and communications may
cite statistics to reflect a Trust's performance over time, utilizing
comparisons to indexes including those based on U.S. Treasury securities and
those derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Commonly used indexes include the one, three,
five, ten and thirty-year constant maturity Treasury rates, the three-month and
180-day Treasury bill rate, rates on longer-term Treasury certificates, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate (LIBOR), the prime lending rate of one or several banks, or
commercial paper rates. Some indexes, such as the one-year constant maturity
Treasury rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Federal Home Loan Bank Cost of Funds Index, tend to
lag behind changes in the market rate levels and tend to be somewhat less
volatile.
In addition, advertisements and other communications may cite current and
compounded yield and distributions rates. Quotations of historical total
returns, yields and distribution rates are not indicative of future dividend
income or total return, but are indicative of the return to shareholders only
for the limited historical period used. A Trust's yield, total return or
distribution rate will depend on the particular investments in its portfolio,
its total operating expenses and other conditions. For further information,
including the formulas and discussions of the yield and total return
calculations, see the Statement of Additional Information.
In each case performance figures are based upon past performance, reflect all
recurring charges against Trust income and, as appropriate, may or may not
assume the payment of the applicable maximum sales load or contingent deferred
sales charge on the purchase or redemption of shares. The investment results of
a Trust, like all others, will fluctuate over time; thus, performance figures
should not be considered to represent what an investment may earn in the future
or what a Trust's yield, distribution rate or total return may be in any future
period.
THE ASTRA GROUP
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Atlas Holdings Group, Inc. ("Atlas Group") is a financial services holding
company and has its principal business address at 9595 Wilshire Boulevard, Suite
1001, Beverly Hills, California 90212. It comprises several affiliated
companies, including AMC and the Distributor (whose principal business address
is 750 B Street, Suite 2350, San Diego, California 92101) which provide
advisory, distribution and administrative services to the Trusts. Atlas Holdings
Group, Inc. is a Delaware corporation of which Palomba Weingarten, Chairman of
the Board of Trustees of ASIS and AIST, is the sole stockholder and Chief
Executive Officer.
AMC provides a number of mutual funds, and may provide other personal and
institutional accounts, with portfolio management services. It maintains a staff
of experienced investment personnel and support facilities. Current assets under
management are approximately $200 million.
The Distributor distributes shares for all of Astra Group's mutual funds. AMC
and the Distributor are wholly-owned subsidiaries of Atlas Holdings Group, Inc.
These companies are part of the umbrella name "Astra Group."
PORTFOLIO MANAGEMENT
- --------------
Investment management decisions made by AMC are made by a committee with no one
person being solely responsible for making recommendations to the committee.
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MANAGEMENT FEES
- -------------
The Trustees of AIST establish the Portfolio's investment policies and supervise
and review the operations and management of the Portfolio. See "Trustees and
Officers" in the Statement of Additional Information for a complete description
of the Trustees of the Trusts and the Portfolio. For furnishing the Portfolio
with investment advice and investment management and administrative services
with respect to the Portfolio's assets, including making specific
recommendations as to the purchase and sale of portfolio securities, furnishing
requisite office space and personnel, and in general supervising and managing
the Portfolio's investments subject to the ultimate supervision and direction of
AIST's Trustees, AMC is paid monthly a fee equal to 0.55% per annum of the
average daily net assets of the Portfolio on the first $500 million of assets.
The annual rate is reduced to 0.50% on net assets from $500 million to $1
billion; and to 0.45% on net assets over $1 billion. AMC will reduce its
aggregate fees for any fiscal year, or reimburse the Portfolio or Trusts to the
extent required so that aggregate expenses do not exceed the expense limitations
applicable under the securities laws or regulations of those states or
jurisdictions in which the Trust's shares are registered or qualified for sale.
Expenses for purposes of these expense limitations include the management fee,
but exclude brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, paid or incurred by the Trusts or the Portfolio. In
addition, the state with the most restrictive expense limitation allows the
Trusts to exclude distribution expenses. For the fiscal year ended October 31,
1995, the total expenses paid by Trust I-A and Trust II, respectively, were
approximately 1.58% and 1.57% of their average daily net assets.
ADMINISTRATIVE FEES
- -------------
ASIS has retained the services of Atlas Group as administrator for the Trusts,
but has not retained the services of an investment adviser since each Trust
seeks to achieve its investment objective by investing in the Portfolio.
Pursuant to an administration agreement ("Administration Agreement") Atlas Group
supervises the overall administration of each Trust. These administrative
services include supervising the preparation and filing of all documents
required for compliance by each Trust with applicable laws and regulations,
supervising the maintenance of books and records and other general and
administrative responsibilities. For providing these services, Atlas Group
receives a fee from each Trust of 0.10% per annum of its average daily net
assets.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trusts, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trusts) has agreed to pay
PFPC a monthly fee at the annual rate of .07% of the average net assets of each
Trust subject to certain minimums, exclusive of out-of-pocket expenses.
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DISTRIBUTION PLANS
- -------------
The Trusts finance activities which are primarily intended to result in the sale
of Trust shares and have each adopted a Distribution Plan pursuant to Rule 12b-1
under the 1940 Act (each, a "Plan"). Rule 12b-1 permits mutual funds, such as
the Trusts, to finance distribution activities and bear expenses associated with
the distribution of its shares provided that any payments made by the fund are
made pursuant to a written plan adopted in accordance with the Rule.
TRUST I-A. The Plan provides for two categories of payments. First, the Plan
provides daily compensation to the principal underwriter for its distribution
services and facilities ("daily compensation"). Pursuant to the Plan, but
subject to the .75% limitation described below, Trust I-A will pay the principal
underwriter daily compensation in the form of (i) sales commissions equal to
4.5% of the amount received by Trust I-A for each share sold (excluding
reinvestment of dividends and distributions) ("Underwriter's Sales Commissions")
and (ii) an interest fee calculated by applying the rate of 1% over the prime
rate then reported in The Wall Street Journal to the outstanding balance of
Uncovered Distribution Charges of the principal underwriter (as described
below). The principal underwriter currently expects to pay sales commissions to
dealers at the time of sale of up to 3% of the purchase price of the shares sold
by such dealer. See "How to Buy Shares of the Trusts." The principal underwriter
will use its own funds or funds facilitated by the principal underwriter (which
may be borrowed or otherwise financed) to pay such sales commissions. In
addition to the daily compensation to the principal underwriter, the Plan also
provides for the payment to the principal underwriter of a trail or maintenance
fee, accrued daily and paid monthly, in an amount equal to an annual rate of
0.25% of Trust I-A's daily net assets, which may be paid to dealers at an annual
rate not to exceed 0.25% of Trust I-A's daily net assets owned by clients of the
dealers.
Because the payment of the Underwriter's Sales Commissions and interest fees to
the principal underwriter in the form of daily compensation is subject to the
.75% limitation in the Plan, it will take the principal underwriter a number of
years to recoup the sales commissions paid to dealers and its other sales
expenses from the daily compensation payments received by it from Trust I-A
pursuant to the Plan. Such daily compensation will be accrued daily (at the rate
of 1/365 of .75% of Trust I-A's net assets) and paid monthly, but will be
automatically discontinued during any period in which there are no outstanding
Uncovered Distribution Charges under the Plan. Notwithstanding the
discontinuation of Uncovered Distribution Charges, Trust I-A may continue to pay
the .25% trail or maintenance fee. Uncovered Distribution Charges are calculated
daily and, briefly, are equivalent on any given day to all unpaid Underwriter's
Sales Commissions (Underwriter's Sales Commissions previously due less amounts
received pursuant to the Plan) and the interest fee to which the principal
underwriter is entitled under the Plan less all contingent deferred sales
charges previously paid to the principal underwriter. The Astra organization may
be considered to have realized a profit under the Plan if at any point in time
the aggregate amounts of all daily compensation and contingent deferred sales
charge payments previously made to the principal underwriter have exceeded the
total expenses incurred by the Astra organization in distributing shares of
Trust I-A. Total expenses for this purpose will include an allocable portion of
the overhead costs of such organization.
The amount of daily compensation payable to the principal underwriter with
respect to each day will be accrued on such day as a liability of Trust I-A and
will accordingly reduce Trust I-A's net assets upon such accrual. However, in
accordance with generally accepted accounting principles, Trust I-A does not
accrue future daily compensation as a liability of Trust I-A or reduce Trust
I-A's current net assets in respect of daily compensation which may become
payable under the Plan in the future because the standards for accrual of a
liability under such accounting principles have not been satisfied. As of
October 31, 1995, Trust I-A had total net assets of $65,880,624 and Uncovered
Distribution Charges aggregated $9,485,628. Notwithstanding the existence of
such Uncovered Distribution Charges, the amount of daily compensation payable on
each day is limited to 1/365 of .75% of Trust I-A's net assets on such day. The
level of Trust I-A's net assets changes each day
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and depends upon the amount of sales and redemptions of Trust I-A shares, the
changes in the value of Trust I-A's portfolio investments, the expenses of Trust
I-A accrued on such day, income on portfolio investments accrued on such day,
and dividends and distributions declared by Trust I-A.
The Plan provides that Trust I-A will make no daily compensation payments to the
principal underwriter during any period in which there are no outstanding
Uncovered Distribution Charges of the principal underwriter. Such daily
compensation will be paid to the principal underwriter whenever there exist
Uncovered Distribution Charges under the Plan.
The Plan provides that it shall continue in effect from year to year provided
that a majority of the Trustees of ASIS, including a majority of the Trustees
who are not "interested persons" of ASIS (as defined in the Investment Company
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreement related to the Plan (the "Rule 12b-1 Trustees"), vote
annually to continue the Plan. The Plan may be terminated at any time by vote of
a majority of the Rule 12b-1 Trustees or of a majority of the outstanding shares
of Trust I-A. The Plan provides that Trust I-A, on termination of the Plan, will
continue to make daily compensation payments to the Distributor (but only with
respect to sales that occurred prior to the termination of the Plan) until the
earlier of (a) four years after the date of such termination or (b) such time as
there exist no Uncovered Distribution Charges under the Plan. The amounts and
purposes of expenditures under the Plan must be reported to the 12b-1 Trustees
quarterly. Furthermore, any continuance of daily compensation payments after
termination of the Plan is subject to the continuance in effect by the Rule
12b-1 Trustees of the Underwriting Agreement, and such payments would cease upon
termination of the Underwriting Agreement (unless such payments were made in
accordance with another underwriting agreement entered into by the parties). The
Plan may be terminated by vote of a majority of the Rule 12b-1 Trustees, but in
deciding whether to purchase shares of Trust I-A, investors should consider that
daily compensation payments could continue until such time as there are no
Uncovered Distribution Charges under the Plan.
Periods with a high level of sales of Trust I-A shares accompanied by a low
level of redemptions of Trust I-A shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the principal underwriter.
Conversely, periods with a low level of sales of Trust I-A shares accompanied by
a high level of early redemptions of Trust I-A shares resulting in the
imposition of contingent deferred sales charges will tend to reduce the time
during which there will exist Uncovered Distribution Charges of the principal
underwriter.
Because of the .75% limitation on the amount of daily compensation paid to the
principal underwriter during any fiscal year, a high level of sales of Trust I-A
shares during the first few years of Trust I-A's operations would cause a large
portion of the daily compensation attributable to a sale of Trust I-A shares to
be accrued and paid by Trust I-A to the principal underwriter in fiscal years
subsequent to the years in which such shares were sold. This spreading of
Underwriters Sales Commissions payments under the plan over an extended period
would result in the incurrence and payment of increased interest fees under the
Plan.
The Plan authorizes payments which may be equivalent, on an aggregate basis
during any fiscal year of Trust I-A, of up to 1% of Trust I-A's average daily
net assets for such year. Trust I-A believes that the rate of these payments may
be higher than the rate of payments made under distribution plans adopted by
many other investment companies pursuant to Rule 12b-1. It is anticipated that
the Astra organization will benefit by reason of the operation of the Plan
through increases in Trust I-A's assets (thereby increasing the advisory fees
paid to AMC) resulting from sale of Trust I-A shares and through daily
compensation and contingent deferred sales charges paid to the principal
underwriter. The Astra organization may be considered to have realized a profit
under the Plan if at any point in time the aggregate amount of all daily
compensation and contingent deferred sales charge payments previously made to
the principal underwriter have exceeded the total expenses previously incurred
by such organization in distributing shares of Trust I-A. It is anticipated that
Trust
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I-A will benefit by having the continuous cash flow resulting from the sale of
new shares which will be used to meet shareholder redemptions and to take
advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities.
Trust I-A may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, ASIS' management intends to consider all relevant factors,
including, without limitation, the size of Trust I-A, the investment climate and
market conditions, the volume of sales and redemptions of Trust I-A shares, and
the amount of Uncovered Distribution Charges of the principal underwriter. The
Plan may continue in effect and payments may be made under the Plan following
any such suspension, discontinuance or limitation of the offering of Trust I-A
shares. However, Trust I-A is not contractually obligated to continue the Plan
for any particular period of time. Suspension of the offering of Trust I-A
shares would not, of course, affect a shareholder's ability to redeem his
shares.
TRUST II. Trust II's Plan provides that it will pay up to a maximum of 0.25% per
annum of Trust II's daily net assets for expenses incurred in the distribution
of Trust II's shares.
Trust II's Plan provides that it shall continue in effect for as long as such
continuance is approved at least annually by the vote of a majority of the
Trustees of ASIS and a majority of the Trustees of ASIS who are not interested
persons of ASIS and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees"). The Plan may be terminated at any time by a vote of a majority of
the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting
securities of Trust II.
The Plan will only make payments for expenses actually incurred by the
Distributor. The Plan provides that unreimbursed expenses may be carried over
from year to year, provided however, that in accordance with a policy adopted by
ASIS' Board of Trustees, such expenses may not be carried over for more than
three years from the date when they were incurred and that the Distributor has
not yet been reimbursed for such expenses. The Distributor may include as an
expense a portion of its overhead, including out of pocket costs. In the event
the Plan is terminated in accordance with its terms, the obligation of Trust II
to make payments to the Distributor pursuant to the Plan will cease and Trust II
will not be required to make any payments for expenses incurred after the date
such Plan terminates.
Pursuant to the Plan, the Distributor will be entitled to reimbursement (up to
the maximum of 0.25% per annum of Trust II's assets) for its actual expenses
incurred in the distribution and promotion of Trust II shares, including the
printing of prospectuses and reports used for sales purposes, expenses for
preparation and printing of sales literature and other related expenses,
including any distribution or service fees paid to securities dealers or
institutions who have executed a distribution or service agreement with the
Distributor.
Trust II may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, Trust II's management intends to consider all relevant factors,
including, without limitation, the size of the Trust II, the investment climate
and market conditions and the volume of sales and redemptions of Trust II
shares. The Plan may continue in effect and payments may be made under the Plan
following any such suspension, discontinuance or limitation of the offering of
Trust II shares. However, Trust II is not contractually obligated to continue
its Plan for any particular period of time. Suspension of the offering of Trust
II shares would not, of course, affect a shareholder's ability to redeem his
shares.
For the fiscal year ended October 31, 1995, Trust II reimbursed the Distributor
$18,750 for distribution expenses incurred. Distribution expenses incurred by
the Distributor included disbursements of $8,283 for costs of personnel involved
with this promotion and distribution of Trust II's shares. At October 31, 1995,
the Distributor had incurred approximately $1,199,108 of distribution expenses
in excess of amounts currently reimbursable by Trust II.
See the Statement of Additional Information for a further description of the
Distribution Plans.
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GENERAL INFORMATION
- -------------
Each Trust is a series of ASIS which was organized as a Massachusetts business
trust on July 19, 1989. Each Trust consists of an unlimited number of shares of
beneficial interest without par value.
All shares of each Trust have equal voting rights. In the event of dissolution
or liquidation, holders of a Trust's shares will receive pro rata, subject to
the rights of creditors, proceeds of the sale of the assets held. There are no
preemptive or conversion rights applicable to any of the shares. ASIS shares do
not have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for Trustees can elect all Trustees and the remaining shareholders
would not be able to elect any Trustees. The shares, when issued, will be fully
paid and non-assessable. The Board of Trustees of ASIS may create additional
series (or classes of series) of ASIS shares without shareholder approval. Any
series of shares may be terminated by a vote of shareholders of such series
entitled to vote or by the Trustees of ASIS by written notice to shareholders of
such series.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent. If requested by shareholders of at least 10% of the outstanding
shares of ASIS, ASIS will call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or trustees and will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
As used in this Prospectus, the term "Majority Vote" means the affirmative vote
of (a) more than 50% of the outstanding shares of a Trust or ASIS, as
appropriate, or (b) 67% or more of the shares present at a meeting if more than
50% of the outstanding shares of a Trust or ASIS, as appropriate, are
represented at the meeting in person or by proxy, whichever is less.
Whenever the Trusts are requested to vote on any proposal of the Portfolio, the
Trusts will hold a meeting of their shareholders and will cast their votes as
instructed by their shareholders. As is true for all investment companies, a
majority of the outstanding voting securities can control the results of any
shareholder vote. Because Portfolio investors' votes are proportionate to their
percentage interests in the Portfolio, one or more other Portfolio investors
could, in certain instances, approve an action which a majority of the
outstanding voting securities of a Trust had voted against. This could result in
a Trust redeeming its investment in the Portfolio, which could result in
increased expenses for such Trust. Whenever the shareholders of the Trusts are
called to vote on matters relating to the Portfolio, the Trustees of ASIS shall
vote shares for which they receive no voting instructions in the same proportion
as the shares for which they do receive voting instructions.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires the
notice of such disclaimer be given to all parties in each agreement, obligation
or instrument entered into or executed by ASIS or the Trustees. The Declaration
of Trust provides for indemnification out of the property of ASIS for all loss
and expense of any shareholder of ASIS held liable on account of being or having
been a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which ASIS would
be unable to meet its obligations wherein the complaining party was held not to
be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees of ASIS will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by ASIS of the
Trustees and officers of ASIS except with respect to any matter as to which such
person did not act in good faith in the reasonable belief that his action was in
or not opposed to the best interests of ASIS. Such person may not be indemnified
against any liability to ASIS or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless
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disregard of the duties involved in the conduct of his office. The Declaration
of Trust also authorizes the purchase of liability insurance on behalf of
Trustees and officers.
Any conflict of interest arising between ASIS and AIST will be resolved by the
Trustees of ASIS and AIST in accordance with their fiduciary responsibilities
imposed by the Investment Company Act of 1940 and Massachusetts law. Absent the
adoption of procedures reasonably appropriate to deal with conflicts of
interest, state securities regulations generally do not permit the Trustees of
the Portfolio to be the same individuals as the Trustees of ASIS. The Trustees
of ASIS and AIST, including a majority of the disinterested Trustees (as that
term is defined in the Investment Company Act of 1940, as amended), have adopted
procedures that they believe are reasonably appropriate to deal with any
potential conflicts of interest up to and including creating a separate Board of
Trustees.
OTHER INFORMATION
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust,
Pilgrim Strategic Investment Series ("PSIS") (and certain series funds of PSIS)
(predecessors to "Astra") and certain Trustees and Officers of the Trust are
defendants. These actions, which were consolidated on March 31, 1995, in an
action entitled In Re: Pilgrim Securities Litigation, principally allege
violations of the Securities Act of 1933 and the Investment Company Act of 1940
and relate primarily to disclosure concerning pricing and liquidity of portfolio
securities. Management believes the Complaints are without merit and intends to
vigorously defend these actions.
Investors in each Trust will be informed of its progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolio's portfolio at the close of business on the
last day of each month may be obtained by written request to the Trusts,
together with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Trusts' Shareholder Servicing
Agent at (800-441-7267).
This Prospectus is not an offering of the securities herein described in any
state in which such offering may not lawfully be made. No salesman, dealer or
other person is authorized to give any information or make any representation
other than those contained in this Prospectus.
39
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40
<PAGE>
[LOGO]
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUSTS I-A AND II
NEW ACCOUNT APPLICATION
- -------------------------------------------------------------------------------
INITIAL INVESTMENT
PLEASE MAIL THE COMPLETED
APPLICATION TO:
DST SYSTEMS, INC.
P.O. BOX 419174
KANSAS CITY, MO 64141
FOR ACCOUNTS ESTABLISHED VIA FEDERAL FUNDS WIRE, PLEASE MAIL THE COMPLETED
APPLICATION TO:
DST SYSTEMS, INC.
P.O. BOX 419174
KANSAS CITY, MO 64141
ATTN: ORDER DEPT.
Please check the box next to the Trust in which you are investing. If no
selection is made, your investment may be delayed.
[ ] (201) Astra Adjustable U.S. Government Securities Trust I-A*
[ ] (76) Astra Adjustable U.S. Government Securities Trust II
[ ] Establish the account specified below with the enclosed check for $_______
payable to the Trust selected above. Minimum initial investment is $5,000.
(Third party checks, except those payable to an existing shareholder who is
a natural person, credit cards and cash will not be accepted).
[ ] Payment has been made by Dealer purchase on _____________, $_____________
(Date) (Amount)
_____________________________
(Order Number)
[ ] Payment has been made by Fed. funds wire #____________.) on _____________
(Reference No (Date)
________________, $____________
(Account No.) (Amount)
______________________________________________________________________________
ACCOUNT
REGISTRATION
Joint Tenancy will be
assumed unless
otherwise noted.
Full Name/Corporate Name *SOCIAL SECURITY OR TAXPAYER I.D. #
_____________________________________ ____________________________________
Co-owner (if applicable) [ ] Check this box if Awaiting TIN
______________________________________________________________________________
Street Address
______________________________________________________________________________
City, State, Zip
______________________________________________________________________________
Check the Appropriate box below:
[ ] I am a United States Citizen
[ ] I am a Resident Alien (Please complete a W-9 and 1078)
[ ] I am a Non-Resident Alien (Please complete a W-8)
Indicate what country a tax resident of _____________________.
Special Note: If Joint Account Registration each Non-Resident Alien must
fill out a W-8.
_______________________________________________________________________________
* SHARES MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
** THE TRUST RESERVES THE RIGHT TO REJECT ANY APPLICATION THAT DOES NOT
FURNISH A CERTIFIED TIN, OR DOES NOT INDICATE THAT A TIN HAS BEEN APPLIED
FOR BY CHECKING THE "AWAITING TIN" BOX ON THE APPLICATION.
41
<PAGE>
_______________________________________________________________________________
DISTRIBUTION
INSTRUCTIONS
If you wish cash distributions
electronically credited to your
bank account, please attach a
voided check for this account.
If no box is checked, all distributions will be reinvested in additional shares
of the Trust.
INCOME DIVIDENDS: (elect one)
[ ] Reinvest dividends [ ] Pay dividends in cash
[ ] Use Dividend Transfer Option
CAPITAL GAINS DISTRIBUTION: (elect one)
[ ] Reinvest capital gains [ ] Pay capital gains in cash
[ ] Use Dividend Transfer Option
If you wish to utilize the Dividend Transfer Option, please designate the Astra
Fund account you wish to have your dividends reinvested in:
_______________________________ ___________________________________________
Fund Name Existing Acct. No.
[ ] Check this box if you wish your cash distributions to be sent to a payee
or address other than that listed in the "ACCOUNT REGISTRATION" section
above and indicate the payee and address below:
______________________________________________________________________________
Payee
______________________________________________________________________________
Street Address
______________________________________________________________________________
Account Number If Applicable
______________________________________________________________________________
City, State and Zip Code
______________________________________________________________________________
SPECIAL SERVICES:
EXPEDITED
REDEMPTIONS
Please indicate a commer-
cial bank and ATTACH A
VOIDED CHECK for this
account. "FOR DEALER
ONLY" section must be
completed.
TELEPHONE EXCHANGE
PRIVILEGE--Telephone
exchanges may be made by
calling DST Systems,
Inc. at (800) 441-7267
before the close of the NYSE
on any business day the NYSE
is open.
I (we) authorized the Trust's Transfer Agent to act upon telephone or wire
instructions from any person to have amounts redeemed from my (our) account in
the Trust and:
[ ] WIRED to the bank account designated below. ($5,000 minimum)
Name of Bank Branch
______________________________________________________________________________
Bank Address
______________________________________________________________________________
______________________________________________________________________________
Name of Account Account Number
______________________________________________________________________________
You will automatically be assigned this privilege unless you instruct the Trust
otherwise by checking the box below. Shares may only be exchanged between
accounts with identical registrations. Any certificates for shares must be
deposited prior to any exchange of such shares. Certain Restrictions apply to
this privilege. Please read the Prospectus carefully.
[ ] I do not wish to have Telephone Exchange Privilege.
_______________________________________________________________________________
42
<PAGE>
_______________________________________________________________________________
OTHER SERVICES
READ THE PROSPECTUS FOR
FURTHER DETAILS ON RIGHTS
OF ACCUMULATION AND
LETTERS OF INTENT, OR
CALL (800) 441-7267.
FIVE PERCENT OF THE DOLLAR
AMOUNT OF THE LETTER OF
INTENT WILL BE HELD IN
ESCROW UNTIL THE INTENDED
PURCHASE HAS BEEN
COMPLETED.
[ ] RIGHTS OF ACCUMULATION
I apply for reduced sales charges, subject to the Transfer Agent's
confirmation of the following eligible holdings:
Fund Shareholder Registration Account No.
---- ------------------------ -----------
___________________ _______________________________ __________________
___________________ _______________________________ __________________
[ ] LETTER OF INTENT
I intend to invest over a 13-month period beginning _____________________
[ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $750,000 [ ] $1,000,000 or more
Existing account information:
Fund Shareholder Registration Account No.
---- ------------------------ -----------
___________________ _______________________________ __________________
___________________ _______________________________ __________________
_______________________________________________________________________________
CERTIFICATION AND
SIGNATURE
Cross out (2) if it is not
correct.
The account owners or their representatives certify that they have the power and
authority to establish this account and select the privileges requested, subject
to the terms outlined in the Prospectus. Atlas Holdings Group, Inc. or any
subsidiary, affiliate or agent or their officers, directors or employees will
not be liable for any loss, expense or cost for acting upon any instructions or
inquiries believed genuine. The account owners certify that the current
Prospectus for the Trust has been received and read and that the authorizations
hereon shall continue until the Trust receives written notice of a modification
signed by all appropriate parties or a termination signed by any party. This
account is subject to the terms of the Trust's Prospectus, as amended from time
to time, and the terms herein set forth, and subject to acceptance by the Trust
and to the laws of California. All terms shall be binding upon the
representatives, successors, and assigns of the account owners.
Under penalties of perjury, the undersigned hereby certify (1) that the Social
Security or Taxpayer I.D. Number above is correct and (2) that the account
owner is not subject to backup withholding because (a) the undersigned have not
been notified of being subject to backup withholding as a result of a failure to
report all interest or dividends, or (b) the I.R.S. has provided notification
that the account owner is no longer subject to backup withholding.
All persons signing as representatives warrant as individuals that each person
signing is an authorized representative of the account owner, that the account
and privileges selected have been duly authorized, that all signatures hereon
are genuine and that the persons indicated hereon are authorized to sign. It is
understood that the Trust, Astra Fund Distributors Corp. and the Transfer Agent
may rely on these authorizations until revoked or amended by written notice
delivered by registered mail to the Trust.
Authorized Signature Title
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Date
________________________________
Telephone Number:
Home: (___)_______________
Other: (___)_______________
______________________________________________________________________________
43
<PAGE>
______________________________________________________________________________
FOR DEALER ONLY:
(Please Print)
The undersigned ("Dealer") agrees to all applicable provisions in this
Application and the Dealer Agreement, guarantees the signature of and
representations by the Shareholder, agrees to notify Astra Fund Distributors
Corp. of any purchases made under a Letter of Intent or Rights of Accumulation,
and represents that this Application is properly executed by a signer authorized
to guarantee signatures for the Dealer.
Dealer's name ______________________________________________
Main office address ______________________________________________
Authorized signature of dealer X_____________________________________________
Branch street address ______________________________________________
City _______________ State _________ Zip __________
Representative No. and last name ____________________ Telephone No. ___________
_______________________________________________________________________________
44
<PAGE>
[LOGO] ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUSTS I-A AND II
ADDITIONAL ACCOUNT PRIVILEGES
______________________________________________________________________________
SYSTEMATIC
WITHDRAWAL
PLAN
PLEASE MAIL THE
COMPLETED FORM TO:
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
If you wish your SWP
payments to be electronically
credited to your bank account,
please attach a voided check.
I (we) authorize the Trust's Transfer Agent, to liquidate shares in and withdraw
cash from my account 5 business days prior to the beginning of ________________
(month) to provide [ ] Monthly or [ ] Quarterly Systematic Withdrawal Plan
payments ("SWP") in the amount of $_____________ ($100 minimum) to the
registered shareholder or to the following designated payee:
Full Name/Corporate Name
______________________________________________________________________________
Name of Payee or Payee Bank Bank Account Number (if any)
______________________________________________________________________________
Street Address
______________________________________________________________________________
City, State, Zip
______________________________________________________________________________
Authorized Signature(s)
______________________________________________________________________________
PRE-AUTHORIZED
INVESTMENT PLAN
PLEASE ATTACH A VOIDED
CHECK FOR THIS ACCOUNT
Mail the completed
form to the above
address
I (we) authorize the Trust's Transfer Agent, to draw checks on the bank account
provided below, beginning on the [ ] 5th and/or [ ] 20th of ___________________
(month) and on the same day each month thereafter in the amount of
$_________________ ($250 minimum) to purchase additional shares of the Trust:
Full Name/Corporate Name Bank Account Number
______________________________________________________________________________
Name of Bank Branch
______________________________________________________________________________
Address
______________________________________________________________________________
City, State, Zip
______________________________________________________________________________
Authorized Signature(s)
- -------------------------------------------------------------------------------
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
AND II FOR AUTOMATIC PURCHASE PLAN)
Please PRINT
Name of
Depositor
(as shown on
bank records)_______________________________
Bank
Account
Number_______________________________
Name
of Bank_______________________________
Address
of Bank_______________________________
City, State and
Zip Code
of Bank_______________________________
As a convenience, I (we) hereby request and authorize you to pay and charge to
my (our) account checks drawn on my (our) account by DST Systems, Inc., the
Trust's Agent and payable to the order of the Trust provided there are
sufficient collected funds in said account to pay the same upon presentation. I
(we) agree that your rights with respect to each such check shall be the same as
if it were a check drawn on you and signed personally by me (us). This authority
is to remain in effect until revoked in writing and until you actually receive
such notice I (we) agree that you shall be fully protected in honoring any such
checks.
I (we) further agree that if any such check be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability whatsoever.
Signature(s) of Depositor(s) (signed exactly as shown on bank records)
X_____________________________________________________________________________
X_____________________________________________________________________________
___________________________________________________________ 19________________
Date Signed
45
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
46
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED
TO A WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)
If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth on pages 27-28 of the
prospectus, you must complete this Contingent Deferred Sales Charge Waiver Form
and send it to the Trust's Transfer Agent at its address given below. The waiver
will only be granted upon confirmation of your entitlement.
Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:
[ ] Redemption is made upon the death or permanent disability of shareholder.
(Enclose either a certified death certificate or certification of permanent
disability (see below), whichever is appropriate).
[ ] Redemption is made in connection with mandatory distributions from an IRA
or other qualified retirement plan (Enclose a certified birth certificate
for IRA or other qualified retirement plan accounts. Where IFTC acts as
custodian, please contact the Trust for a Distribution Request Form which
must accompany this Contingent Deferred Sales Charge Waiver Form).
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Signature__________________________________________________________________
(Exactly as on Account Registration)
DATE_______________________________________________________________________
Name(s)____________________________________________________________________
____________________________________________________________________
(Please Print)
MAIL THE COMPLETED WAIVER FORM TO:
DST SYSTEMS, INC., P.O. BOX 419174, KANSAS CITY, MO 64141
DEFINITION OF DISABILITY
An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.
CERTIFICATION OF DISABILITY
I___________________________________________certify that________________________
Physician Name Investor/Patient
is under the regular care of_______________________________________and is unable
Licensed Physician
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of Disability________________________
Physician Signature_______________________________________Date__________________
47
<PAGE>
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48
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
The Fund, and other payers, must, according to IRS regulations, withhold
20% of reportable dividends (whether paid or accrued) and redemption payments if
a shareholder fails to provide a taxpayer identification number, and a
certification that he is not subject to backup withholding in the Substitute
Form W-9 included as a part of this Letter of Transmittal.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in
the manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under
section 3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you
fail to certify to the payer that you are not subject to backup withholding
under (3) above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, application for a Social Security Number Card, or Form
SS-4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in the space provided for a taxpayer identification
number on the application.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
4 Show the name of the owner.
5 List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL
payments. Write "exempt payee" after paragraph (2) of the Certification and
Signature section if your account falls into one of the following categories. We
will still need your taxpayer identification number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
================================================================================
GUIDELINES FOR DETERMINING PROPER NUMBER FOR THIS TYPE OF ACCOUNT:
1. An individual's account
2. Two or more individuals (joint account)
3. Husband and wife (joint account)
4. Custodian account to a minor (Uniform Gift to Minors Act)
5. Adult and minor
6. Account in the name of guardian or committee for a designated ward, minor or
incompetent person
7. a. The usual revocable savings trust account (grantor is also trustee)
b. So-called trust account that is not a legal or valid trust under state
law
8. Sole proprietorship account
- --------------------------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
NUMBER OF--
The individual
The actual owner of the account or, if combined funds any one of the
individuals(superior1)
The actual owner of the account or, if joint funds, either person(superior1)
The minor(superior2)
The adult or if the minor is the only contributor, the minor(superior1)
The ward, minor, or incompetent person(superior3)
The grantor-trustee(superior5)
The actual owner(superior1)
The owner(superior4)
FOR THIS TYPE OF ACCOUNT:
- --------------------------------------------------------------------------------
9. A valid trust, estate or pension trust
10. Corporate account
11. Religious, charitable, or educational organization account
12. Partnership account held in the name of the business
13. Association, club or other tax-exempt organization
14. A broker or registered nominee
15. Account with the Department of Agriculture in the name of a public entity
(such as a State or local government, school district, or prison) that
receives agricultural program payments
- --------------------------------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
Legal entity (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)(superior5)
The corporation
The organization
The partnership
The organization
The broker or nominee
The public entity
49
<PAGE>
[LOGO]
750 B Street
Suite 2350
San Diego, California 92101
- --------------------------------------------------------------------------------
ASTRA
ADJUSTABLE
U.S. GOVERNMENT
SECURITIES TRUSTS I-A AND II
ASTRA ADJUSTABLE U.S. GOVERNMENT Prospectus
SECURITIES TRUST I-A AND II February 28, 1996
INVESTMENT MANAGER
Astra Management Corporation
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp.
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
[ARTWORK--EAGLE]
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
CUSTODIAN
PNC Bank, National Association
Airport Business Center
200 Stevens Drive
Lester, Pennsylvania 19113
LEGAL COUNSEL
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
USG I-A 296 8 (c) 1996 Atlas Holdings Group, Inc.
<PAGE>
PROSPECTUS
[LOGO]
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
750 B STREET, SUITE 2350, SAN DIEGO, CALIFORNIA 92101 o 1-800-219-1080
- --------------------------------------------------------------------------------
o How the Trust Works Page 6
o Shareholder's Guide Page 21
- --------------------------------------------------------------------------------
Astra Adjustable U.S. Government Securities Trust IV (the "Trust") is a
non-diversified series of Astra Strategic Investment Series ("ASIS"), an
open-end management investment company (mutual fund), that seeks high current
income consistent with low volatility of principal. THE TRUST, UNLIKE MANY OTHER
INVESTMENT COMPANIES WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF
SECURITIES, SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE
ASSETS IN ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
(THE "PORTFOLIO"), AN OPEN-END MANAGEMENT INVESTMENT COMPANY WHICH IS A
NON-DIVERSIFIED SERIES OF ASTRA INSTITUTIONAL SECURITIES TRUST ("AIST") WITH THE
SAME INVESTMENT OBJECTIVE AS THE TRUST. AS A RESULT, THE INVESTMENT EXPERIENCE
OF THE TRUST WILL CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE
PORTFOLIO. ACCORDINGLY, INVESTORS SHOULD CAREFULLY CONSIDER THIS INVESTMENT
APPROACH. FOR ADDITIONAL INFORMATION REGARDING THIS CONCEPT, SEE "HOW THE TRUST
WORKS--SPECIAL INFORMATION REGARDING THE TRUST'S STRUCTURE." The Portfolio seeks
to achieve its investment objective by investing at least 65% of its assets in
adjustable rate mortgage securities which are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Mortgage
Securities"). The Portfolio invests the remainder of its assets generally in
mortgage securities issued or sponsored by commercial banks, savings and loan
associations, mortgage bankers or other financial institutions, that have no
government guarantee and that are senior or subordinated to other mortgage
securities arising out of the same pool of mortgages ("Multi-Class Residential
Mortgage Securities"). The portion of assets invested in Subordinated
Residential Mortgage Securities may entail greater risk than the portion
invested in senior Mortgage Securities or U.S. Government Mortgage Securities.
The Trust believes that by Investing in the Portfolio, which invests primarily
in mortgage securities which have variable rates of interest, it will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. In addition, by selectively investing a portion of its assets in
Multi-Class Residential Mortgage Securities, the Portfolio will seek to achieve
a higher yield than that of traditional mutual funds which invest primarily or
exclusively in U.S. Government Mortgage Securities. There can, of course, be no
assurance that the Trust's objective will be attained.
The Trust offers shares that may be purchased at a price equal to their net
asset value per share and imposes a contingent deferred sales charge which will
be assessed on most redemptions made within three months of purchase. The Trust
incurs, subject to certain limitations, an annual distribution fee of .60% of
its average daily net assets.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY.
This Prospectus must be delivered to the investor prior to consummation of sale.
This Prospectus sets forth concisely information about the Trust that
prospective investors should know before investing. It should be retained for
future reference. A Statement of Additional Information relating to the Trust,
dated February 28, 1996, has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. This Statement is available
without charge upon request to the Trust at the address or the telephone number
above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1996
<PAGE>
TABLE OF CONTENTS
- -------------
PAGE
----
Key Features 2
- ------------------------------------------------------------------------------
Special Information Regarding The Trust's Structure 6
- ------------------------------------------------------------------------------
The Trust's Investment Objective 7
- ------------------------------------------------------------------------------
Distributions and Taxes 20
- ------------------------------------------------------------------------------
How to Buy Shares of the Trust 21
- ------------------------------------------------------------------------------
How to Redeem Shares of the Trust 23
- ------------------------------------------------------------------------------
Shareholder Services and Privileges 25
- ------------------------------------------------------------------------------
Expedited Redemption and Telephone Exchange Information 26
- ------------------------------------------------------------------------------
How the Trust Values Its Shares 26
- ------------------------------------------------------------------------------
The Astra Group 28
- ------------------------------------------------------------------------------
Portfolio Management 28
- ------------------------------------------------------------------------------
Management Fees 28
- ------------------------------------------------------------------------------
Administrative Fees 29
- ------------------------------------------------------------------------------
Distribution Plan 29
- ------------------------------------------------------------------------------
General Information 30
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New Account Application 33
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Additional Account Privileges 37
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KEY FEATURES
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WHAT IS THE TRUST'S INVESTMENT OBJECTIVE?
The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. See "The Trust's Investment
Objective" for a discussion of current adverse market conditions and the effect
of redemption requests on yield.
The Trust seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio which has the same investment objective as
that of the Trust. Since the investment characteristics of the Trust will
correspond to those of the Portfolio, this Prospectus discusses the various
investments of and techniques employed by the Portfolio.
The performance of the Trust has been negatively affected by adverse conditions
in the market for ARM securities. Because of rising interest rates and declining
bond prices, combined with negative publicity on the mortgage securities market
and the higher than expected price volatility experienced with many derivative
mortgage-backed securities, mortgage funds industry-wide have experienced heavy
redemptions. As a result, many ARM funds have been forced to liquidate ARM
securities in order to meet redemption requests. This has resulted in an
increased supply of ARM securities in the market, bringing about wider spreads
over the relevant indices and reduced prices. Moreover, adverse market
conditions have resulted in a decrease in the value of certain ARM securities of
the type in which the Trust has invested. Further fluctuations in net asset
value may occur as a result of such factors as deteriorating or improving market
conditions and liquidity and credit experience of portfolio securities. See
"Illiquid Securities."
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LESS FLUCTUATION IN NET ASSET VALUE
At least 65% of the Portfolio's assets are invested in adjustable rate mortgage
securities ("ARMS") representing an interest in mortgages, which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities"). The adjustable rate feature of the underlying
mortgages to these instruments generally will act as a buffer to reduce sharp
changes in the Portfolio's net asset value in response to normal interest rate
fluctuations. The Portfolio expects that the adjustable rate feature of the U.S.
Government Mortgage Securities will help the Portfolio achieve lower volatility
of principal than a long-term bond fund whose portfolio instruments have a fixed
rate of interest. The Portfolio only invests in those mortgage securities with
underlying mortgages representing first liens on the properties securing such
mortgages. See "U.S. Government Mortgage Securities," "Adjustable Rate Mortgage
Securities" and "Illiquid Securities."
The Trust has experienced a significant increase in the rate of redemptions. As
a result, the Portfolio has increasingly been managed to provide adequate cash
reserves to satisfy redemption requests, resulting in a decreased ability to
seek high current income with low volatility of principal, which is the Trust's
fundamental investment objective. Investing a larger percentage of portfolio
assets in cash and short-term instruments results in lower yields than those
typically received on investments in mortgage securities. See "Illiquid
Securities."
HIGH CURRENT INCOME
The remainder of the Portfolio's assets are invested in residential mortgage
securities collateralized by pools of single family, multi-family and mobile
home park residential mortgages issued or sponsored by financial institutions
such as commercial banks, savings and loan associations and mortgage bankers,
that have no government guarantee and that are senior or subordinated to other
mortgage securities arising out of the same pool of mortgages ("Multi-Class
Residential Mortgage Securities"). A substantial portion of the Portfolio's
investment in Multi-Class Residential Mortgage Securities is expected to be
Multi-Class Residential Mortgage Securities that are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
securities ("Subordinated Residential Mortgage Securities"). By investing in
Subordinated Residential Mortgage Securities, the Portfolio seeks to increase
yield to shareholders. The Portfolio seeks to limit the risks presented by such
instruments by reviewing and analyzing the characteristics of the mortgage loans
underlying the Subordinated Residential Mortgage Securities that it may acquire.
The Portfolio purchases Subordinated Residential Mortgage Securities when, in
the view of the Portfolio's investment manager, Astra Management Corporation
("AMC" or the "Manager"), the potential for a higher marginal yield on such
instruments outweighs any additional risk presented by the instruments. See
"Multi-Class Residential Mortgage Securities."
HOW DO I BUY AND SELL (REDEEM) MY SHARES OF THE TRUST?
Shares of the Trust are available through selected broker-dealers and other
financial services firms at the net asset value per share. The minimum initial
investment is $50,000. Shares of the Trust are redeemable at the net asset value
per share on any business day, reduced by the amount of any applicable
contingent deferred sales charge. Payments to you can be made either through
brokers, directly to you, or to your designated bank. In addition, for the
convenience of shareholders, the Trust provides certain shareholder services and
privileges which may be suited to your particular investment needs. See
"Shareholder's Guide."
WHEN DO I RECEIVE INCOME?
You may elect to receive monthly dividends from net investment income in cash or
have them reinvested in additional shares at net asset value. See "Choosing a
Distribution Option."
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WHO IS ASTRA GROUP?
Astra Management Corporation ("AMC"), the Portfolio's investment manager, and
Astra Fund Distributors Corp. (the "Distributor"), the Trust's principal
underwriter, are part of Atlas Holdings Group, Inc. ("Atlas Group"), a financial
services holding company that provides financial services to mutual funds. Atlas
Group has total combined assets under management of approximately $200 million.
AMC and the Distributor are part of the umbrella name "Astra Group."
FEE TABLE
The following fee table is provided to assist investors in understanding the
various costs and expenses which may be borne directly or indirectly by an
investment in the Trust (including costs and expenses charged by both the Trust
and the Portfolio). The percentages shown below expressing Annual Trust
Operating Expenses are based on actual amounts incurred by the Trust for the
fiscal year ended October 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge Imposed on Purchases (as a percentage of
offering price) ............................................. NONE
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) ............................... NONE
Deferred Sales Charge* ........................................ 0.25%
Redemption Fees ............................................... NONE
Exchange Fees ................................................. NONE
ANNUAL TRUST OPERATING EXPENSES**
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(as a percentage of average net assets)
Management Fees (See Management Fees) ......................... 0.55%
12b-1 Fees*** ................................................. 0.60%
Administration Fees (See Administration Fees) ................. 0.10%
Other Expenses ................................................ 1.80%
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Total Trust Operating Expenses***** ........................... 3.05%
=====
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* A contingent deferred sales charge of .25% of the original purchase
price will be imposed on most redemptions within three months of
purchase.
** The Trustees of ASIS believe that the aggregate per share operating
expense of the Trust and the Portfolio will be less than or
approximately equal to the expenses that the Trust would incur if it
retained the services of an investment adviser and its assets were
invested directly in the type of securities held by the Portfolio.
*** As a result of 12b-1 fees, a long-term shareholder in the Trust may pay
more than the economic equivalent of the maximum sales charges permitted
by the Rules of the National Association of Securities Dealers, Inc.
***** More complete descriptions of the following expenses are set forth on
the following pages: (i) Management Fees, page 28, (ii) 12b-1 Fees,
pages 29 and 30 and (iii) Administrative Fees, page 29.
EXAMPLE
Assuming a hypothetical investment of $1,000, a 5% annual return and redemption
at the end of each time period, an investor in the Trust would have paid
transaction and operating expenses at the end of each year as follows:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$31 $95 $161 $337
THIS EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
foregoing table has not been audited by Tait, Weller & Baker, the Trust's
independent certified public accountants.
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FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights relating to the Trust have been audited by
Tait, Weller & Baker, independent certified public accountants, whose report
thereon appears in the Trust's Annual Report to Shareholders for the fiscal year
ended October 31, 1995 and is incorporated by reference in this Prospectus. A
copy of the Trust's Annual Report to Shareholders may be obtained without charge
by contacting the Trust's Shareholder Servicing Agent at (800) 441-7267.
<TABLE>
<CAPTION>
May 7, 1993
(commencement of
Year Ended October 31, operations) to
----------------------- October 31,
1995 1994 1993
------- ------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ................. $ 6.510 $ 7.310 $ 7.350
------- ------- -------
Income (loss) from investment operations--
Net investment income .............................. 0.211 (e) 0.300 0.171
Net realized and unrealized loss on investments .... (0.776)(e) (0.764) (0.025)
------- ------- -------
Total from investment operations ................. (0.565) (0.464) 0.146
------- ------- -------
Less distributions--
Distributions from net investment income ........... 0.218 0.302 0.172
Distributions from paid-in capital ................. 0.087 0.034 0.014
------- ------- -------
Total distributions .............................. 0.305 0.336 0.186
------- ------- -------
Net asset value, end of period ...................... $ 5.640 $ 6.510 $ 7.310
======= ======= =======
TOTAL RETURN (f) ..................................... (8.75)% (6.57)% 4.11%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ............. $ 2,871 $12,565 $78,145
Ratio to average net assets--
Expenses ........................................... 2.19%(b)(c) 0.85%(b)(c) 0.45%(a)(b)(c)
Net investment income .............................. 3.64%(d) 4.23%(d) 4.71%(a)(d)
Portfolio turnover rate .............................. 6% 21% 3%
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<FN>
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61%,
respectively, of expenses of the Portfolio, which reduced dividends paid to
Trust IV.
(c) Ratio of expenses to average net assets prior to expense waivers were
2.22%, 1.06% and 0.76%(a), respectively.
(d) Ratio of net investment income to average net assets prior to expense
waivers were 3.61%, 4.02% and 4.40%(a), respectively.
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
</FN>
</TABLE>
Further information about the Trust's performance is contained in the Trust's
Annual Report to Shareholders for the fiscal year ended October 31, 1995, which
may be obtained by shareholders without charge.
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HOW THE TRUST WORKS
SPECIAL INFORMATION REGARDING THE TRUST'S STRUCTURE
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The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. The Trust's investment objective is
fundamental and may not be changed without shareholder approval. The Trust
pursues its investment objective by investing all of its investable assets in
the Portfolio, which has the same investment objective as that of the Trust.
Since the investment characteristics of the Portfolio correspond to those of the
Trust, the following includes discussion of the various investments of and
techniques employed by the Portfolio. The Trust may withdraw its investment in
the Portfolio at any time without shareholder approval if the Board of Trustees
of ASIS decides that it is in the best interest of the Trust to do so. Upon any
such withdrawal, the Trustees would consider what action might be taken,
including the investment of the assets of the Trust in another registered
investment company having the same investment objective as the Trust or the
retention of an investment adviser to manage the Trust's assets in accordance
with its investment objective. The investment objective of the Trust and the
Portfolio can only be changed with shareholder approval. Written notice shall be
provided to shareholders of the Trust at least thirty days prior to any changes
in the Trust's or the Portfolio's investment objective. If the objective of the
Portfolio changes and the shareholders of the Trust do not approve a parallel
change in the Trust's investment objective, the Trust would seek an alternative
investment vehicle or directly retain its own investment adviser. There can be,
of course, no assurance that the Trust's and the Portfolio's objective will be
achieved.
Investors should be aware that the Trust, unlike mutual funds which directly
acquire and manage their own portfolio of securities, seeks to achieve its
investment objective by investing all of its investable assets in the Portfolio,
which is a separate investment company, as previously described. The fundamental
and non-fundamental investment restrictions of the Trust are identical to those
of the Portfolio. The Trustees of ASIS believe that by investing all of its
investable assets in the Portfolio, the Trust expects to be in a position to
realize, directly or indirectly, certain economies of scale, in that a larger
investment portfolio may achieve a lower ratio of operating expenses to net
assets. Since the Trust will invest only in the Portfolio, the Trust's
shareholders will acquire only an indirect interest in the investments of the
Portfolio. Historically, the Pilgrim Group Inc. Astra's predecessor, had
sponsored traditionally structured funds and, therefore, Astra has limited
experience with funds that invest all of their assets in a separate portfolio.
In addition to selling its interests to the Trust, the Portfolio may sell its
interests to other affiliated or non-affiliated investment companies and/or
other institutional investors. All institutional investors in the Portfolio will
pay a proportionate share of the Portfolio's expenses and will invest in the
Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in the Portfolio, it would not be required to
sell its shares at the same public offering price as the Trust and may charge
different sales commissions. Therefore, investors in the Trust may experience
different returns from investors in another investment company which invests
exclusively in the Portfolio. As of the date of this Prospectus, in addition to
the Trust, Astra Adjustable U.S. Government Securities Trusts I, I-A and II also
invest exclusively in the Portfolio. In addition, the Portfolio may offer
beneficial interests to other institutional investors in the future. Information
regarding these other Trusts is available by calling the Trust's Shareholder
Servicing Agent at (800) 441-7267.
Investors in the Trust should be aware that the Trust's investment in the
Portfolio may be materially affected by the actions of large investors in the
Portfolio, if any. For example, as with all open-end investment companies, if a
large investor were to redeem its interest in the Portfolio, the remaining
investors could experience higher pro rata operating expenses, thereby producing
lower returns. As a result, the Portfolio's security holdings may become less
diverse, resulting in increased risk. Institutional investors in the Portfolio
that have a greater pro rata ownership interest in the Portfolio than the Trust
could have effective voting control over the operation of the Portfolio. Certain
changes in the Portfolio's fundamental objectives, policies and restrictions
could require
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the Trust to redeem its interest in the Portfolio. Any such redemption could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) by the Portfolio.
Should such a distribution occur, the Trust could incur brokerage fees or other
transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
for the Trust and could affect adversely the liquidity of the Trust.
See "Management Fees" and "Administrative Fees" for a complete description of
the management and other expenses associated with the Trust's investment in the
Portfolio.
THE TRUST'S INVESTMENT OBJECTIVE
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The investment objective of the Trust is to seek a high level of current income
consistent with low volatility of principal. The Trust pursues its investment
objective by investing all of its investable assets in the Portfolio, which has
the same investment objective as that of the Trust. The Portfolio invests at
least 65% of its total assets in adjustable rate U.S. Government Mortgage
Securities. The Portfolio invests the remainder of its assets in Multi-Class
Residential Mortgage Securities. Multi-Class Residential Mortgage Securities are
issued or sponsored by commercial banks, savings and loan associations or other
financial institutions, have no governmental guarantee and are senior or
subordinated to other mortgage securities arising out of the same pool of
mortgages. The Portfolio expects that a substantial portion of its investment in
Multi-Class Residential Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. The mortgage securities in which the Portfolio
invests represent a participation in mortgage loans secured by property
consisting of single family, multi-family and mobile home park, residential
property. The Portfolio only invests in those mortgage securities with
underlying mortgages representing first liens on the properties securing such
mortgages. There is, of course, no assurance that the Portfolio's objective will
be achieved.
DUE TO INCREASINGLY ADVERSE MARKET CONDITIONS FOR ADJUSTABLE RATE MORTGAGE
SECURITIES, INCLUDING SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES, THE
PORTFOLIO HAS EXPERIENCED A NET REDUCTION IN THE VALUES OF THE SECURITIES IT
HOLDS. ALTHOUGH THE MANAGER BELIEVES THAT UNDER NORMAL MARKET CONDITIONS THE
PORTFOLIO'S INVESTMENT OBJECTIVE CAN BE ACHIEVED, THERE CAN BE NO ASSURANCE THAT
THE ADVERSE MARKET CONDITIONS WILL NOT CONTINUE. IN ADDITION, AS THE TRUST HAS
EXPERIENCED AN INCREASE IN THE RATE OF REDEMPTIONS, CASH AND CASH EQUIVALENTS
HAVE BEEN MAINTAINED IN ORDER TO MEET SUCH REDEMPTIONS, WHICH HAS HAD THE EFFECT
OF REDUCING YIELD. THE MANAGER INTENDS TO MAINTAIN THIS POSITION UNTIL SUCH TIME
AS THE MARKET FOR ADJUSTABLE RATE MORTGAGE SECURITIES NORMALIZES AND REDEMPTION
RATES STABILIZE.
Traditionally, the mortgage securities in which most mutual funds invested were
exclusively U.S. Government Mortgage Securities representing interests in pools
of fixed rate mortgages. The Portfolio believes that by investing primarily in
mortgage securities which have variable rates of interest, it will achieve a
more consistent and less volatile net asset value than is characteristic of
mutual funds that invest primarily in mortgage securities paying a fixed rate of
interest. Unlike fixed-rate mortgages which generally decline in value during
periods of rising interest rates, adjustable rate mortgage securities allow the
Portfolio to participate in increases in interest rates through periodic
adjustments in the coupons of the underlying mortgages, resulting in both higher
current yields and lower price fluctuations. Furthermore, if prepayments of
principal are made on the underlying mortgages during periods of rising interest
rates, the Portfolio generally is able to reinvest such amounts in securities
with a higher current rate of return. However, the Portfolio will not benefit
from increases in interest rates to the extent that interest rates rise to the
point where they cause the current coupon of adjustable rate mortgages held as
investments to exceed the maximum allowable annual or lifetime reset limits (or
"cap rates") for a particular mortgage. In this event, the value of the mortgage
securities in the Portfolio would likely decrease. Also, the Portfolio's net
asset value could vary due to market yield changes during interim periods
between coupon reset dates, which typically range from one month to five years.
Furthermore, during periods of declining interest rates, income to the Portfolio
derived from ARMS will decrease in contrast to the income on fixed rate
mortgages which will remain constant. In
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<PAGE>
addition, ARMs also have less potential for appreciation in value when interest
rates decline than do fixed rate investments which tend to increase in value as
interest rates decline. See "U.S. Government Mortgage Securities,"
"Characteristics of the Adjustable Rate Mortgage Securities in Which the
Portfolio Invests" and "Illiquid Securities."
Multi-Class Residential Mortgage Securities may constitute up to 35% of the
Portfolio's assets. Unlike U.S. Government Mortgage Securities, the payment of
principal and interest on Multi-Class Residential Mortgage Securities is not
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
Accordingly, yields on Multi-Class Residential Mortgage Securities have been
historically higher than the yields on U.S. Government Mortgage Securities.
However, the risk of loss due to default on such instruments is higher since
they are not guaranteed by the U.S. Government.
The Portfolio expects that a substantial portion of its assets invested in
Multi-Class Residential Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. Subordinated Residential Mortgage Securities
are subordinated in some manner as to the payment of principal and/or interest
to the holders of more senior mortgage securities. Accordingly, losses on the
underlying mortgage loans are generally borne by the holders of Subordinated
Residential Mortgage Securities before they are borne by the holders of more
senior mortgage securities arising out of the same pool. The holders of
Subordinated Residential Mortgage Securities are therefore compensated with a
higher stated yield than are the holders of more senior Multi-Class Residential
Mortgage Securities. The return on Subordinated Residential Mortgage Securities
is decreased by any loss incurred pursuant to the terms of the Subordinated
Residential Mortgage Security.
A Multi-Class Residential Mortgage Security that is senior to a Subordinated
Residential Mortgage Security will not bear a loss resulting from the occurrence
of a default on an underlying mortgage until all credit enhancement protecting
such senior holder is exhausted. For example, the senior holder will only suffer
a credit loss after any subordinated interests have been exhausted pursuant to
the terms of the Subordinated Residential Mortgage Security. See "Multi-Class
Residential Mortgage Securities." The primary credit risk to the Portfolio by
investing in Subordinated Residential Mortgage Securities is potential losses
resulting from defaults by the borrowers under the underlying mortgages. The
Portfolio would generally realize such a loss in connection with a Subordinated
Residential Mortgage Security only if the subsequent foreclosure sale of the
property securing a mortgage loan does not produce an amount at least equal to
the sum of the unpaid principal balance of the loan as of the date the borrower
went into default, the interest that was not paid during the foreclosure period
and all foreclosure expenses. The senior Multi-Class Residential Mortgage
Securities in which the Portfolio invests are rated at least "A" by Standard &
Poor's Corporation or Moody's Investors Service. The Subordinated Residential
Mortgage Securities in which the Portfolio invests are generally unrated and the
Manager is not in the business of determining credit ratings. However, the
Manager believes that the Subordinated Residential Mortgage Securities in which
the Portfolio invests generally present credit risks similar to that of
corporate debt securities rated "BBB" or "Baa" by Standard and Poor's
Corporation or Moody's Investors Service, respectively, although it notes that
certain recently rated BBB mortgage securities have a first loss protection
somewhat greater and a yield somewhat lower than the Subordinated Residential
Mortgage Securities in which the Portfolio typically invests.
Debt rated "BBB" by Standard and Poor's Corporation is regarded as having
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than for debt in higher-rated
categories. Debt rated "Baa" by Moody's Investors Service is considered a medium
grade obligation; i.e., it is neither highly protected nor poorly secured,
interest payments and principal security appear adequate for the present but
certain protective
8
<PAGE>
elements may be lacking or may be characteristically unreliable over any great
length of time. Such debt lacks outstanding investment characteristics and in
fact has speculative characteristics as well.
The Manager seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans that underlie the pool of mortgages securing both the senior and
Subordinated Residential Mortgage Securities. The Manager has developed a set of
guidelines to assist in the analysis of the mortgage loans underlying
Subordinated Residential Mortgage Securities. Each pool purchase is reviewed
against the guidelines. The Portfolio seeks opportunities to acquire
Subordinated Residential Mortgage Securities where, in the view of the Manager,
the potential for a higher yield on such instruments outweighs any additional
risk presented by the instruments. The Manager seeks to increase yield to
shareholders by taking advantage of perceived inefficiencies in the market for
Subordinated Residential Mortgage Securities.
The Trust and the Portfolio are registered as a "non-diversified" investment
company. Nevertheless, in accordance with requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended, the Trust and the Portfolio may not
purchase the securities of any one issuer if, as a result of such purchase, more
than 5% of the Trust's or the Portfolio's total assets would be invested in the
securities of such issuer at the end of any fiscal quarter, except that with
respect to 50% of either of the Trust's or the Portfolio's total assets, the
Trust or the Portfolio may invest up to 25% of its total assets in the
securities of any one issuer. Securities of the U.S. Government and securities
of other regulated investment companies are not subject to any investment
limitations. Since the Portfolio may invest a relatively high percentage of its
assets in the obligations of a limited number of issuers, the value of the
Portfolio's investments will be more affected by any single adverse economic,
political or regulatory occurrence than will a diversified investment company.
The Portfolio intends to concentrate its investments in the asset-backed
securities industry. This means that at least 25% of the Portfolio's investments
will be in companies which issue asset-backed securities, such as Multi-Class
Residential Mortgage Securities and residential mortgage loan pools. However,
due to adverse economic conditions or for defensive purposes, the Portfolio may
temporarily have less than 25% of the total value of its assets in that
industry. The Portfolio will follow this policy at all times because it is
fundamental and may not be changed without a majority vote of the Portfolio's
shares.
The Portfolio may from time to time borrow money for the purpose of acquiring
additional portfolio investments. Borrowings and the issuance of indebtedness
create an opportunity to be more fully invested and to earn greater income per
share. Any such borrowing or issuance is a speculative technique in that it will
increase the Portfolio's exposure to capital risk. See "Borrowing" under "Other
Investment Policies."
U.S. GOVERNMENT MORTGAGE SECURITIES
The Portfolio may invest in U.S. Government Mortgage Securities issued by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA creates mortgage securities from pools of U.S. Government-guaranteed or
insured (Federal Housing Authority or Veterans Administration) mortgages
originated by mortgage bankers, commercial banks, and savings and loan
associations. FNMA and FHLMC issue mortgage securities from pools of
conventional and federally-insured and/or guaranteed residential mortgages
obtained from various entities, including savings and loan associations, savings
banks, commercial banks, credit unions, and mortgage bankers.
The mortgage securities either issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA, FHLMC, or FNMA fees
and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Certificate (i.e., the Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA and backed by the full faith and credit
of the U.S. Government. FNMA guarantees full and timely payment of all interest
and principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage
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securities from FNMA and FHLMC are not backed by the full faith and credit of
the U.S. Government; however, their close relationship with the U.S. Government
makes them high quality securities with minimal credit risks. The yields
provided by these mortgage securities have historically exceeded the yields on
other types of U.S. Government Mortgage Securities with comparable maturities.
The Portfolio intends to invest in U.S. Government Mortgage Securities which are
ARMS (see "Characteristics of the Adjustable Rate Mortgage Securities in Which
the Portfolio Invests").
MULTI-CLASS RESIDENTIAL MORTGAGE SECURITIES
Multi-Class Residential Mortgage Securities are securities representing
interests in pools of mortgage loans to residential home buyers made by lenders
such as commercial banks, savings and loan associations and mortgage bankers.
Unlike U.S. Government Mortgage Securities, such as those issued by GNMA, the
payment of principal and interest on Multi-Class Residential Mortgage Securities
is not guaranteed by the U.S. Government or any of its agencies or
instrumentalities. The yields on Multi-Class Residential Mortgage Securities,
however, have been historically higher than the yields on U.S. Government
Mortgage Securities. The Multi-Class Residential Mortgage Securities in which
the Portfolio invests may be ARMS.
Multi-Class Residential Mortgage Securities are issued with one or more classes
subordinate in a specified manner as to the payment of principal and interest.
As a result, losses on the underlying mortgage loans are borne by the holders of
the Subordinated Residential Mortgage Securities before the holders of more
senior mortgage securities. Accordingly, the stated yield of Subordinated
Residential Mortgage Securities is greater than that of more senior Multi-Class
Residential Mortgage Securities arising out of the same pool. The return on
Subordinated Residential Mortgage Securities is, in turn, decreased by any
realized losses incurred pursuant to the terms of the Subordinated Residential
Mortgage Security. While the Portfolio invests in both senior Multi-Class
Residential Mortgage Securities and Subordinated Residential Mortgage
Securities, the Portfolio expects that at least a substantial portion of its
investment in Multi-Class Residential Mortgage Securities will be composed of
Subordinated Residential Mortgage Securities.
Multi-Class Residential Mortgage Securities represent a beneficial interest in a
pool of mortgage loans typically held by a trust. The beneficial interests are
evidenced by certificates issued pursuant to a pooling and servicing agreement.
The certificates are usually issued in multiple classes with the specific rights
of each class set forth in the pooling and servicing agreement and the offering
documents for the security. The pooling and servicing agreement is entered into
by a trustee and a party who is responsible for pooling and conveying the
mortgage assets to the trust, sometimes referred to as the depositor. Various
administrative services related to the underlying mortgage loans, such as
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts and collection of insurance claims are provided by
servicers. A master servicer, who may be the depositor or an affiliate of the
depositor, is generally responsible for supervising and enforcing the
performance by the servicers of their duties and maintaining the insurance
coverages required by the terms of the certificates. In some cases, the master
servicer acts as a servicer of all or a portion of the mortgage loans. (See the
Statement of Additional Information for further discussion of these matters.)
A type of Subordinated Residential Mortgage Security is sometimes called a
"Special Hazard Certificate." With these securities, a holder bears some or all
losses resulting from special hazard losses to the property securing the
mortgages underlying the other class or classes of Multi-Class Residential
Mortgage Securities arising out of the same pool of mortgages. Special hazard
risks may include damage to mortgage properties caused by earthquakes,
landslides, vandalism, or other risks not covered by other requisite insurance
policies.
The Portfolio seeks to limit the risks presented by Subordinated Residential
Mortgage Securities by reviewing and analyzing the characteristics of the
mortgage loans underlying the Subordinated Residential Mortgage Securities that
it acquires. The Portfolio invests in Subordinated Residential Mortgage
Securities when, in the judgment of the Manager, the difference in stated yield
on Subordinated Residential Mortgage Securities over that of the senior mortgage
securities exceeds the marginal risk assumed by the holders of the Subordinated
Residential Mortgage Securities. See "Risks of Subordinated Residential Mortgage
Securities."
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The Portfolio seeks to purchase Multi-Class Residential Mortgage Securities with
underlying mortgage loans secured by property located in geographic regions that
present favorable economic conditions. In this regard, the Manager considers and
analyzes residential housing trends, employment information, demographic data
and other information it deems relevant in evaluating a geographic region.
The Portfolio may invest in Multi-Class Residential Mortgage Securities that
represent an interest in mortgage pass-through securities.
CHARACTERISTICS OF THE ADJUSTABLE RATE
MORTGAGE SECURITIES IN WHICH THE PORTFOLIO INVESTS
General. ARMS are pass-through mortgage securities which are collateralized by
mortgages with adjustable rather than fixed interest rates. Mortgages which
collateralize ARMS have become an increasingly important form of residential
financing. Generally, ARMS are collateralized by mortgages that have a specified
maturity date and which amortize principal much in the fashion of a fixed rate
mortgage. As a result, in periods of declining interest rates there is a
reasonable likelihood that ARMS will behave like fixed rate mortgages in that
current levels of prepayments of principal on the underlying mortgages could
accelerate. Furthermore, during periods of declining interest rates, income to
the Portfolio derived from ARMS will decrease in contrast to the income on fixed
rate mortgages which will remain constant. In addition, ARMS also have less
potential for appreciation in value when interest rates decline than do fixed
rate investments which tend to increase in value as interest rates decline.
However, one difference between mortgages which collateralize ARMS and fixed
rate mortgages is that for certain types of ARMS, the rate of amortization of
principal, as well as interest payments, can and does change in accordance with
movements in a particular, prespecified, published interest rate index. The
amount of interest due to an ARMS' security holder is calculated by adding a
specified additional amount, the "margin," to the index, subject to limitations
or "caps" on the maximum and minimum interest rate that is charged to the
mortgagor during the life of the mortgage or to maximum and minimum changes to
that interest rate during a given period. It is these special characteristics
which are unique to adjustable rate mortgages that the Portfolio's Manager
believes make them attractive investments in seeking to accomplish the
Portfolio's objective.
The market value of ARMS, like other U.S. Government securities, will generally
vary inversely with changes in market interest rates, declining when interest
rates rise and rising when interest rates decline. However, ARMS, while having
less risk of a decline during periods of rapidly rising rates, may also have
less potential for capital appreciation than other investments of comparable
maturities due to the likelihood of increased prepayments of mortgages as
interest rates decline. In addition, to the extent ARMS are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holders' principal investment to the extent of the premium
paid. On the other hand, if ARMS are purchased at a discount, both a scheduled
payment of principal and an unscheduled prepayment of principal will increase
current and total returns and will accelerate the recognition of income which,
when distributed to shareholders, will be taxable as ordinary income.
The adjustable interest rate feature of the underlying mortgages generally will
act as a buffer to reduce sharp changes in the Portfolio's net asset value in
response to normal interest rate fluctuations. As the interest rates on the
mortgages underlying the Portfolio's investments are reset periodically, yields
of portfolio securities will gradually align themselves to reflect changes in
market rates and should cause the net asset value of the Portfolio to fluctuate
less dramatically than it would if the Portfolio invested in more traditional
long-term, fixed-rate debt securities. However, during periods of rising
interest rates, changes in the coupon rate lag behind changes in the market rate
possibly resulting in a slightly lower net asset value until the coupon resets
to market rates, which could take as long as one month to five years. Thus,
investors could suffer some principal loss if they sold their shares of a Trust
before the interest rates on the underlying mortgages held by the Portfolio are
adjusted to reflect current market rates. During periods of extreme fluctuations
in interest rates, the Portfolio's net asset value will fluctuate as well. Since
most mortgage securities in the Portfolio's
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portfolio will generally have annual reset caps of 100 to 200 basis points,
fluctuation in interest rates above these levels could cause such mortgage
securities to "cap out" and to behave more like long-term fixed-rate debt
securities and consequently to decrease in value.
Historically, ARMS have had a higher default rate than fixed rate mortgages.
Recently, however, most ARMS originators have changed their underwriting
procedures to ensure that applicants qualify for their mortgage amounts based on
the "fully indexed" interest rate of the mortgage. In the past, many originators
would qualify applicants based on the initial interest rate of the mortgage
(commonly called a "teaser rate") which in most instances was substantially
lower than the "fully indexed" interest rate. This procedure resulted in higher
default and delinquency rates for ARMS than for fixed rate mortgages once the
mortgages adjusted up to the "fully indexed" interest rate. The Manager believes
that the curtailment of this practice by most originators will, over time, lead
to a substantial narrowing in the default rates between fixed and adjustable
rate mortgages.
Caps and Floors. The underlying mortgages which collateralize the ARMS in which
the Portfolio invests will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (i) per reset or adjustment interval and (ii) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization. Negative amortization occurs when a loan payment does not keep
pace with interest rates and is less than the interest due for the time period
covered by such payment. The result is that the amount of the deficiency is
added to the unpaid principal balance on the loan, increasing the outstanding
amount of the loan notwithstanding the fact that the amount due has been paid.
Resets. The interest rates paid on the ARMS in which the Portfolio invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure such as a cost of funds index. Commonly utilized indices
include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one-year London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds Index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Portfolio may invest in collateralized mortgage obligations ("CMOs").
Collateralized mortgage obligations are debt obligations collateralized either
by mortgage loans or mortgage pass-through securities (such collateral
collectively being called "Mortgage Assets"). Payments of principal and interest
on the Mortgage Assets and any reinvestment income thereon provide the funds to
pay debt service on the CMOs. CMOs may be issued by the U.S. Government, its
agencies or instrumentalities or by private originators of or investors in
mortgage loans, including savings and loan associations, mortgage bankers,
commercial banks, investment bankers and special purpose subsidiaries of such
entities. Typically, CMOs are collateralized by GNMA certificates or other
government mortgage-backed securities, but they may also be collateralized by
whole loans or private mortgage pass-through securities. CMOs purchased by the
Portfolio will be, at the time of purchase, rated at least "A" by either
Standard & Poor's Corporation or Moody's Investors Service, or, if unrated, such
instruments will be, in the opinion of the Manager, of comparable quality to
such securities.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, also referred to as a "tranche," is issued at a specific fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier
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than their stated maturities or final distribution dates. Interest is paid or
accrues on all classes of the CMOs (other than any "principal-only" class) on a
monthly, quarterly or semi-annual basis. The principal and interest on the
Mortgage Assets may be allocated among the several classes of a CMO in many
ways. In a common structure, payments of principal (including any prepayments)
on the Mortgage Assets are applied to the classes of the series of a CMO in the
order of their respective stated maturities or final distribution dates, so that
no payment of principal will be made on any class of CMO until all other classes
having an earlier stated maturity or final distribution date have been paid in
full.
STRIPPED MORTGAGE-BACKED SECURITIES
The Portfolio may invest in stripped mortgage-backed securities ("SMBS").
Stripped mortgage-backed securities are derivative multi-class mortgage
securities and may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and/or principal distributions on a pool of Mortgage Assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the Mortgage Assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-only or "IO"
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on both PO and IO classes
are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets. If the underlying
Mortgage Assets of an IO class of SMBS experience greater than anticipated
prepayments of principal, an investor may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category. SMBS experience greater volatility in market value than
mortgage securities in general. SMBS purchased by the Portfolio will be, at the
time of purchase, rated at least A by either Standard & Poor's Corporation or
Moody's Investors Service, or, if unrated, such instruments will be, in the
opinion of the Manager, of comparable quality to such securities. The Portfolio
will generally not invest more than 15% of its assets in IO and PO classes of
SMBS.
The staff ("Staff") of the Securities and Exchange Commission (the "SEC") takes
the position that SMBS issued by the U.S. Government or its agencies or
instrumentalities which are backed by fixed-rate mortgages may be considered
liquid securities as determined under guidelines and standards established by
the Board of Trustees. The Staff considers SMBS not issued by the U.S.
Government or its agencies or instrumentalities and SMBS not backed by fixed
rate mortgages as illiquid securities. The Portfolio will treat these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments. See "Illiquid Securities".
RISKS OF MORTGAGE SECURITIES
The yield characteristics of the mortgage securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally may be prepaid at any time. As a
result, if the Portfolio purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity, while a
prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if the Portfolio purchases these
securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. Amounts
available for reinvestment are likely to be greater during a period of declining
interest rates and, as a result, are likely to be reinvested at
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lower interest rates than during a period of rising interest rates. Accelerated
prepayments on securities purchased by the Portfolio at a premium also impose a
risk of loss of principal because the premium may not have been fully amortized
at the time the principal is repaid in full.
The mortgage securities in which the Portfolio invests differ from conventional
bonds in that principal is paid back over the life of the mortgage securities
rather than at maturity. As a result, the holder of the mortgage securities
(i.e., the Portfolio) receives monthly scheduled payments of principal and
interest, and may receive unscheduled principal payments representing
prepayments on the underlying mortgages. When the holder reinvests the payments
and any unscheduled prepayments of principal it receives, it may receive a rate
of interest which is lower than the rate on the existing mortgage securities.
For this reason, mortgage securities are less effective than other types of U.S.
Government securities as a means of "locking in" long-term interest rates. See
"Illiquid Securities."
RISKS OF SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES
Subordinated Residential Mortgage Securities generally are likely to be more
sensitive to changes in prepayment and interest rates and the market for such
securities may be less liquid than is the case for traditional debt securities
and mortgage securities. In addition, while Subordinated Residential Mortgage
Securities have a higher stated yield than traditional mortgage securities,
holders of Subordinated Residential Mortgage Securities bear a greater risk of
loss than do holders of senior or more traditional mortgage obligations. Such
holders bear all or a portion of losses arising from the mortgage pool prior to
senior holders bearing any such losses. The primary credit risk arising from a
holder's subordination is the potential loss caused by a default on the part of
the borrower of the mortgages securing the instrument. This risk is usually
greater during a period of declining or stagnant real estate values. There may
be certain costs and delays associated with foreclosure. There is no assurance
that the subsequent sale of the property will produce an amount equal to the sum
of the unpaid principal balance of the loan as of the date the borrower went
into default, the interest that was not paid during the foreclosure period and
all foreclosure expenses, in which case the Portfolio may, depending on the
nature of its subordination, suffer a loss equal to the difference between this
amount and the liquidation proceeds. A Subordinated Residential Mortgage
Security may provide that a holder bears a portion or all of the risk of such
losses resulting from (i) the decrease in value of the property caused by
special hazard risks and/or (ii) all other losses resulting from the default by
a borrower. Accordingly, distributions on Subordinated Residential Mortgage
Securities may be reduced by realized losses.
The Portfolio, however, seeks to limit the risks presented by such instruments
by reviewing and analyzing the characteristics of the mortgage loans underlying
the Subordinated Residential Mortgage Securities that it acquires and evaluating
the likelihood of losses occurring. The Portfolio seeks opportunities to acquire
Subordinated Residential Mortgage Securities where in the view of the Manager,
the potential for a higher marginal yield on such instruments outweighs any
additional risk presented by such instrument. In addition, the Manager seeks to
increase yield to shareholders by taking advantage of perceived inefficiencies
in the market for Subordinated Residential Mortgage Securities. See "Illiquid
Securities."
OTHER INVESTMENT POLICIES
Interest Rate Swaps and Hedging Transactions. The Portfolio may enter into
various hedging transactions, such as engaging in interest rate swaps and
interest rate futures transactions and purchasing and selling interest rate
collars, caps and floors to protect against and potentially benefit from
fluctuations in interest rates and to preserve a return or spread on a
particular investment or portion of its portfolio. Hedging transactions may also
be used to attempt to protect against possible declines in the market value of
the Portfolio's assets
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resulting from downward trends in the debt securities markets (generally due to
a rise in interest rates), to protect the Portfolio's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities or
to establish a position in the securities markets as a temporary substitute for
purchasing particular securities. Any or all of these techniques may be used at
any time. There is no particular strategy that requires use of one technique
rather than another. Use of any hedging transaction is a function of market
conditions. Further hedging transactions may be used by the Portfolio in the
future as they are developed or deemed by the Board of Trustees of AIST to be
appropriate, and to be in the best interest of investors in the Portfolio. The
Portfolio intends to use these transactions as a hedge against interest rate
fluctuations and not as speculative investments. The Portfolio reserves the
right, but has no current intention, to engage in options and futures
transactions other than futures transactions on interest rates.
Interest rate swaps involve the exchange with another party of commitments to
pay or receive interest, e.g., an exchange of fixed rate payments for variable
rate payments. The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such interest rate floor. An interest rate collar
combines the elements of purchasing a cap and selling a floor. The collar
protects against an interest rate rise above the maximum amount but gives up the
benefits of an interest rate decline below the minimum amount. The Portfolio
will not enter into swaps, caps, collars or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the
net assets of the Portfolio.
An interest rate futures contract provides for the future sale and purchase of a
specified amount of a certain debt security at a stated date, place and price.
The Portfolio may enter into interest rate futures contracts to protect against
fluctuations in interest rates effecting the value of debt securities that the
Portfolio either holds or intends to acquire. The Portfolio will only enter into
futures transactions on a national exchange. The Portfolio's use of such
instruments will in all cases be consistent with the applicable regulatory
requirements and, in particular, the rules and regulations of the Commodity
Futures Trading Commission with which the Portfolio must comply in order to
avoid registration as a commodity pool operator under the Commodity Exchange Act
and any applicable state law.
Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, AMC and the Portfolio believe such obligations do not
constitute senior securities. The Staff of the SEC is presently considering its
position with respect to swaps, caps, collars and floors as senior securities.
Pending a determination by the Staff, the Portfolio will either treat caps,
collars and floors as being subject to its senior securities restrictions or
will refrain from engaging in caps, collars and floors. Once the Staff has
expressed a position with respect to swaps, caps, collars and floors, the
Portfolio intends to engage in swaps, caps, collars and floors, if at all, in a
manner consistent with such position. The Portfolio will not treat swaps covered
in accordance with applicable regulatory requirements as senior securities. The
Portfolio will usually enter into interest rate swaps on a net basis, i.e.,
where the two parties make net payments with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. The net amount of
the excess, if any, of the Portfolio's obligations over its entitlement with
respect to each interest rate swap will be accrued and an amount of cash, U.S.
Government Securities or other liquid high grade debt obligations having an
aggregate net asset value at least equal to the accrued excess will be
maintained by the Portfolio's custodian in a segregated account. If the
Portfolio enters into a swap on other than a net basis, the Portfolio will
maintain in the segregated account the full amount of the Portfolio's
obligations under each such swap. The Portfolio may enter into swaps, caps,
collars and floors with member banks of the Federal Reserve System, members of
the New York Stock Exchange or other entities determined by AMC, pursuant to
procedures adopted and reviewed on an ongoing basis by the Board of Trustees, to
be credit worthy. If a default occurs by the other
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party to such transaction, the Portfolio will have contractual remedies pursuant
to the agreements related to the transaction but such remedies may be subject to
bankruptcy and insolvency laws which could affect the Portfolio's rights as a
creditor.
The swap market has grown substantially in recent years with a large number of
banks and financial services firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, collars and floors are more recent innovations
and they are less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to purchase
interest rate caps, collars or floors at prices or on terms AMC believes are
advantageous to the Portfolio. In addition, although the terms of interest rate
swaps, caps, collars and floors may provide for termination, there can be no
assurance that the Portfolio will be able to terminate an interest rate swap or
to sell or offset interest rate caps, collars or floors that it has purchased.
Interest rate swaps, caps, collars and floors are considered by the Staff to be
illiquid securities and, therefore, the Portfolio may not invest more than 15%
of its assets in such instruments. See "Illiquid Securities."
The successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of the Portfolio's portfolio
securities and depends on AMC's ability to predict correctly the direction and
degree of movements in interest rates. Although the Portfolio believes that use
of the hedging and risk management techniques described above will benefit the
Portfolio, if AMC's judgment about the direction or extent of the movement in
interest rates is incorrect, the Portfolio's overall performance would be worse
than if it had not entered into any such transactions. For example, if the
Portfolio had purchased an interest rate swap or an interest rate floor to hedge
against its expectation that interest rates would decline but instead interest
rates rose, the Portfolio would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates because it
would have to pay amounts to its counterparts under the swap agreement or would
have paid the purchase price of the interest rate floor. The Portfolio believes
that AMC possesses the skills necessary for the successful utilization of
hedging and risk management transactions.
Other risks associated with the use of futures contracts are: (i) imperfect
correlation between the change in the market value of the underlying commodity
and the prices of futures contracts and options with the result that futures and
options may fail as hedging techniques in cases where the price movements of the
securities underlying the futures and options do not follow the price movements
of the Portfolio's portfolio securities subject to a hedge; and (ii) possible
lack of a liquid secondary market for a futures position when liquidation of
that position is desired with the result that the Portfolio will likely be
unable to control losses by closing its position where a liquid secondary market
does not exist. In addition, because of the margin deposits normally required in
futures trading, a high degree of leverage is typical of a futures trading
account. As a result, a relatively small price movement in a futures contract
may result in substantial losses to the trader (i.e., the Portfolio).
Furthermore, many futures exchanges and boards of trade limit the amount of
fluctuations permitted in futures contract prices during a single trading day.
Futures contract prices could move to the limit for several consecutive trading
days with little or no trading, thereby preventing prompt liquidation of futures
positions and potentially subjecting the Portfolio to substantial losses.
New financial products continue to be developed and the Portfolio may invest in
any such products to the extent consistent with its investment objective and the
regulatory and Federal tax requirements applicable to investment companies.
When-Issued and Forward Commitment Securities. The Portfolio may purchase
securities on a when-issued basis and may purchase or sell securities on a
forward commitment basis in order to hedge against anticipated changes in
interest rates and prices and/or secure a favorable rate of return. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date
which may be a month or more after the date of the transaction. At
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the time the Portfolio makes the commitment to purchase securities on a
when-issued or forward commitment basis, it will record the transaction and
thereafter reflect the value of such securities in determining its net asset
value. At the time the Portfolio enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash, U.S.
Government securities or other liquid high grade debt obligations equal to the
value of the when-issued or forward commitment securities will be established
and maintained with the custodian and will be marked to market daily.
When-issued securities and forward commitments may be sold prior to the
settlement date. If the Portfolio disposes of the right to acquire a when-issued
security prior to its acquisition or disposes of its right to deliver or receive
against a forward commitment, it may experience a gain or loss due to market
fluctuation. On the delivery date, the Portfolio will meet its obligations from
securities that are then maturing or sales of the securities held in the
segregated asset account and/or from then available cash flow. There is always a
risk that the securities may not be delivered and that the Portfolio may incur a
loss or will have lost the opportunity to otherwise invest the amount set aside
for such transaction in the segregated asset account. Settlements in the
ordinary course of business, which may take substantially more than five
business days for mortgage-related securities, are not treated by the Portfolio
as when-issued or forward commitment transactions and accordingly are not
subject to the foregoing limitations even though some of the risks described
above may be present in such transactions. Securities purchased on a
when-issued, delayed delivery or forward commitment basis do not generally earn
interest until their scheduled delivery date. The Portfolio is not subject to
any percentage limit on the amount of its assets which may be invested in
when-issued purchase obligations.
Borrowing. The Portfolio may from time to time borrow money for the purpose of
acquiring additional portfolio investments (also known as "leverage") when it
believes that the interest payments and other costs with respect to such
borrowings or indebtedness will be exceeded by the anticipated total return (a
combination of income and appreciation) on such investments. The amount of any
such borrowing or issuance will depend upon market or economic conditions
existing at that time. The Portfolio may also borrow in order to assure that it
remains fully invested by using borrowed cash to purchase portfolio investments
with the intent of repaying the borrowings from the proceeds of expected sales
of Portfolio shares.
The Portfolio may borrow money from banks on a secured or unsecured basis at
variable or fixed rates. However, as prescribed by the Investment Company Act of
1940, the Portfolio will be required to maintain specified asset coverage of at
least 300% with respect to any such bank borrowing immediately following any
such borrowing or issuance. If at any time asset coverage falls below 300%, the
Portfolio must, within three days (not including Sundays and holidays), reduce
the amount of its borrowings until it has 300% coverage. The Portfolio may be
required to dispose of portfolio investments on unfavorable terms if market
fluctuations or other factors reduce the required asset coverage to less than
the prescribed amount.
In addition, the Portfolio may on a temporary basis issue a note or other
evidence of indebtedness representing up to 5% of its assets at the time the
loan is made. Such a borrowing must be privately arranged and not intended to be
publicly distributed and is presumed to be for temporary purposes if it is
repaid within 60 days.
While, as stated above, the Portfolio will borrow money for the purpose of
acquiring additional portfolio investments only when it believes that such
borrowing will produce additional income to the Portfolio, the interest cost on
the capital raised through leverage may exceed the interest on the assets
purchased. The Portfolio may also be required to maintain minimum average
balances in connection with borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements will increase the cost
of borrowing over the stated interest rate. Borrowings and the issuance of
indebtedness create an opportunity to be more fully invested and to earn greater
income per share. However, any such borrowing or issuance is a speculative
technique in that it will increase the Portfolio's exposure to capital risk.
Such risks may be mitigated through the use of borrowings and issuances of
indebtedness that have floating rates of interest. Unless the income and
appreciation, if any, on assets acquired with borrowed funds or offering
proceeds
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exceed the cost of borrowing or issuing debt, the use of leverage will diminish
the investment performance of the Portfolio compared with what it would have
been without leverage.
The Portfolio will not always borrow money or issue debt to finance additional
investments. The Portfolio's willingness to borrow money and issue debt for
investment purposes, and the amount it will borrow, will depend on many factors,
the most important of which are the investment outlook, market conditions and
interest rates. To the extent that the Portfolio invests borrowed money in
short-term fixed-rate debt obligations, successful use of a leveraging strategy
depends on AMC's ability to correctly predict interest rates and market
movements over these short-term periods. There is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
Loans of Portfolio Securities. The Portfolio may make loans of its portfolio
securities under certain circumstances to enhance its income. With the approval
of the Trustees of AIST and subject to various conditions which may be imposed
from time to time under various securities regulations, the Portfolio may lend
its portfolio securities to qualified broker/dealers or other institutional
investors provided that such loans do not exceed 10% of the value of the
Portfolio's total assets at the time of the most recent loan, that the borrower
deposits and maintains with the Portfolio at least 102% cash collateral and that
the portfolio securities loaned are "marked to market" daily. There are risks of
delay in recovery and loss of rights and collateral should the borrower fail
financially. The lending of securities is a common practice in the securities
industry. The Portfolio will engage in security loan arrangements with the
primary objective of increasing its income through investment of the cash
collateral in short-term interest bearing obligations, but will do so only to
the extent consistent with its tax status as a regulated investment company. The
Portfolio will continue to be entitled to all interest on any loaned securities.
Illiquid Securities. The Portfolio may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. The Portfolio expects that the Subordinated
Residential Mortgage Securities in which it invests generally will be restricted
securities.
The Portfolio will not invest more than 15% of its assets in illiquid
investments. The Portfolio will adhere to a more restrictive limitation on its
investment in illiquid securities as required by the securities laws of those
jurisdictions where shares of the Trust are registered for sale. Illiquid
securities include securities that are not readily marketable and restricted
securities, unless the Trustees of AIST determine, based upon a continuing
review of the trading markets for the specific restricted security, that such
restricted securities are liquid. The Trustees of AIST may adopt guidelines and
delegate to the Manager the daily function of determining and monitoring
liquidity of restricted securities. The Trustees of AIST, however, retain
oversight and will be ultimately responsible for the determinations. Since it is
not possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Trustees of AIST
will carefully monitor the Portfolio's investments in these securities, focusing
on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Portfolio to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities. In such an event, the Trustee will consider
appropriate remedies to maximize the Portfolio's liquidity and its ability to
meet redemption requests within seven days.
The Trust has experienced an increase in the rate of redemptions. As a result,
the Portfolio has increasingly been managed to provide adequate cash reserves to
satisfy redemption requests, resulting in decreased ability to seek high current
income with low volatility of principal, which is the Trust's fundamental
investment objective. Investing a larger percentage of portfolio assets in cash
and short-term instruments results in lower yields than those typically received
on investments in mortgage securities. Moreover, adverse market
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conditions have resulted in a decrease in the value of subordinated adjustable
rate mortgage (ARM) securities of the type in which the Trust has invested.
Significant increases in interest rates in 1994 resulted in a general decline in
bond prices. In an environment of rapidly rising interest rates, while the
interest rates on the underlying ARMs continue to reset, the value of ARM
securities decline, because interest rates rise faster than resets occur.
Typically it takes 45-60 days before interest rate resets are reflected in the
Portfolio. In addition, the mortgages underlying the Portfolio's securities
typically reset once a year, so it may be a full year before certain of the
Portfolio's mortgages reset to reflect any increases in the interest rates.
In 1995 U.S. short- and long-term interest rates generally declined. However,
performance of the Portfolio was negatively affected by the lingering effects of
the recessionary environment in California, which proved to be much deeper and
more prolonged than originally anticipated. In particular, real estate values
fell or remained at depressed levels, which led to increased credit risk and, in
turn, resulted in increased default losses on a number of the subordinated
mortgage securities backed by Southern California real estate held by the
Portfolio.
The performance of the Portfolio has been negatively affected by the interest
rate conditions in the ARM securities market. As a result of the 1994 interest
rate increases and declining bond prices, combined with negative publicity on
the mortgage securities market and the higher than expected price volatility
experienced with many mortgage-backed securities, mortgage funds industry-wide
continued to experience heavy redemptions in 1995. As a result, ARM funds
continued to liquidate subordinated mortgage securities to meet redemption
requests. This resulted in an increased supply of subordinated mortgage
securities in the market, bringing wider spreads over the relevant indices and
reduced prices.
The increase in redemptions along with adverse interest rate conditions in 1994
and deteriorating credit risks have caused the market for subordinated mortgage
securities to be less liquid. Over the long term, AMC believes that the market
will value portfolio securities based primarily upon fundamental considerations
of credit quality, prepayment rates and other such factors, with less emphasis
on market conditions. Yet there can be no assurance that such will be the case.
Further fluctuations in net asset value may occur as a result of such factors as
deteriorating or improving market conditions and liquidity and credit experience
of portfolio securities.
The Staff has taken the position that special hazard certificates, interest rate
swaps, caps, collars and floors and SMBS not issued by the U.S. Government or
its agencies or instrumentalities and SMBS not backed by fixed-rate mortgages
should be deemed illiquid. Accordingly, the Portfolio currently treats these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments.
The purchase price and subsequent valuation of restricted securities normally
reflect a discount from the price at which such securities trade when they are
not restricted, since the restriction makes them less liquid. The amount of the
discount from the prevailing market price is expected to vary depending upon the
type of security, the character of the issuer, the party who bears the expenses
of registering the restricted securities and prevailing supply and demand
conditions.
Portfolio Turnover. The Portfolio's portfolio turnover rate may vary from year
to year, as well as within a year. The annual rate of the Portfolio's portfolio
turnover for the fiscal years ended October 31, 1994 and 1995 was 83% and 108%,
respectively. A higher portfolio turnover rate may result in higher brokerage
commissions and other transactional expenses which must be borne, directly or
indirectly, by a Portfolio and ultimately by a Trust's shareholders. The
Portfolio anticipates that its annual portfolio turnover rate generally will not
exceed
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100%. See Execution of Portfolio Transactions in the Statement of Additional
Information. The portfolio turnover rate for the Trust as set forth in
"Financial Highlights" reflects the purchase and redemption by the Trust of
shares of the Portfolio.
Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolio may invest its assets without limit in short-term U.S. Government
and U.S. Government agency securities including, among others, FNMA and FHLMC
short-term agency discount notes.
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
Income dividends will be declared and paid monthly. The Trust intends to declare
or distribute sufficient dividends from its net investment income and/or net
capital gain income in an amount great enough to avoid imposition of the 4%
excise tax.
CHOOSING A DISTRIBUTION OPTION
When you buy shares of the Trust you may choose from the following distribution
options:
(1) The Share Option reinvests your income dividends and/or capital gains
distributions, if any, in additional shares. If no option is selected, income
dividends (and capital gains, if any) will be reinvested in additional shares of
the Trust. Income dividends and/or capital gains will be reinvested at the net
asset value as of the reinvestment date for the distribution.
(2) With the Cash Option, you may receive income dividends and/or capital gains
distributions in cash. If you select this option and the U.S. Postal Service
cannot deliver your checks, or if your checks remain uncashed for 6 months, your
money will be reinvested in your account at the then-current net asset value and
your election will be converted to reinvesting both income dividends and capital
gain distributions in additional shares.
(3) If you are also a shareholder in any of the other Astra Funds distributed by
the Distributor, the Transfer Option permits you to have income dividends and/or
capital gains distributions of the Trust automatically invested in shares of any
of those Astra Funds of which you are a shareholder at the applicable net asset
value. If you select this option, the minimum investment requirements for
additions to an existing account will be waived.
Once again, you must specify which option you desire when you place your order
or submit your application. The tax consequences of distributions (described
below) are the same whether you choose to receive them in cash or to reinvest
them in additional shares of the Trust or another Astra Fund.
If for any fiscal year of the Trust, the amount of distributions paid or deemed
paid for such year exceeds its investment company taxable income plus net
realized capital gains for such year, the amount of such excess would be treated
as a return of capital to all those shareholders who held shares of the Trust
during the year. In such case, each distribution paid or deemed paid for that
year would be treated, in the same proportion, in part as a distribution of
taxable income and in part as a return of capital. Shareholders would incur no
current Federal income tax on the portion of such distributions which are
treated as a return of capital, but each shareholder's basis in his Trust shares
would be reduced by that amount. This reduction of basis would operate to
increase the shareholder's capital gain (or decrease their capital loss) upon
subsequent redemption of his shares.
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TAXES
Taxation of the Trust. The Trust is treated as a separate entity for Federal
income tax purposes. The Trust intends to elect to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By distributing all of its net investment income and net
realized short-term and long-term capital gains for a fiscal year in accordance
with the timing requirements imposed by the Code and by meeting certain other
requirements relating to the sources of its income and diversification of its
assets, the Trust should not be liable for Federal income or excise taxes.
Taxation of Shareholders. For Federal income tax purposes, any income dividends
which you receive from the Trust, as well as any distributions derived from the
excess of net short-term capital gain over net long-term capital loss, are
treated as ordinary income whether you have elected to receive them in cash or
in additional shares. Distributions derived from the excess of net long-term
capital gain over net short-term capital loss are treated as long-term capital
gain regardless of the length of time you have owned your Trust shares and
regardless of whether you receive such distributions in cash or in additional
shares. Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons, may not be
paid to the shareholder until the following January, will be treated for tax
purposes as if received by the shareholder on December 31 of the calendar year
in which they are declared.
Redemptions and exchanges of Trust shares are taxable events on which a
shareholder may realize a gain or loss. All or a portion of a loss realized upon
a redemption of shares will be disallowed to the extent other shares of the
Trust are purchased (through reinvestment of dividends or otherwise) within 30
days before or after such redemption. Any loss realized upon the redemption of
shares within six months from the date of their purchase will be treated as a
long-term capital loss to the extent of amounts treated as distributions of net
long-term capital gain during such six-month period.
The Trust may be required to report to the Internal Revenue Service any taxable
dividend or other reportable payment (including share redemption proceeds) and
withhold 31% of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer identification number and
made certain required certifications that appear in the shareholder application
form. A shareholder may also be subject to backup withholding if the IRS or a
broker notifies the Trust that the number furnished by the shareholder is
incorrect or that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders should consult their tax advisors with respect to the applicability
of state and local income taxes to distributions and redemption proceeds
received from the Trust. Distributions by the Trust to shareholders who are
nonresident aliens or foreign corporations may be subject to U.S. withholding
taxes. Such shareholders should consult with their financial or tax advisors
regarding the applicability of U.S. withholding taxes to distributions received
by them from the Trust.
SHAREHOLDER'S GUIDE
HOW TO BUY SHARES OF THE TRUST
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Shares of the Trust are made available through selected financial service firms
such as broker-dealer firms and banks ("Firms") who have signed agreements with
the Distributor, the Trust's principal underwriter. Shares may also be purchased
by check or wire directly to the Trust's Transfer Agent. The minimum initial
investment by a shareholder in the Trust is $50,000. The minimum subsequent
investment is $1,000, but these requirements may be changed or waived at any
time at management's discretion. Any order for the purchase of shares may be
rejected in whole or in part. The Trust's offering price is the net asset value
next determined after an order is received.
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The Distributor, at its expense, may provide additional promotional incentives
to dealers in connection with sales of shares of the Trust and other Astra
Funds.
You will receive a confirmation of each new transaction in your account, which
will also show you the number of Trust shares you own and the number of shares
being held in safekeeping by the Trust's Transfer Agent for your account. You
may rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Trust will not be issued
unless you request them in writing.
PURCHASES BY WIRE
Purchases by wire transfer should be directed to "Investors Fiduciary Trust Co.
ABA 101003621 for credit to Astra Adjustable U.S. Government Securities Trust IV
A/C 890752-443-9 for further credit to shareholder A/C #_____________,
Shareholder Name: _____________________________."
For initial purchase by Federal funds wire, you must first obtain an account
number by telephoning the Trust at 800-441-7267. You may then instruct your bank
to wire funds as described above. After you have received an account number and
have wired funds, you must complete the application form that accompanies this
Prospectus and send it to:
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
Attn.: Order Department
This procedure is for the protection of shareholders. The Trust will not honor
orders for redemptions until it receives the proper authorizations. See the
Application included in this Prospectus.
For subsequent investments by wire, first telephone the Trust's Shareholder
Servicing Agent at (800) 441-7267, to obtain a wire reference number prior to
transmission. This helps the Trust to ensure the proper credit to your account.
Shares purchased by Federal funds wire will be purchased at the close of
business on the day on which the Federal funds wire is received and, if the wire
is received before 11:00 A.M. New York time, the shares will be entitled to
dividends on that business day. Shares purchased by Federal funds wire received
after 11:00 A.M. New York time will be entitled to dividends on the next
business day.
PURCHASE THROUGH DEALER
Orders for purchase of shares placed through dealers will receive the net asset
value next computed following receipt of the order provided the dealer receives
the order prior to the close of the New York Stock Exchange and transmits it to
the Distributor prior to its close of business that same day (normally 3:00 p.m.
Pacific time).
Dealers are required to provide payment within five business days after placing
an order. DEALERS MAKING PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE
MUST REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
PURCHASE BY CHECK
An initial investment made by check must be accompanied by an Application,
completed in its entirety. Additional shares of the Trust may also be purchased
by sending a check payable to the Trust, along with information regarding your
account, including the account number, to the Transfer Agent. All checks should
be drawn only on U.S. banks in U.S. funds, in order to avoid fees and delays. A
charge may be imposed if any check submitted for investment does not clear.
Third party checks, except those payable to an existing shareholder who is a
natural person (as opposed to a corporation or partnership), credit cards, and
cash will not be accepted. When purchases are made by check or periodic
automatic investment, redemptions will not be allowed until the investment being
redeemed has been in the account for 15 business days.
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PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment plan (see "Pre-Authorized
Investment Plan" on the Additional Account Privileges Form) may be established
whereby your personal bank account is automatically debited and your Trust
Account is automatically credited with additional full and fractional shares
($100 subsequent minimum investment). For further information on pre-authorized
investment plans, please contact the Shareholder Servicing Agent.
COMBINED PURCHASE PRIVILEGE
The Combined Purchase Privilege is intended to allow qualifying investors a
reduced sales charge only in a Astra Fund which imposes an initial sales charge
and will not affect any CDSC which may be imposed on the redemption of shares of
the Trust or the compensation to selling Firms on the sale of Trust shares.
Investors may qualify for the Combined Purchase Privilege by combining purchases
of shares of the Trust with shares of any Astra Fund which imposes an initial
sales charge. Shares of the Trust may also be combined with shares of such other
Astra Funds for purposes of completing a Letter of Intent.
HOW TO REDEEM SHARES OF THE TRUST
- -------------
Shares of the Trust are redeemed at the net asset value next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business, reduced by the amount of any applicable
contingent deferred sales charge described below and the amount of any Federal
income tax required to be withheld.
If the shareholder holds his Trust shares for more than three months after their
purchase, he will not have to pay any charge when he redeems those shares.
Shares of the Trust redeemed within the first three months of their purchase
(except shares acquired through the reinvestment of distributions) will be
subject to a contingent deferred sales charge of .25% of the original purchase
price. A contingent deferred sales charge is not imposed on (a) shares of the
Trust in the account which were purchased more than three months prior to
redemption, (b) all shares of the Trust in the account acquired through
reinvestment of monthly distributions and capital gains distributions, and (c)
the increase, if any, of value of all other shares of the Trust in the account
(namely those purchased within the three months preceding the redemption) over
the purchase price of such shares. Redemptions are processed in a manner to
maximize the amount of redemption which will not be subject to a contingent
deferred sales charge; i.e., each redemption will be assumed to have been made
first from the exempt amounts referred to in clauses (a), (b) and (c) above, and
second through liquidation of those shares in the account referred to in clause
(c) on a first-in-first-out basis.
No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust purchased by officers, directors and bona fide
full-time employees of ASIS, and with certain exceptions, officers, directors
and full-time employees and sales representatives of AMC, the Distributor or
affiliated companies thereof (or any trust, pension, profit-sharing or other
benefit plan of such persons), broker-dealers having sales agreements with the
Distributor, all for their own accounts or for their current spouse and
children, parents, grandparents, uncles, aunts, siblings, nephews, nieces, step
relations, relations-at-law, cousins, and employees of such broker-dealer firms
(for their own accounts only), and discretionary advisory accounts of AMC (if
such purchasers state in writing that the purchases are for their own investment
purposes only and the purchaser represents that the shares will not be resold
except to the Trust).
No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust which were acquired via certain exchange
transactions as fully described in the Exchange Privilege Section of this
prospectus.
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The contingent deferred sales charge will be waived for certain redemptions of
shares of the Trust (i) upon the death or permanent disability of a shareholder,
or (ii) in connection with mandatory distributions from an IRA or other
qualified retirement plan. The contingent deferred sales charge will be waived
in the case of a redemption of shares of the Trust following the death or
permanent disability of a shareholder if the redemption is made within three
months of purchase. The waiver is available for total or partial redemptions of
shares of the Trust owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for redemptions of shares held at the
time of death or initial determination of permanent disability. The shareholder
must notify the Trusts' Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the contingent deferred sales charge. The relevant information as
requested in the Contingent Deferred Sales Charge Waiver Form, included in this
prospectus on page 37, must be provided to the Trusts' Transfer Agent at the
time of the redemption request. The waiver will be granted subject to
confirmation of the Investor's entitlement.
TYPES OF REDEMPTIONS
REDEMPTIONS BY MAIL
A written request for redemption (or an endorsed share certificate, if issued)
must be received by the Transfer Agent to constitute a valid tender for
redemption. It will also be necessary for corporate investors and other
associations to have an appropriate certification authorizing redemptions by a
corporation or an association on file before a redemption request will be
considered in proper form. The Transfer Agent may also require a signature
guarantee by an eligible guarantor as stipulated in Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. To determine whether a signature guarantee or
other documentation is required, shareholders may call the Trust's Shareholder
Servicing Agent at (800) 441-7267.
REDEMPTION OF SHARES BY SECURITIES DEALERS
Brokers, dealers, or other sales agents may communicate redemption orders by
wire or telephone. These firms may charge for their services in connection with
your redemption request but neither the Trust nor the Distributor impose any
such charges.
EXPEDITED TELEPHONE REDEMPTIONS
You may have the payment of redemption requests (of $5,000 or more) wired or
mailed directly to a domestic commercial bank account that you have previously
designated. Normally, such payments will be transmitted on the second business
day following receipt of the request (provided redemptions may be made). If no
share certificates have been issued, you may request a wire redemption by
telephone or wire to the Transfer Agent. For telephone redemptions, call the
Transfer Agent at (800) 441-7267. You must complete the "Expedited Redemptions"
section of the application for this privilege to be applicable to you.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to have regular monthly or quarterly payments in any
fixed amount in excess of $100 made to him or her, or to anyone else properly
designated as long as the account has a value of at least $10,000. During the
withdrawal period, you may purchase additional shares for deposit to your
account if the additional purchases are equal to at least one year's scheduled
withdrawals, or $1,200, whichever is greater.
There are no separate charges to you under this plan. A number of full and
fractional shares equal in value to the amount of the requested payment will be
redeemed. Such redemptions are normally processed on the fifth day prior to the
end of the month or quarter. Checks are then mailed on or about the first of the
following
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month. Shareholders who elect to have a Systematic Withdrawal Plan must have all
dividends and capital gains reinvested. To establish systematic cash
withdrawals, please complete the systematic cash withdrawal section on the
Additional Account Privileges Form.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Trust's Transfer Agent. As shares of the Trust are
redeemed under the plan, you may realize a capital gain or loss to be reported
for income tax purposes. A Systematic Withdrawal Plan may be terminated or
modified at any time upon written notice by you or the Trust.
GENERAL
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent. The Trust may delay the mailing
of a redemption check until the check used to purchase the shares being redeemed
has cleared, which may take up to 15 days or longer. To reduce such delay, the
Trust recommends that all purchases be made by bank wire Federal funds. The
Trust may suspend the right of redemption under certain extraordinary
circumstances in accordance with the Rules of the SEC. Due to the relatively
high cost of handling small investments, the Trust reserves the right upon
30-days' written notice to redeem, at net asset value, the shares of any
shareholder whose account has a value of less than $50,000 other than as a
result of a decline in the net asset value per share.
SHAREHOLDER SERVICES AND PRIVILEGES
- -------------
EXCHANGE PRIVILEGE
Shares of the Trust held for at least six months may be exchanged into any other
Astra fund distributed by the Distributor which does not have the same
investment objective, offers an exchange privilege and imposes an initial sales
charge at the then current net asset value provided that the total value of
shares being exchanged meets the minimum investment requirement of the fund into
which they are being exchanged. Shares of the Trust may be exchanged into any
Astra fund which imposes a comparable CDSC at any time. If such shares are
subsequently redeemed, they will not be subject to a CDSC if they have been held
for 6 months from date of initial purchase.
Shares of the other funds which impose a comparable CDSC and offer an exchange
privilege may be exchanged for shares of the Trust on the basis of relative net
asset values as provided for in the Exchange Privilege section of the respective
funds' prospectuses. If such shares are subsequently redeemed, they will not be
subject to a CDSC if they have been held for 6 months from date of initial
purchase.
General. The prospectuses of the other funds should be reviewed before effecting
any exchange. You should note that any exchange may only be made in states where
shares of the other funds are qualified for sale and may create a gain or loss
to be recognized for Federal income tax purposes. Exchanges may be authorized by
telephone. You will automatically be assigned this privilege unless you check
the box on the Application which indicates that you do not wish to have the
privilege (see "Telephone Exchange Privilege" section of the Application). In
addition, if you exchange by mail, the exchange will be effected, upon receipt
of written instructions signed by all account owners and accompanied by any
outstanding share certificates properly endorsed, into an identically registered
account. The exchange privilege may be modified at any time or discontinued upon
60 days' written notice to Shareholders.
REINSTATEMENT PRIVILEGE
If you have redeemed your shares of the Trust, you may reinvest up to the full
amount of the proceeds of such redemption, at net asset value at the time of
reinvestment. The amount of any contingent deferred sales charge
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on the shares of the Trust will also be reinvested. Such reinvested shares of
the Trust will retain their original cost and purchase date only for purposes of
the contingent deferred sales charge.
In order to exercise this privilege, a written order for the purchase of shares
must be received by the Trust's Transfer Agent, or be postmarked, within 30 days
after the date of redemption. This privilege can be used only once per calendar
year. If you incur a loss on the redemption and use the reinstatement privilege,
some or all of the loss may not be allowed as a tax deduction. See Statement of
Additional Information for further discussion.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
- -------------
The Trust and its Transfer Agent will not be responsible for the authenticity of
phone instructions or losses, if any, resulting from unauthorized shareholder
transactions if the Trust or its Transfer Agent reasonably believe that such
instructions were genuine. The Trust and its Transfer Agent have established
procedures that the Trust believes are reasonably appropriate to confirm that
instructions communicated by telephone are genuine. These procedures include:
(i) recording telephone instructions for exchanges and expedited redemptions;
(ii) requiring the caller to give certain specific identifying information; and
(iii) providing written confirmations to shareholders of record not later than
five days following any such telephone transactions. If the Trust and its
Transfer Agent do not employ these procedures, they may be liable for any losses
due to unauthorized or fraudulent telephone instructions.
HOW THE TRUST VALUES ITS SHARES
- -------------
The net asset value and offering price of shares of the Trust are determined
once daily as of the close of trading on the New York Stock Exchange during the
Trust's "business day," which is any day on which the Exchange is open for
business. The net asset value of the Trust serves as the basis for the purchase
and redemption price of Trust shares. The net asset value is also used in
calculating the fee paid to the Manager.
CALCULATION OF NET ASSET VALUE
Net asset value is calculated by dividing the value of the Trust's portfolio
securities, plus any cash or other assets less all liabilities, by the number of
shares outstanding. Since the Trust will invest in the Portfolio, the value of
the Trust's portfolio securities will be equal to the value of its beneficial
interest in the Portfolio. If the securities owned by the Portfolio increase in
value, the value of the Trust shares which the shareholder owns will increase.
If the securities owned by the Portfolio decrease in value, the value of the
shareholder's shares will also decline. In this way, shareholders participate in
any change in the value of the securities owned by the Portfolio. The securities
held in the Portfolio's portfolio will be valued by using market quotations, or
independent pricing services which use prices provided by market-makers or
estimates of market values obtained from yield data relating to instruments or
securities with similar characteristics. Securities for which reliable
quotations or pricing services are not readily available and all other assets
will be valued at their respective fair value as determined in good faith by, or
under procedures established by, the Trustees of AIST, which procedures may
include the delegation of certain responsibilities regarding valuation to the
officers of AIST. The officers of AIST report, as necessary, to the Trustees of
AIST regarding portfolio valuation determination.
Short-term securities with less than sixty days remaining to maturity when
acquired by the Portfolio will be valued on an amortized cost basis by the
Portfolio when the Trustees of AIST have determined that amortized cost is fair
value. If the Portfolio acquires such securities with more than sixty days
remaining to maturity, they will be valued at current market value (using the
mean of the bid and the asked prices) until the 60th day prior
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to maturity, and will then be valued on an amortized cost basis based upon the
value on such date unless the Trustees of AIST determine during such 60-day
period that this amortized cost basis does not represent fair value.
PERFORMANCE
Advertisements, sales literature and communications to shareholders may contain
various measures of the Trust's performance including current yield, various
expressions of total return and current distribution rate. These may
occasionally cite statistics to reflect its volatility or risk.
The Trust may furnish average annual total return and total return quotations
calculated at net asset value and at maximum offering price for various periods.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 invested at the maximum
offering price for one, five and ten-year periods, or portion thereof, to the
extent applicable, through the end of the most recent calendar quarter, assuming
reinvestment of all distributions and deduction of any applicable contingent
deferred sales charge. For such purposes, total return equals the total of all
income and capital gain distributions paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in the value of
the original investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by the Trust's portfolio
investments. It is calculated by dividing the Trust's net investment income per
share during a recent thirty-day period by the maximum offering price on the
last day of that period and annualizing the result.
Current yield reflects the income per share earned by the Trust's portfolio
investments. It is calculated by dividing the Trust's net investment income per
share during a recent thirty-day period by the maximum offering price on the
last day of that period and annualizing the result.
Yield, which is calculated according to a formula prescribed by the SEC (see the
Statement of Additional Information), is not indicative of the dividends or
distributions which were or will be paid to the Trust's shareholders. Dividends
or distributions paid to shareholders are reflected in the current distribution
rate which may be quoted to shareholders. The current distribution rate is
computed by dividing the annualized amount of dividends per share paid by the
Trust during the past thirty days by the current offering price. The current
distribution rate differs from the current yield computation because it may
include distributions to shareholders from sources other than dividends and
interest, short term capital gain and net equalization credits and is calculated
over a different period of time.
Advertisements and communications may compare the Trust's performance with (i)
that of other mutual funds (except money market funds), as reported by Lipper
Analytical Services, Inc. or similar independent services or financial
publications, or (ii) the rates of return on certificates of deposit. From time
to time, advertisements and other Trust materials and communications may cite
statistics to reflect the Trust's performance over time, utilizing comparisons
to indexes including those based on U.S. Treasury securities and those derived
from a calculated measure such as a cost of funds index or a moving average of
mortgage rates. Commonly used indexes include the one, three, five, ten and
thirty-year constant maturity Treasury rates, the three-month and 180-day
Treasury bill rate, rates on longer-term Treasury certificates, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of
Funds, the one-month, three-month, six-month or one-year London Interbank
Offered Rate (LIBOR), the prime lending rate of one or several banks, or
commercial paper rates. Some indexes, such as the one-year constant maturity
Treasury rate, closely mirror changes in market interest rate levels. Others,
such as the 11th District Federal Home Loan Bank Cost of Funds Index, tend to
lag behind changes in market rate levels and tend to be somewhat less volatile.
In addition, advertisements and other communications may cite current and
compounded yield and distribution rates. Quotations of historical total returns,
yields and distribution rates are not indicative of
27
<PAGE>
future dividend income or total return, but are an indication of the return to
shareholders only for the limited historical period used. The Trust's yield,
total return or distribution rate will depend on the particular investments in
its portfolio, its total operating expenses and other conditions. For further
information, including the formulas and discussions of the yield and total
return calculations, see the Statement of Additional Information.
In each case performance figures are based upon past performance, reflect all
recurring charges against Trust income and, as appropriate, may or may not
assume the payment of the applicable contingent deferred sales charge on the
redemption of shares. The investment results of the Trust, like all others, will
fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Trust's yield,
distribution rate or total return may be in any future period.
THE ASTRA GROUP
- -------------
Atlas Group Inc. ("Atlas Group") is a financial services holding company and has
its principal business address at 9595 Wilshire Boulevard, Suite 1001, Beverly
Hills, California 90212. It comprises several affiliated companies, including
AMC and the Distributor (whose principal business address is 750 B Street, Suite
2350, San Diego, California 92101), which provide advisory, distribution and
administrative services to the Trusts. Atlas Group is a Delaware corporation of
which Palomba Weingarten, Chairman of the Board of Trustees of ASIS and AIST, is
the sole stockholder and Chief Executive Officer.
AMC provides a number of mutual funds, and may provide other personal and
institutional accounts, with portfolio management services. It maintains a staff
of experienced investment personnel and support facilities. Current assets under
management are approximately $200 million.
The Distributor distributes shares for all of Astra Group's mutual funds. AMC
and the Distributor are wholly-owned subsidiaries of Atlas Holdings Group, Inc.
These companies are part of the umbrella name "Astra Group."
PORTFOLIO MANAGEMENT
- -------------
Investment management decisions made by AMC are made by a committee with no one
person being solely responsible for making recommendations to the committee.
MANAGEMENT FEES
- -------------
The Trustees of AIST establish the Portfolio's investment policies and supervise
and review the operations and management of the Portfolio. See "Trustees and
Officers" in the Statement or Additional Information for a complete description
of the Trustees of the Trust and the Portfolio. For furnishing the Portfolio
with investment advice and investment management and administrative services
with respect to the Portfolio's assets, including making specific
recommendations as to the purchase and sale of portfolio securities, furnishing
requisite office space and personnel, and in general supervising and managing
the Portfolio's investments subject to the ultimate supervision and direction of
AIST's Trustees, AMC is paid monthly a fee equal to 0.55% per annum of the
average daily net assets of the Portfolio on the first $500 million of assets.
The annual rate is reduced to 0.50% on net assets from $500 million to $1
billion; and to 0.45% on net assets over $1 billion. AMC will reduce its
aggregate fees for any fiscal year, or reimburse the Portfolio or Trust, to the
extent required so that aggregate expenses do not exceed the expense limitations
applicable under the securities laws or regulations of those states or
jurisdictions in which the Trust's shares are registered or qualified for sale.
28
<PAGE>
Expenses for purposes of these expense limitations include the management fee
but exclude brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation paid or incurred by the Trust or the Portfolio. In
addition, the state with the most restrictive expense limitation allows the
Trust to exclude distribution expenses. During the fiscal year ended October 31,
1995, the total expenses paid by the Trust were approximately 2.19% of its
average daily net assets.
ADMINISTRATIVE FEES
- -------------
ASIS has retained the services of Atlas Group as administrator for the Trust,
but has not retained the services of an investment adviser since the Trust seeks
to achieve its investment objective by investing in the Portfolio. Pursuant to
an administration agreement ("Administration Agreement") Atlas Group supervises
the overall administration of the Trust. These administrative services include
supervising the preparation and filing of all documents required for compliance
by the Trust with applicable laws and regulations, supervising the maintenance
of books and records and other general and administrative responsibilities. For
providing these services, Atlas Group receives a fee from the Trust of 0.10% per
annum of its average daily net assets.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trust) has agreed to pay PFPC
a monthly fee at the annual rate of .07% of the average net assets of the Trust
subject to certain minimums, exclusive of out-of-pocket expenses.
DISTRIBUTION PLAN
- -------------
The Trust finances activities which are primarily intended to result in the sale
of Trust shares and has adopted a Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act (a "Plan"). Rule 12b-1 permits mutual funds, such as the Trust, to
finance distribution activities and bear expenses associated with the
distribution of its shares provided that any payments made by the fund are made
pursuant to a written plan adopted in accordance with the Rule.
The Trust's Plan provides that it will pay up to a maximum of 0.60% per annum of
the Trust's daily net assets for expenses incurred in the distribution of the
Trust's shares.
The Trust's Plan provides that it shall continue in effect for as long as such
continuance is approved at least annually by the vote of a majority of the
Trustees of ASIS and a majority of the Trustees of ASIS who are not interested
persons of ASIS and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan (the "Rule 12b-1
Trustees"). The Plan may be terminated at any time by a vote of a majority of
the Rule 12b-1 Trustees, or by a vote of a majority of the outstanding voting
securities of the Trust.
The Plan will only make payments of expenses actually incurred by the
Distributor. The Plan provides that unreimbursed expenses may be carried over
from year to year, provided, however, that, in accordance with a policy adopted
by ASIS' Board of Trustees, such expenses may not be carried over for more than
three years from the date when they were incurred and that the Distributor has
not yet been reimbursed for such
29
<PAGE>
expenses. The Distributor may include as an expense a portion of its overhead,
including out of pocket costs. In the event that Plan is terminated in
accordance with its terms, the obligation of the Trust to make payments to the
Distributor pursuant to the Plan will cease and the Trust will not be required
to make any payments for expenses incurred after the date such Plan terminates.
Pursuant to the Plan, the Distributor will be entitled to reimbursement (up to
the maximum of 0.60% per annum of the Trust's assets) for its actual expenses
incurred in the distribution and promotion of the Trust's shares, including the
printing of prospectuses and reports used for sales purposes, expenses for
preparation and printing of sales literature, and related expenses, including
any commissions, and maintenance, distribution or service fees paid to
securities dealers or institutions who have executed a distribution or service
agreement with the Distributor.
The Distributor currently expects to pay, (i) sales commissions to dealers of up
to .45% of the purchase price of the share sold by such dealers; and (ii) a
trial or maintenance fee, which will be prorated and paid quarterly after the
first full year of investment, in an amount equal to .50% of the Trust's daily
net assets owned by clients of such dealer.
The Trust may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares at any time. In determining whether any such action
should be taken, the Trust's management intends to consider all relevant
factors, including, without limitation, the size of the Trust, the investment
climate and market conditions, and the volume of sales and redemptions of the
Trust's shares. The Plan may continue in effect and payments may be made under
the Plan following any such suspension, discontinuance or limitation of the
offering of the Trust's shares. However, the Trust is not contractually
obligated to continue its Plan for any particular period of time. Suspension of
the offering of the Trust's shares would not, of course, affect a shareholder's
ability to redeem his shares.
For the fiscal year ended October 31, 1995, the Trust reimbursed the Distributor
$32,575 for distribution expenses incurred. Distribution expenses incurred by
the Distributor included disbursements of $7,673 for costs of personnel involved
with the promotion and distribution of the Trust's shares. At October 31, 1995,
the Distributor had incurred approximately $669,256 of distribution expenses in
excess of amounts currently reimbursable by the Trust.
See the Statement of Additional Information for a further description of the
Distribution Plan.
GENERAL INFORMATION
- -------------
The Trust is a series of ASIS which was organized as a Massachusetts business
trust on July 19, 1989. The Trust consists of an unlimited number of shares of
beneficial interest without par value.
All shares of the Trust have equal voting rights. In the event of dissolution or
liquidation, holders of the Trust's shares will receive pro rata, subject to the
rights of creditors, proceeds of the sale of the assets held. There are no
preemptive or conversion rights applicable to any of the shares. ASIS shares do
not have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for Trustees can elect all Trustees and the remaining shareholders
would not be able to elect any Trustees. The shares, when issued, will be fully
paid and non-assessable. The Board of Trustees of ASIS may create additional
series (or classes of series) of ASIS shares without shareholder approval. Any
series of shares may be terminated by a vote of shareholders of such series
entitled to vote or by the Trustees of ASIS by written notice to shareholders of
such series.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent. If requested by shareholders of at least 10% of the outstanding
shares of ASIS, ASIS will call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or trustees and will assist in
communications with other shareholders as required by Section 16(c) of the 1940
Act.
30
<PAGE>
As used in this Prospectus, the term "Majority Vote" means the affirmative vote
of (a) more than 50% of the outstanding shares of the Trust or ASIS, as
appropriate, or (b) 67% or more of the shares present at a meeting if more than
50% of the outstanding shares of the Trust or ASIS, as appropriate, are
represented at the meeting in person or by proxy, whichever is less.
Whenever the Trust is requested to vote on any proposal of the Portfolio, the
Trust will hold a meeting of its shareholders and will cast its votes as
instructed by its shareholders. As is true for all investment companies, a
majority of the outstanding voting securities can control the results of any
shareholder vote. Because Portfolio investors' votes are proportionate to their
percentage interests in the Portfolio, one or more other Portfolio investors
could, in certain instances, approve an action which a majority of the
outstanding voting securities of the Trust voted against. This could result in
the Trust redeeming its investment in the Portfolio, which could result in
increased expenses for the Trust. Whenever, the shareholders of the Trust are
called to vote on matters relating to the Portfolio, the Trustees of ASIS shall
vote shares for which they receive no voting instructions in the same proportion
as the shares for which they do receive voting instructions.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires the
notice of such disclaimer be given to all parties in each agreement, obligation
or instrument entered into or executed by ASIS or the Trustees. The Declaration
of Trust provides for indemnification out of the property of ASIS property for
all loss and expense of any shareholder of ASIS held liable on account of being
or having been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which ASIS would be unable to meet its obligations wherein the complaining
party was held not to be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees of ASIS will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by ASIS of the
Trustees and officers of ASIS except with respect to any matter as to which such
person did not act in good faith in the reasonable belief that his action was in
or not opposed to the best interests of ASIS. Such person may not be indemnified
against any liability to ASIS or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office. The
Declaration of Trust also authorizes the purchase of liability insurance on
behalf of Trustees and officers.
Any conflict of interest arising between ASIS and AIST will be resolved by the
Trustees of ASIS and AIST in accordance with their fiduciary responsibilities
imposed by the Investment Company Act of 1940 and Massachusetts law. Absent the
adoption of procedures reasonably appropriate to deal with conflicts of
interest, state securities regulators generally do not permit the Trustees of
the Portfolio to be the same individuals as the Trustees of ASIS. The Trustees
of ASIS and AIST, including a majority of the disinterested Trustees (as that
word is defined by the Investment Company Act of 1940, as amended) have adopted
procedures that they believe are reasonably appropriate to deal with any
potential conflicts of interest, up to including creating a separate Board of
Trustees.
OTHER INFORMATION
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba
31
<PAGE>
Weingarten), are pending in the United States District Court for the Central
District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust,
Pilgrim Strategic Investment Series ("PSIS") (and certain series funds of PSIS)
(predecessors to "Astra") and certain Trustees and Officers of the Trust are
defendants. These actions, which were consolidated on March 31, 1995, in an
action entitled In Re: Pilgrim Securities Litigation, principally allege
violations of the Securities Act of 1933 and the Investment Company Act of 1940
and relate primarily to disclosure concerning pricing and liquidity of portfolio
securities. Management believes the Complaints are without merit and intends to
vigorously defend these actions.
Investors in the Trust will be informed of its progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually. A copy of the current list of
investments comprising the Portfolio's portfolio as of the close of business on
the last day of each month may be obtained by written request to the Trust,
together with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Trust's Shareholder Servicing
Agent at (800) 441-7267.
This Prospectus is not an offering of the securities herein described in any
state in which such offering may not lawfully be made. No salesman, dealer or
other person is authorized to give any information or make any representation
other than those contained in this Prospectus.
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<PAGE>
[LOGO]
Astra Adjustable U.S. Government Securities Trust IV
NEW ACCOUNT APPLICATION
- -------------------------------------------------------------------------------
INITIAL INVESTMENT
Please mail the completed
Application to:
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
For accounts established via
Federal Funds wire, please
mail the completed
application to:
DST Systems, Inc.
Attn: Order Dept.
P.O. Box 419174
Kansas City, MO 64141
[ ] Establish the account specified below with the enclosed check for $_______
payable to Astra Adjustable U.S. Government Securities Trust IV. Minimum
initial investment is $50,000. (Third party checks, except those payable to
an existing shareholder who is a natural person, credit cards and cash will
not be accepted).
[ ] Payment has been made by Dealer purchase on _____________, $______________
(Date) (Amount)
____________________________
(Order Number)
[ ] Payment has been made by Fed. funds wire #_____________ on _______________
(Reference No.) (Date)
_____________, $________________
(Account No.) (Amount)
- -------------------------------------------------------------------------------
ACCOUNT REGISTRATION
Joint Tenancy will be
assumed unless
otherwise noted.
Full Name/Corporate Name *Social Security or Taxpayer I.D. #
_________________________________ _____________________________________
Co-owner (if applicable) [ ] Check this box if awaiting TIN
_______________________________________________________________________________
Street Address
_______________________________________________________________________________
City, State, Zip
Check the Appropriate box below:
[ ] I am a United States Citizen
[ ] I am a Resident Alien (Please complete a W-9 and 1078)
[ ] I am a Non-Resident Alien (Please complete a W-8)
Indicate what country a tax resident of __________________.
Special Note: If Joint Account Registration each Non-Resident Alien must
fill out a W-8.
- -------------------------------------------------------------------------------
* The Trust reserves the right to reject any Application that does not
furnish a certified TIN, or does not indicate that a TIN has been applied
for by checking the "Awaiting TIN" box on the Application.
33
<PAGE>
_______________________________________________________________________________
DISTRIBUTION
INSTRUCTIONS
If you wish cash distributions
electronically credited to your
bank account, please attach a
voided check for this account.
If no box is checked, all distributions will be reinvested in additional shares
of the Trust.
INCOME DIVIDENDS: (elect one)
[ ] Reinvest dividends [ ] Pay dividends in cash
[ ] Use Dividend Transfer Option
CAPITAL GAINS DISTRIBUTION: (elect one)
[ ] Reinvest capital gains [ ] Pay capital gains in cash
[ ] Use Dividend Transfer Option
If you wish to utilize the Dividend Transfer Option, please designate the Astra
Fund account you wish to have your dividends reinvested in:
_______________________________ ___________________________________________
Fund Name Existing Acct. No.
[ ] Check this box if you wish your cash distributions to be sent to a payee
or address other than that listed in the "ACCOUNT REGISTRATION" section
above and indicate the payee and address below:
______________________________________________________________________________
Payee
______________________________________________________________________________
Street Address
______________________________________________________________________________
Account Number If Applicable
______________________________________________________________________________
City, State and Zip Code
______________________________________________________________________________
SPECIAL SERVICES:
EXPEDITED
REDEMPTIONS
Please indicate a commer-
cial bank and ATTACH A
VOIDED CHECK for this
account. "FOR DEALER
ONLY" section must be
completed.
I (we) authorized the Trust's Transfer Agent to act upon telephone or wire
instructions from any person to have amounts redeemed from my (our) account in
the Trust and:
[ ] WIRED to the bank account designated below. ($5,000 minimum)
Name of Bank Branch
______________________________________________________________________________
Bank Address
______________________________________________________________________________
______________________________________________________________________________
Name of Account Account Number
______________________________________________________________________________
TELEPHONE EXCHANGE
PRIVILEGE--Telephone
exchanges may be made by
calling DST Systems,
Inc. at (800) 441-7267
before the close of the NYSE
on any business day the NYSE
is open.
You will automatically be assigned this privilege unless you instruct the Trust
otherwise by checking the box below. Shares may only be exchanged between
accounts with identical registrations. Any certificates for shares must be
deposited prior to any exchange of such shares. Certain Restrictions apply to
this privilege. Please read the Prospectus carefully.
[ ] I do not wish to have Telephone Exchange Privilege.
_______________________________________________________________________________
34
<PAGE>
_______________________________________________________________________________
CERTIFICATION AND
SIGNATURE
The account owners or their representatives certify that they have the power and
authority to establish this account and select the privileges requested, subject
to the terms outlined in the Prospectus. Atlas Holdings Group, Inc. or any
subsidiary, affiliate or agent or their officers, directors or employees will
not be liable for any loss, expense or cost for acting upon any instructions or
inquiries believed genuine. The account owners certify that the current
Prospectus for the Trust has been received and read and that the authorizations
hereon shall continue until the Trust receives written notice of a modification
signed by all appropriate parties or a termination signed by any party. This
account is subject to the terms of the Trust's Prospectus, as amended from time
to time, and the terms herein set forth, and subject to acceptance by the Trust
and to the laws of California. All terms shall be binding upon the
representatives, successors, and assigns of the account owners.
Cross out (2) if it is not
correct.
Under penalties of perjury, the undersigned hereby certify (1) that the Social
Security or Taxpayer I.D. Number above is correct and (2) that the account
owner is not subject to backup withholding because (a) the undersigned have not
been notified of being subject to backup withholding as a result of a failure to
report all interest or dividends, or (b) the I.R.S. has provided notification
that the account owner is no longer subject to backup withholding.
All persons signing as representatives warrant as individuals that each person
signing is an authorized representative of the account owner, that the account
and privileges selected have been duly authorized, that all signatures hereon
are genuine and that the persons indicated hereon are authorized to sign. It is
understood that the Trust, Astra Fund Distributors Corp. and the Transfer Agent
may rely on these authorizations until revoked or amended by written notice
delivered by registered mail to the Trust.
Authorized Signature Title (if applicable)
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Date
________________________________
Telephone Number:
Home: (___)_______________
Other: (___)_______________
______________________________________________________________________________
FOR DEALER ONLY:
(Please Print)
The undersigned ("Dealer") agrees to all applicable provisions in this
Application and the Additional Dealer Agreement, guarantees the signature of and
representations by the Shareholder, agrees to notify Astra Fund Distributors
Corp. of any purchases made under a Letter of Intent or Rights of Accumulation,
and represents that this Application is properly executed by a signer authorized
to guarantee signatures for the Dealer.
Dealer's name ______________________________________________
Main office address ______________________________________________
Authorized signature of dealer X_____________________________________________
Branch address ______________________________________________
City _______________ State _________ Zip __________
Representative No. and last name ____________________ Telephone No. ___________
_______________________________________________________________________________
35
<PAGE>
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36
<PAGE>
[LOGO]
Astra Adjustable U.S. Government Securities Trust IV
Additional Account Privileges
______________________________________________________________________________
SYSTEMATIC
WITHDRAWAL
PLAN
PLEASE MAIL THE
COMPLETED FORM TO:
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
If you wish your SWP
payments to be electronically
credited to your bank account,
please attach a voided check.
I (we) authorize the Trust's Transfer Agent, to liquidate shares in and withdraw
cash from my account 5 business days prior to the beginning of ________________
(month) to provide [ ] Monthly or [ ] Quarterly Systematic Withdrawal Plan
payments ("SWP") in the amount of $_____________ ($100 minimum) to the
registered shareholder or to the following designated payee:
Full Name/Corporate Name
______________________________________________________________________________
Name of Payee or Payee Bank Bank Account Number (if any)
______________________________________________________________________________
Street Address
______________________________________________________________________________
City, State, Zip
______________________________________________________________________________
Authorized Signature(s)
______________________________________________________________________________
PRE-AUTHORIZED
INVESTMENT PLAN
PLEASE ATTACH A VOIDED
CHECK FOR THIS ACCOUNT
Mail the completed
form to the above
address
I (we) authorize the Trust's Transfer Agent, to draw checks or issue debit
instructions on the bank account provided below, beginning on the [ ] 5th and/or
[ ] 20th of ___________________ (month) and on the same day each month
thereafter in the amount of $_________________ ($250 minimum) to purchase
additional shares of the Trust:
Full Name/Corporate Name Bank Account Number
______________________________________________________________________________
Name of Bank Branch
______________________________________________________________________________
Address
______________________________________________________________________________
City, State, Zip
______________________________________________________________________________
Authorized Signature(s)
- -------------------------------------------------------------------------------
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
FOR AUTOMATIC PURCHASE PLAN)
Please PRINT
Name of
Depositor
(as shown on
bank records)_______________________________
Bank
Account
Number_______________________________
Name
of Bank_______________________________
Address
of Bank_______________________________
City, State and
Zip Code
of Bank_______________________________
As a convenience, I (we) hereby request and authorize you to pay and charge to
my (our) account checks drawn on my (our) account by DST Systems, Inc., the
Trust's Agent and payable to the order of the Trust provided there are
sufficient collected funds in said account to pay the same upon presentation. I
(we) agree that your rights with respect to each such check shall be the same as
if it were a check drawn on you and signed personally by me (us). This authority
is to remain in effect until revoked in writing and until you actually receive
such notice I (we) agree that you shall be fully protected in honoring any such
checks.
I (we) further agree that if any such check be dishonored, whether with or
without cause and whether intentionally or inadvertently, you shall be under no
liability whatsoever.
Signature(s) of Depositor(s) (signed exactly as shown on bank records)
X_____________________________________________________________________________
X_____________________________________________________________________________
___________________________________________________________ 19________________
Date Signed
37
<PAGE>
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38
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED TO A
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)
If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth in the prospectus, you must
complete this Contingent Deferred Sales Charge Waiver Form and send it to the
Trust's Transfer Agent at its address shown herein. The waiver will only be
granted upon confirmation of your entitlement.
Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:
[ ] Redemption is made upon the death or permanent disability of shareholder.
(Enclose either a certified death certificate or certification of permanent
disability (see below), whichever is appropriate).
[ ] Waiver of the fee is hereby requested for the following reason:
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Signature__________________________________________________________________
(Exactly as on Account Registration)
DATE_______________________________________________________________________
Name(s)____________________________________________________________________
___________________________________________________________________________
(Please Print)
MAIL THE COMPLETED WAIVER FORM TO:
DST SYSTEMS, INC., P.O. BOX 419174, KANSAS CITY, MO 64141
DEFINITION OF DISABILITY
An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such person is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.
CERTIFICATION OF DISABILITY
I___________________________________________certify that________________________
Physician Name Investor/Patient
is under the regular care of_______________________________________and is unable
Licensed Physician
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of disability________________________
Physician Signature_______________________________________Date__________________
39
<PAGE>
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40
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE SUBSTITUTE FORM W-9
The Fund, and other payers, must, according to IRS regulations, withhold
20% of reportable dividends (whether paid or accrued) and redemption payments if
a shareholder fails to provide a taxpayer identification number, and a
certification that he is not subject to backup withholding in the Substitute
Form W-9 included as a part of this Letter of Transmittal.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in the
manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under section
3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you fail
to certify to the payer that you are not subject to backup withholding under (3)
above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain FORM SS-5, application for a Social Security Number Card, or FORM
SS-4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write "applied for" in the space provided for a taxpayer identification
number on the application. Circle paragraph 3(b) of the Shareholder
Certification section.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
4 Show the name of the owner.
5 List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL
payments. Write "exempt payee" after paragraph (3) of the Shareholder
Certification section if your account falls into one of the following
categories. We will still need your taxpayer identification number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
================================================================================
GUIDELINES FOR DETERMINING PROPER NUMBER FOR THIS TYPE OF ACCOUNT:
1. An individual's account
2. Two or more individuals (joint account)
3. Husband and wife (joint account)
4. Custodian account to a minor (Uniform Gift to Minors Act)
5. Adult and minor
6. Account in the name of guardian or committee for a designated ward, minor or
incompetent person
7. a. The usual revocable savings trust account (grantor is also trustee)
b. So-called trust account that is not a legal or valid trust under state
law
8. Sole proprietorship account
GIVE THE
SOCIAL SECURITY
NUMBER OF--
The individual
The actual owner of the account or, if combined funds any one of the
individuals(superior1)
The actual owner of the account or, if joint funds, either person(superior1)
The minor(superior2)
The adult or if the minor is the only contributor, the minor(superior1)
The ward, minor, or incompetent person(superior3)
The grantor-trustee(superior5)
The actual owner(superior1)
The owner(superior4)
FOR THIS TYPE OF ACCOUNT:
9. A valid trust, estate or pension trust
10. Corporate account
11. Religious, charitable, or educational organization account
12. Partnership account held in the name of the business
13. Association, club or other tax-exempt organization
14. A broker or registered nominee
15. Account with the Department of Agriculture in the name of a public entity
(such as a State or local government, school district, or prison) that
receives agricultural program payments
GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
Legal entity (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)(superior5)
The corporation The organization
The partnership
The organization
The broker or nominee
The public entity
41
<PAGE>
[LOGO]
750 B Street
Suite 2350
San Diego, California 92101
Astra
Adjustable
U.S. Government
Securities Trust IV
Astra Adjustable U.S. Government Prospectus
Securities Trust IV February 28, 1996
INVESTMENT MANAGER
Astra Management Corporation
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp.
750 B Street
Suite 2350
San Diego, California 92101
(619) 238-7100
[ARTWORK--EAGLE]
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
(800) 441-7267
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
CUSTODIAN
PNC Bank, National Association
Airport Business Center
200 Stevens Drive
Lester, Pennsylvania 19113
LEGAL COUNSEL
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
USG IV 296 xx (c) 1996 Atlas Holdings Group, Inc.
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
750 B Street
Suite 2350
San Diego, California 92101
(800) 219-1080
Astra Adjustable U.S. Government Securities Trust I (the "Trust") is a
non-diversified series of Astra Strategic Investment Series ("ASIS"), an
open-end management investment company. The investment objective of the Trust is
to seek high current income consistent with low volatility of principal. The
Trust seeks to achieve its objective by investing all of its investable assets
in the Astra Institutional Adjustable U.S. Government Securities Portfolio (the
"Portfolio"), a non-diversified open-end series of Astra Institutional
Securities Trust ("AIST"), which has the same investment objective as that of
the Trust.
The Portfolio seeks to achieve its investment objective by investing at least
65% of its assets in mortgage securities, issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Mortgage
Securities"). The Portfolio will invest the remainder of its assets generally in
adjustable rate mortgage securities which are issued or sponsored by commercial
banks, savings and loan associations, mortgage bankers or other financial
institutions, that have no government guarantee and that are senior or
subordinated to other mortgage securities arising out of the same pool of
mortgages ("Multi-Class Residential Mortgage Securities").
The prospectus for the Trust, dated February 28, 1996 (the "Prospectus"), which
provides the basic information you should know before investing in the Trust,
may be obtained without charge from ASIS at the address listed above. This
Statement of Additional Information is not a prospectus. It contains information
in addition to and more detailed than set forth in the Prospectus. It is
intended to provide you additional information regarding the activities and
operations of the Trust and ASIS, and should be read in conjunction with the
Prospectus.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY....................................... 3
INVESTMENT OBJECTIVE AND POLICIES..................................... 3
INVESTMENT RESTRICTIONS............................................... 6
TRUSTEES AND OFFICERS................................................. 8
MANAGEMENT OF THE TRUST AND THE PORTFOLIO............................. 10
EXECUTION OF PORTFOLIO TRANSACTIONS................................... 11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................ 12
PRICE OF THE SHARES IS DETERMINED DAILY............................... 14
SHAREHOLDER SERVICES AND PRIVILEGES................................... 14
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS.................. 15
INVESTMENT RETURN INFORMATION......................................... 19
GENERAL INFORMATION................................................... 22
FINANCIAL STATEMENTS.................................................. 26
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GENERAL INFORMATION AND HISTORY
On August 18, 1989, the shareholders of PSIS approved a proposal to reorganize
PSIS from a New York common law trust to Pilgrim Strategic Investment Series, a
Massachusetts business trust, with one series, Pilgrim High Yield Trust. The
Declaration of Trust dated July 19, 1989, was filed with the Commonwealth of
Massachusetts on July 21, 1989. Pursuant to an amendment of the Declaration of
Trust dated January 16, 1990, Pilgrim High Yield Trust changed its name to
Pilgrim Strategic Investment Series. The reorganization had no ramifications
with respect to the investment objective and policies, investment restrictions
or general operations of PSIS. On November 12, 1990, the Trustees approved the
creation of a second series, the Pilgrim Adjustable U.S. Government Securities
Trust. On September 4, 1991, the Trustees of PSIS approved the creation of five
additional series of PSIS: the Trust, Pilgrim Adjustable U.S. Government
Securities Trust II, Pilgrim Adjustable U.S. Government Securities Trust III,
Pilgrim Adjustable Rate Securities Trust I, Pilgrim Adjustable Rate Securities
Trust II and Pilgrim Adjustable Rate Securities Trust III. On November 22, 1991,
the shareholders of PSIS approved a proposal to change the fundamental policies
of the Pilgrim Adjustable U.S. Government Securities Trust and its name was
changed to Pilgrim Adjustable U.S. Government Securities Trust I. On February
13, 1992, the Trustees of PSIS approved the creation of two additional series of
PSIS: Pilgrim Adjustable U.S. Government Securities Trust IV and Pilgrim
Adjustable Rate Securities Trust IV, whose names were subsequently changed to
Pilgrim Adjustable U.S. Government Securities Trust I-A and Pilgrim Adjustable
Rate Securities Trust I-A. On April 30, 1993, the Trustees of PSIS approved the
creation of two additional series of PSIS: Pilgrim Adjustable U.S. Government
Securities Trust IV and Pilgrim Adjustable Rate Securities Trust IV. On May 12,
1994, the Trustees of PSIS approved an amendment to PSIS' Declaration of Trust
to permit PSIS to issue additional classes of shares under a multi-class
distribution system.
On March 17, 1995, the Trustees approved an amendment to PSIS' Declaration of
Trust changing the name of PSIS to Astra Strategic Investment Series ("ASIS").
Effective as of April 10, 1995, the Pilgrim Adjustable U.S Government Securities
Trusts changed their name to Astra Adjustable U.S. Government Securities Trusts,
all series of ASIS.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion pertaining to investments by the Portfolio supplements
the discussion of the investment objective of the Portfolio set forth in the
Prospectus under the heading "How The Trust Works."
Multi-Class Residential Mortgage Securities
The following discussion is intended to be a general discussion of certain
features of Multi-Class Residential Mortgage Securities and is not intended as a
discussion of all of the possible terms pursuant to which these types of
securities could be issued. Multi-Class Residential Mortgage Securities are a
type of multi-class pass through security. Such a security represents a
beneficial interest in a pool of mortgage loans or a pool of mortgage pass
through securities, often collectively referred to as "mortgage assets." The
mortgage assets are typically held by a trust, the beneficial interests in which
are evidenced by certificates issued pursuant to a pooling and servicing
agreement. The pooling and servicing agreement is entered into by a trustee
whose main responsibility is to act in the interests of the certificate holders
by enforcing the provisions of the pooling and servicing agreement, and a party
who is responsible for pooling and conveying the mortgages assets to the trust,
sometimes referred to as a depositor. In some cases, the depositor also acts as
a master servicer for the underlying mortgage loans. Payments of principal and
interest made on the mortgage assets provide
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<PAGE>
the funds to permit the trust to make scheduled distributions to certificate
holders. See "The Mortgage Loans," discussed below.
The Certificates. In general, a series of certificates is issued in multiple
classes with a stated maturity or final distribution date. One or more classes
of each series may be entitled to receive distributions allocable only to
principal, principal prepayments, interest or any combination thereof prior to
one or more other classes, or only after the occurrence of certain events, and
may be subordinated in the right to receive such distributions on such
certificates to one or more senior classes of certificates. The rights
associated with each class of certificates are set forth in the applicable
pooling and servicing agreement, form of certificate and offering documents for
the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans which
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
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<PAGE>
Special Hazard Certificates. Special hazard certificates are typically offered
in conjunction with other classes of mortgage pass through certificates and
constitute a subordinated class. To the extent that losses incurred on the
underlying mortgage loans constitute special hazard losses, the rights of the
special hazard certificate holders to receive distributions of principal and
interest are subordinated to those of the certificate holders of the more senior
classes of the series. A special hazard loss is a loss relating to a defaulting
mortgage loan as to which all recoverable liquidation and insurance proceeds
have been received. Depending on the particular terms of the certificates,
special hazard losses are allocated first to the special hazard certificates
holders and then to the regular certificate holders.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master servicer to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master servicer may also be required to obtain a
pool insurance policy to cover losses in an amount up to a certain percentage of
the aggregate principal balance of the mortgage loans in the pool to the extent
not covered by a primary mortgage insurance policy by reason of default in
payments on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master servicer could effect early termination of a
trust, after a certain specified date or the date on which the aggregate
outstanding principal balance of the underlying mortgage loans is less than a
specific percentage of the original aggregate principal balance of the
underlying mortgage loans by purchasing all of such mortgage loans at a price,
unless otherwise specified, equal to the greater of a specified percentage of
the unpaid principal balance of such mortgage loans, plus accrued interest
thereon at the applicable certificate interest rate, or the fair market value of
such mortgage assets. Generally, the proceeds of such repurchase would be
applied to the distribution of the specified percentage of the principal balance
of each outstanding certificate of such series, plus accrued interest, thereby
retiring such certificates. Notice of such optional termination would be given
by the trustee prior to such distribution date.
Yield and Prepayment Considerations. The rate of principal payments on the
certificates, the aggregate amount of each interest payment and the yield to
maturity on the certificates are related to the rate of principal payments on
the underlying mortgage loans. Such principal payments may be in the form of
scheduled principal payments, prepayments by mortgagors, liquidations due to
default, casualty, condemnation and certain events usually set forth in the
related pooling and servicing agreement. The rate of prepayment may be
influenced by a variety of economic, geographic, social and other factors. In
general, however, if interest rates on comparable obligations were to fall below
the mortgage rates on the underlying mortgage loans, which may be different from
prevailing interest rates, the rate of prepayment would be expected to increase.
Conversely, if prevailing rates on comparable obligations were to rise above the
mortgage rates on the underlying mortgage loans, the mortgage loans would be
expected to prepay at lower rates than if prevailing rates on comparable
obligations were to remain at or below the mortgage rates on the underlying
mortgage loans.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
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<PAGE>
Various servicers provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
servicer and the master servicer. A servicer's duties generally include
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts, collection of insurance claims, foreclosure
procedures, and, if necessary, the advance of funds to the extent certain
payments are not made by the mortgagors and are recoverable under applicable
insurance policies or from proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master servicer who (a) establishes
requirements for each servicer, (b) administers, supervises and enforces the
performance by the servicers of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master servicer may be an affiliate of the depositor
and also may be the servicer with respect to all or a portion of the mortgage
loans contained in a trust fund for a series of certificates.
Lending of Portfolio Securities
As noted in the Prospectus, the Portfolio may lend its portfolio securities in
order to generate additional income. The Portfolio may pay reasonable
administration and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. Loans are subject to termination at the option of the Portfolio or the
borrower at any time, including when termination is necessary to enable the
Portfolio to be the record owner for each dividend paid by the issuer thereof.
The Portfolio does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Purchase of Mortgage Securities
The Portfolio intends to comply with the provisions of Section 12(d) of the
Investment Company Act of 1940 in connection with purchasing mortgage
securities.
INVESTMENT RESTRICTIONS
The following investment restrictions which have been adopted by the Trust are
fundamental and cannot be changed without approval by the vote of a majority of
the outstanding voting securities of the Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). (All policies not specifically
identified in this Statement of Additional Information or the Prospectus as
fundamental may be changed without a vote of the shareholders.)
The Trust may not:
1. Borrow money, except if after each borrowing there is asset coverage
of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales, the entry into currency
transactions, options, futures contracts, including those relating to
indexes, options on futures contracts or indexes and forward
commitment transactions shall not constitute borrowing.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that the Trust will invest
more than 25% of the value of its total assets in securities of
issuers in the asset-backed securities industry. However, in some
future period or periods, due to adverse economic conditions or for
defensive purposes, the Trust may temporarily have less than 25% of
the total value of its assets invested in that industry. This
limitation does not apply to investments or obligations of the U.S.
Government or any of its agencies or
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<PAGE>
instrumentalities. In addition, this limitation does not prevent the
Trust from investing all or substantially all of its assets in another
registered investment company having the same investment objective as
that of the Trust.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to
the deposit of assets in escrow in connection with (a) the writing of
covered put and call options, (b) the purchase of securities on a
forward commitment or delayed-delivery basis and (c) collateral and
initial or variation margin arrangements with respect to currency
transactions, options, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
4. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Trust and the
Portfolio may make margin deposits in connection with transactions in
currencies, options, futures and options on futures.
5. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
6. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by the Trust may be
deemed to be underwriting, except that, the Trust may invest all or
substantially all of its assets in another registered investment
company with the same investment objective as that of the Trust.
7. Purchase, hold or deal in real estate or oil and gas interests,
although the Trust may purchase and sell securities that are secured
by real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for the Trust as
a result of the ownership of securities.
8. Invest in commodities except that the Trust may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a forward
commitment or delayed-delivery basis.
9. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which
it may invest; however, the Trust may lend portfolio securities in an
amount not to exceed 10% of the value of the Trust's total assets. Any
loans of portfolio securities will be made according to guidelines
established by the SEC and the Board of Trustees.
10. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except as permitted herein and in Investment
Restriction Nos. 1, 3, 4 and 8. Obligations under interest rate swaps
will not be treated as senior securities for purposes of this
restriction so long as they are covered in accordance with applicable
regulatory requirements. Obligations under interest rate collars,
caps, and floors will be treated as senior securities unless and until
such time as the Portfolio receives regulatory relief from staff of
the Securities and Exchange Commission or until such time as the staff
no longer deems such instruments to be senior securities. Other good
faith hedging transactions and similar investment strategies will also
not be treated as senior securities for purposes of this restriction
so long as they are covered in accordance with applicable regulatory
requirements and are structured consistent with current staff
interpretation.
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<PAGE>
In addition, the Trust will abide by the following additional investment
restrictions although they are not fundamental investment policies:
The Trust will not:
1. Invest in oil, gas and other mineral leases or real estate limited
partnerships.
2. Purchase securities of unseasoned issuers, including their
predecessors or sponsors, which have been in operation for less than
three years, and equity securities of issuers which are not readily
marketable if by reason thereof the value of its aggregate investment
in such classes of securities will exceed 5% of its total assets.
3. Purchase puts, calls straddles, spreads, and any combination thereof
if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
4. Invest any part of its total assets in real estate or interests
therein, excluding readily marketable securities and securities for
which there does not exist a readily available market, i.e., illiquid.
5. Invest any part of its total assets in commodities or commodity
futures contracts.
6. Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which
are not listed on the New York or American Stock Exchange. Warrants
acquired by the Trust in units or attached to securities may be deemed
to be without value.
TRUSTEES AND OFFICERS
Responsibility for management of ASIS and AIST is vested in a Board of Trustees.
The Trustees in turn appoint officers of ASIS and AIST to supervise actively the
day-to-day operations of ASIS and AIST. The shareholders of ASIS and AIST may
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose. Each Trustee serves during the continued lifetime of ASIS and AIST
until he dies, resigns or is removed, or if sooner, until the next meeting of
shareholders called for the purpose of electing Trustees.
The affiliations and principal occupations during the past five years of the
Trustees and principal officers are:
PALOMBA WEINGARTEN, CHAIRMAN OF THE BOARD AND TRUSTEE+ (53)
9595 Wilshire Boulevard, Beverly Hill, California 90212. Chairman of the
Board, Director and Chief Executive Officer of Atlas Holdings Group, Inc.,
the parent of Astra Fund Distributors Corp. and Astra Management Corp.
("AMC"), the Trust's distributor and investment manager, respectively.
Chairman of the Board and Trustee of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust.
AL BURTON, TRUSTEE (67)
2300 Coldwater Canyon, Los Angeles, California 90210. President of Al
Burton Productions from 1992 to present; Executive Producer First Run
Syndication for Castle Rock Entertainment Inc. from 1992 to 1995; Executive
Producer-Consultant for Universal Television from 1982 to 1992; Trustee of
Astra Global Investment Series, Astra Institutional Securities Trust, Astra
Institutional Trust and
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<PAGE>
Pilgrim Prime Rate Trust. Director of Pilgrim America MagnaCap Fund, Inc.,
Pilgrim Regional BankShares, Inc. and Pilgrim America Government Securities
Fund.
FELICE R. CUTLER, TRUSTEE (58)
10601 Wilshire Boulevard, 19th Floor, Los Angeles, California 90024.
Partner in the law firm of Cutler & Cutler, Los Angeles, California since
1991 and for more than five years prior to 1990 and in the law firm of
Dilworth, Paxson, Kalish & Kauffman from 1990 to 1991. Trustee of Astra
Institutional Trust and Astra Institutional Securities Trust.
GARRY D. PEARSON, TRUSTEE (47)
150 North Myers Street, Los Angeles, California 90033. Senior Vice
President of George Rice & Sons, a printing company located in Los Angeles,
California, since July 1994. Formerly Vice President and Partner in
Anderson Lithograph, a printing company located in Los Angeles, California,
from 1983 to 1994. Trustee of Astra Global Investment Series, Astra
Institutional Trust and Astra Institutional Securities Trust.
RICHARD R. TARTRE, PRESIDENT AND CHIEF EXECUTIVE OFFICER+ (58)
750 B Street, Suite 2350, San Diego, California 92101. President and Chief
Executive Officer of AMC and Astra Fund Distributors Corp. President and
Chief Executive Officer of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust. From March
1982 to July 1995, Managing Director of the securities firm of Fundmark
Investment Co. Services Inc. in San Diego, California. Member of the Board
of Directors of Mission West Properties and Triton Group Ltd. since 1993
and Burnham Pacific Properties since 1986. Chairman of Bio-Safety Systems
from 1982 to 1995.
JOHN R. ELERDING, SENIOR VICE PRESIDENT, SECRETARY, TREASURER AND CHIEF
FINANCIAL OFFICER+ (44)
750 B Street, Suite 2350, San Diego, California 92101. Senior Vice
President, Secretary, Treasurer and Chief Financial Officer of AMC and
Astra Fund Distributors Corp. Senior Vice President, Secretary, Treasurer
and Chief Financial Officer of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust. From January
1994 to September 1994, Chief Financial Officer at the investment banking
firm of Investment Securities Corp. in San Francisco, California. From 1991
to August 1993, investment manager and assistant to the Chief Operating
Officer at Robertson Stephens & Company in San Francisco, California. From
March 1979 to September 1989, Chief Financial Officer at the financial
services holding company of Omni World Wide in San Mateo, California.
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+ Interested person of ASIS as defined in the 1940 Act.
The officers and Trustees of ASIS and AIST, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Trust as of October
31, 1995. The Trustees of ASIS and AIST who are not affiliated with or
interested persons of AMC may receive fees for attendance at Trustees' meetings
(during the fiscal year ended October 31, 1995, $33,834 was paid), while
officers of ASIS and AIST receive no compensation directly from it for
performing the duties of their offices. However, those officers and Trustees of
ASIS and
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AIST who are affiliated with AMC may be considered to have received remuneration
indirectly because AMC receives management fees from AIST.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
Management Agreement
Investment management services are provided to the Portfolio by Astra Management
Corp. ("AMC") (formerly Pilgrim Management Corporation) pursuant to an
Investment Management Agreement (the "Management Agreement") dated September 30,
1991. As compensation for its services with respect to the Portfolio, AMC is
paid monthly a fee equal to 0.55% per annum of the average daily net assets of
the Portfolio on the first $500 million of assets. The annual rate is reduced to
0.50% on net assets from $500 million to $1 billion; and to 0.45% on net assets
over $1 billion. During the period from February 21, 1991 to October 31, 1991,
AMC received compensation under its management agreement with the Trust in the
amount of $853,335. AMC voluntarily agreed to limit the Trust's aggregate
operating expenses during the same period, resulting in a waiver of expenses in
the amount of $56,285. In addition, AMC reimbursed the Trust $47,445 for other
expenses. As of October 31, 1995, the total net assets of the Portfolio were
approximately $172 million. For the fiscal years ended October 31, 1993, 1994
and 1995, AMC received compensation under its management agreement with the
Portfolio in the amounts of $6,233,257, $4,739,543 and $1,550,152 respectively.
AMC voluntarily agreed to limit the Trust's and the Portfolio's aggregate
operating expenses during the period from November 22, 1991 to October 31, 1992,
resulting in a waiver of expenses in the amount of $34,728.
The Portfolio pays its own operating expenses which are not assumed by AMC, such
as expenses incurred in connection with the issuance, registration and transfer
of its shares; fees and costs of its custodian, transfer and shareholder
servicing agents; costs of pricing and calculating its daily net asset value and
of maintaining its books of account required by the 1940 Act; expenditures in
connection with meetings of the Trust's shareholders; salaries of officers and
fees and expenses of Trustees who are not members of or affiliated with AMC;
insurance premiums on property or personnel of AIST which inure to the Trust's
benefit; salaries of personnel of AIST who are involved in maintaining
registration of its shares under state securities laws; the cost of preparing
and printing reports and proxy statements of the Trust for distribution to its
shareholders; preparing and sending prospectuses and statements of additional
information to existing shareholders; trade association dues; legal and
accounting fees; and fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the Trust
or the Portfolio, to the extent required so that aggregate expenses do not
exceed the expense limitation applicable under the securities laws or
regulations of those states or jurisdictions in which the Trust's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require AMC to reduce its respective fees, or to
reimburse the Trust or the Portfolio, to the extent required so that aggregate
expenses, as described above, for any fiscal year do not exceed 2-1/2% of the
first $30 million of the Trust's average net assets, 2% of the next $70 million
of the Trust's average net assets, and 1-1/2% of the Trust's remaining average
net assets. Expenses for purposes of this expense limitation include the
management fee, but exclude distribution expenses, brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation, paid or
incurred by the Trust or the Portfolio. The expense limitation may change to
reflect changes in the expense limitations of the state having the most
restrictive limitation in which shares of the Trust or the Portfolio are
registered for sale.
The Management Agreement for the Portfolio is currently in effect until August
30, 1996 and will be continued in effect from year to year thereafter so long as
such continuation is approved at least annually (1) by the Trustees of AIST or
the vote of a majority of the outstanding voting securities of AIST, and (2) by
a majority of the Trustees who are not interested persons of any party to the
Management Agreement cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement may be terminated
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at any time without penalty, by either AIST or AMC upon 60 days' written notice,
and is automatically terminated in the event of its assignment as defined in the
1940 Act.
Administrative Agreement
Administrative services are provided to the Trust by Atlas Holdings Group, Inc.
("Atlas Group") pursuant to an administration agreement dated September 4, 1991
(the "Administration Agreement"). As compensation for its services thereunder,
Atlas Group is paid a fee equivalent to 0.10% per annum of the Trust's average
daily net assets. For the fiscal year ended October 31, 1995, the Trust paid
$160,705 to Atlas Group (formerly Pilgrim Group, Inc.) pursuant to the
Administration Agreement.
The Trust pays its own operating expenses which are not assumed by Atlas Group,
such as expenses incurred in connection with the costs of pricing and
calculating its daily net asset value and of maintaining its books of account
required by the 1940 Act; salaries of officers and fees and expenses of Trustees
who are not members of or affiliated with Atlas Group; insurance premiums on
property or personnel of ASIS which inure to the Trust's benefit; trade
association dues; and legal and accounting fees.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trust) has agreed to pay PFPC
a monthly fee at the annual rate of .07% of the average net assets of the Trust
subject to certain minimums, exclusive of out-of-pocket expenses.
The Atlas Group
AMC is a wholly-owned subsidiary of Atlas Group, a Delaware corporation of which
Mrs. Weingarten is the sole stockholder and Chief Executive Officer. AMC also
acts as the investment manager to Astra Institutional Adjustable U.S. Government
Securities Portfolio and Astra Institutional Adjustable Rate Securities
Portfolio (series of Astra Institutional Securities Trust), Astra Short Term
Multi-Market Income Fund I and Astra Short Term Multi-Market Income Fund II
(series of Astra Global Investment Series), Astra All-Americas Government Income
Trust (a series of Astra Institutional Trust), all of which are open-end
investment companies. As of the date of this Statement, total assets under
management by AMC were approximately $200 million.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Portfolio, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Management Agreement, AMC determines, subject to the
instructions of and review by the Trustees of AIST, which securities are to be
purchased and sold by the Portfolio and which brokers are to be eligible to
execute portfolio transactions of the Portfolio. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker," unless in the opinion of AMC, a better price and
execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, AMC will use its best efforts to choose a
broker capable of providing the brokerage services necessary to obtain the most
favorable price and execution available. The full range and quality of brokerage
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operations facilities of
the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than
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one broker can offer the brokerage services needed to obtain the most favorable
price and execution available, consideration may be given to those brokers which
supply research and statistical information to the Portfolio and/or AMC, and
provide other services in addition to execution services. AMC considers such
information, which is in addition to and not in lieu of the services required to
be performed by AMC under its agreement with AIST, to be useful in varying
degrees, but of indeterminable value. The placement of portfolio brokerage with
broker-dealers who have sold shares of the Portfolio is subject to rules adopted
by the National Association of Securities Dealers, Inc. Provided officers of
AIST are satisfied that the Portfolio is receiving the most favorable price and
execution available, the Portfolio may also consider the sale of its shares as a
factor in the selection of broker-dealers to execute its portfolio transactions.
While it will continue to be AIST's general policy to seek first to obtain the
most favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Portfolio, AIST may also give weight to the
ability of a broker to furnish brokerage and research services to the Portfolio
or AMC, even if the specific services were not imputed just to the Portfolio and
were useful to AMC in advising other clients. In negotiating commissions with a
broker, the Portfolio may therefore pay a higher commission than would be the
case if no weight were given to the furnishing of these supplemental services,
provided that the amount of such commission has been determined in good faith by
AIST and AMC to be reasonable in relation to the value of the brokerage and
research services provided by such broker, which services either produce a
direct benefit to the Portfolio or assist AMC in carrying out its
responsibilities to the Portfolio. The standard of reasonableness is to be
measured in light of AMC's overall responsibilities to AIST.
For the fiscal years ended October 31, 1993, 1994 and 1995 total brokerage
commissions paid by the Portfolio amounted to approximately $85,000, $109,000
and $79,000 respectively. The Portfolio does not intend to effect any brokerage
transaction in its portfolio securities with any broker-dealer affiliated
directly or indirectly with AMC, except for any sales of portfolio securities
pursuant to a tender offer, in which event AMC will offset against the
management fee a part of any tender fees which legally may be received by such
affiliated broker-dealer. For the period ended October 31, 1991, the Trust
reimbursed AMC $23,601 for the costs of personnel involved in placing orders for
the execution of Portfolio transactions.
Although investment decisions for the Portfolio are made independently from
those of the other Astra funds, it is possible that at times identical
securities will be selected for purchase or sale by more than one of such funds.
However, the position of each fund in the same issuer may vary and the length of
time that each fund may choose to hold its investment in the same issuer may
likewise vary. To the extent any of these funds seeks to acquire the same
security at the same time, one or more of the funds may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price for such security. Similarly, any of the funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security if any of the other funds desires to sell the same security
at the same time. If more than one of such funds simultaneously purchases or
sells the same security, each day's transaction in such security will be
averaged as to price and allocated between such funds in accordance with the
total amount of such security being purchased or sold by each of such funds. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as AIST is concerned.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Reinstatement Privilege
Shares of the Trust may be sold at net asset value, with credit for any
contingent deferred sales charges paid on the redeemed Trust shares, to persons
who have redeemed their shares of the Trust within the previous 30 days. The
amount of any contingent deferred sales charge related to the prior redemption
of the Trust's shares will be credited to the shareholder's account and also
reinvested.
The reinstatement privilege may be used only once per calendar year. In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent, or be postmarked, within 30
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days after the date of redemption. If the shareholder has realized a gain on the
redemption, the transaction is taxable and any reinstatement will not alter any
applicable Federal capital gains tax. If there has been a loss on the redemption
and a subsequent reinstatement pursuant to this privilege, some or all of the
loss may not be allowed as a tax deduction depending upon the amount reinstated,
although such disallowance is added to the tax basis of the shares acquired upon
the reinstatement.
Redemptions
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent of the written request in proper
form, except that the Trust may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such Exchange is closed for
reasons other than weekends and holidays; (b) an emergency exists as determined
by the SEC making disposal of portfolio securities or valuation of net assets of
the Trust not reasonably practicable; or (c) for such other period as the SEC
may permit for the protection of the Trust's shareholders. At various times, the
Trust may be requested to redeem its shares for which it has not yet received
good payment. Accordingly, the Trust may delay the mailing of a redemption check
until such time as it determines that it has received good funds for the
purchase of the shares being redeemed, which may take up to 15 days or longer.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account (except for IRAs), as a result of voluntary redemption of shares
and not of investment performance of the Trust or deduction of sales charges,
has a value of less than $5,000. Before the Trust redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in his account is less than the minimum amount. This policy will
not be implemented where the Trust has previously waived the minimum investment
requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge will be imposed on any redemption or
repurchase of shares of the Trust which reduces the current value of the
investor's shares of the Trust to an amount which is lower than the dollar
amount of all payments by the investor for the purchase of the Trust's shares
during the preceding four years. However, no such charge will be imposed to the
extent that the net asset value of the shares redeemed does not exceed (a) the
current net asset value of shares purchased more than four years prior to the
redemption or repurchase, plus (b) the current net asset value of assets
purchased through reinvestment of dividends or distributions, plus (c) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of the Trust's shares made during the preceding four
years. Accordingly, investors may redeem, without incurring any contingent
deferred sales charge, amounts equal to any net increase in the value of the
shares redeemed above the amount of their purchase payments made with respect to
such shares within the past four years, and amounts equal to the current value
of shares purchased through reinvestment dividends or distributions. The
contingent deferred sales charge will be imposed, in accordance with the table
set forth in the Prospectus, on any redemptions within four years of purchase
which are in excess of these amounts. The amount of any contingent deferred
sales charge will be paid to and retained by Astra Fund Distributors Corp. (the
"Distributor").
Waiver of Contingent Deferred Sales Charge
No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust purchased by officers, directors and bona fide
full-time employees of the Trust, its service agents, and with certain
exceptions, officers, directors and full-time employees and sales
representatives of AMC, the Distributor or affiliated companies thereof (or any
trust, pension, profit-sharing or other benefit plan for such
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persons), broker-dealers having sales agreements with the Distributor, all for
their own accounts or for their spouse and children, and employees of such
broker-dealer firms (for their own accounts only), and discretionary advisory
accounts of AMC (if such purchasers state in writing that the purchases are for
their own investment purposes only and the purchaser represents that the shares
will not be resold except to the Trust.
The contingent deferred sales charge is waived for certain redemptions of shares
of the Trust (i) upon the death or permanent disability of a shareholder, or
(ii) in connection with mandatory distributions from an IRA or other qualified
retirement plan. The contingent deferred sales charge will be waived in the case
of a redemption of shares of the Trust following the death or permanent
disability of a shareholder if the redemption is made within one year of death
or initial determination of permanent disability. The waiver is available for
total or partial redemptions of shares of the Trust owned by an individual or an
individual in joint tenancy (with rights of survivorship), but only for
redemptions of shares of the Trust held at the time of death or initial
determination of permanent disability. The contingent deferred sales charge will
also be waived in the case of a total or partial redemption in connection with
any mandatory distribution from a tax-deferred retirement plan or an IRA. The
waiver does not apply in the case of a tax-free rollover or transfer of assets,
other than one following a separation from services. The shareholder must notify
the Transfer Agent either directly or through the Distributor, at the time of
redemption, that the shareholder is entitled to waiver of the contingent
deferred sales charge. The waiver will be granted subject to confirmation of the
investor's entitlement.
PRICE OF THE SHARES IS DETERMINED DAILY
Since the Trust will invest in the Portfolio, if the securities owned by the
Portfolio increase in value, the value of the Trust shares which the shareholder
owns will increase. If the securities owned by the Portfolio decrease in value,
the value of the shareholder's shares will also decline. As noted in the
Prospectus, the net asset value and offering price of shares of the Portfolio
will be determined once daily as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m., New York Time) on the "business day," which is
any day on which the Exchange is open for business. It is expected that the
Exchange will be closed on Saturdays and Sundays and on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on Saturday or Sunday, respectively.
Portfolio securities, listed or traded on a national securities exchange will be
valued at the last sale price on such exchange on the valuation day. Securities
traded on an exchange for which there has been no sale that day and securities
traded in the over-the-counter market, will be valued at the last reported bid
price or the mean between the bid and the asked prices, as determined by the
Board of Trustees of AIST. Short-term obligations maturing in less than 60 days
will generally be valued at original cost plus accrued daily interest.
Securities for which quotations are not readily available and all other assets
will be valued at their fair value as determined in good faith by, or under
procedures established by the Board of Trustees of AIST.
All liabilities incurred or accrued (including written call options) are
deducted from the total assets. The resulting net assets are divided by the
number of shares of the Portfolio and the Trusts outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
Orders received by the Trust's Transfer Agent prior to the close of trading on
the New York Stock Exchange will be confirmed at the offering price computed as
of the close of trading on such Exchange provided the order is received by the
Trust's Transfer Agent prior to 3:00 p.m. (Pacific time) on that day.
SHAREHOLDER SERVICES AND PRIVILEGES
The Trust's shareholders have the privilege of reinvesting both income dividends
and capital gains distributions, if any, in additional full or fractional shares
of the Trust at the net asset value in effect at the reinvestment date. The
management of ASIS has made arrangements with its Transfer Agent to have all
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income dividends and capital gains distributions which are declared by the Trust
automatically reinvested for the account of each shareholder unless a
shareholder elects in writing to the Trust or the Transfer Agent to have such
dividends or distribution paid to him in cash. In the absence of such election,
each purchase of shares the Trust is made upon the condition and understanding
that the Transfer Agent is automatically appointed to receive the dividends and
distributions upon all shares in the shareholder's account and to reinvest them
in full and fractional shares of the Trust at the applicable net asset value in
effect at the close of business on the reinvestment date. A shareholder may at
any time request that future dividends and/or capital gains distributions be
paid to him in cash.
Every shareholder will receive a confirmation of each new transaction in his
account, which will also show the total number of Trust shares owned by the
shareholder and the number of shares being held in safekeeping by the Transfer
Agent for the account of the shareholders and a cumulative record of his account
for the entire year. Shareholders may rely on these statements in lieu of
certificates. Certificates representing shares of the Trust will not be issued
unless the shareholder requests them in writing.
Self-Employed and Corporate Retirement Plans
For self-employed individuals and corporate investors who wish to purchase
shares of the Trust via the exchange or reinstatement privileges or the dividend
transfer option, there is available through ASIS a Prototype Plan and Custody
Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as custodian under the plan, and will
furnish custodial services for which it will charge the investor various service
fees for such annual maintenance. (These fees are in addition to the normal
custodial charges paid by the Trust.) For further details, including the right
to appoint a successor Custodian, see the Plan and Custody Agreement as provided
by ASIS. Employers who wish to use shares of the Trust under a custodianship
with another bank or trust company must make individual arrangements with such
institutions.
Individual Retirement Accounts
Investors having earned income are eligible to purchase shares of the Trust via
the exchange or reinstatement privileges or the dividend transfer option, under
an Individual Retirement Account ("IRA") pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model agreement, for which it will charge
the investor various services fees for maintaining the Account (which fees are
in addition to the normal custodial charges paid by the Trust). Full details on
the IRA are contained in an Internal Revenue Service required disclosure
statement, and the Custodian generally will not open an IRA until seven days
after the investor has received such statement from the Trust. An IRA using
shares of the Trust may also be used by employers who have adopted a Simplified
Employee Pension Plan.
Purchases of the Trust's shares via the exchange or reinstatement privileges or
the dividend transfer option, by ss.403(b), ss.401(k) and other retirement plans
are also available. It is advisable for an investor considering the funding of
any retirements plan to consult with an attorney or to obtain advice from a
competent retirement plans consultant with respect to the requirements of such
plans, the implications of the 1940 Act and the tax aspects thereof.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders, and the discussion here and in the
Prospectus are not intended as a substitute for careful tax planning.
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Qualification as a Regulated Investment Company
The Trust intends to elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Trust is not subject to federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and net realized capital
gain (i.e., the excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. The Trust will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Distributions by the Trust made during the taxable year or, under specified
circumstances, within one month after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Trust must (1)
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Trust's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement");
and (2) derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forwards, will
not be characterized as Short-Short Gain if they are directly related to the
Trust's investment in stock or securities (or options or futures thereon).
Because of the Short-Short Gain Test, the Trust may have to limit the sale of
appreciated securities it has held for less than three months. However, the
Short-Short Gain Test will not prevent the Trust from disposing of investments
at a loss, since the recognition of a loss before the expiration of the
three-month holding period is disregarded. Interest (including original issue
discount) received by the Trust at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, for purposes of determining whether capital gain or loss recognized
by the Trust on the disposition of an asset is long-term or short-term, the
holding period of the asset may be affected if (i) the asset is used to close a
"short sale" (which includes for certain purposes the acquisition of a put
option) or is substantially identical to another asset so used, (ii) the asset
is otherwise held by the Trust as part of a "straddle" or (iii) the asset is
stock and the Trust grants certain call options with respect thereto. However,
for purposes of the Short-Short Gain Test, the holding period of the asset
disposed of may be reduced only in the case of clause (i) above.
Certain debt securities purchased by the Trust (such as zero-coupon bonds) may
be treated for Federal income tax purposes as having original issue discount.
Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not the Trust actually receives cash, it
is deemed to have earned original issue discount income that is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Trust each year is determined on the
basis of a constant yield to maturity that takes into account the compounding of
accrued interest.
The Trust may purchase debt securities at a discount that exceeds any original
issue discount that remained on the securities at the time the Trust purchased
the securities. This additional discount represents
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market discount for income tax purposes. For a debt security purchased after
April 30, 1993, which had an original maturity date of more than one year from
the date of issue and having market discount, the gain realized on disposition
will be treated as interest to the extent it does not exceed the accrued market
discount on the security (unless the Trust elects for all its debt securities
having a fixed maturity date of more than one year from the date of issue to
include market discount in income in taxable years to which it is attributable).
Generally, market discount accrues on a daily basis. The Trust may be required
to capitalize, rather than deduct currently, part or all of any net direct
interest expense on indebtedness incurred or continued to purchase or carry any
debt security having market discount (unless the Trust makes the election to
include market discount in income as it accrues).
At the close of each quarter of its taxable year, at least 50% of the value of
the Trust's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers (as to which the Trust has not invested more than 5% of the
value of its total assets in securities of such issuer and the Trust does not
hold more than 10% of the outstanding voting securities of such issuer), and no
more than 25% of the value of its total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Trust
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Test").
If for any taxable year the Trust does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the current and accumulated earnings and
profits of the Trust. In such event, such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment companies that
fail to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
Treasury regulations may permit a regulated investment company in determining
its investment company taxable income and undistributed net capital gain for any
taxable year to treat any capital loss incurred after October 31 as if it had
been incurred in the succeeding year. For purposes of the excise tax, a
regulated investment company may (1) reduce its capital gain net income by the
amount of any net ordinary loss for any calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Trust intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Trust may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
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<PAGE>
Trust Distributions
The Trust anticipates distributing all of its investment company taxable income
for each taxable year. Such distributions will be taxable to shareholder as
ordinary income and treated as dividends for federal income tax purposes, but
they will generally not qualify for the 70% dividends-received deduction for
corporations.
Distributions of net capital gains, if any, which are designated by the Trust
as capital gain dividends are taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the Trust's shares, and
are not eligible for the dividends-received deduction. The Portfolio generally
intends to distribute any net capital gains.
If the Trust should retain net capital gains, it will be subject to a tax of 35%
of the amount retained. The Trust expects to designate amounts retained, if any,
as undistributed capital gains in a notice to its shareholders who, if subject
to U.S. Federal Income taxation on long-term capital gains, (i) would be
required to include in income for U.S. Federal Income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, and (ii)
would be entitled to credit against their U.S. Federal income tax liabilities
for their proportionate shares of the tax paid by the Trust on the undistributed
amount and to claim refunds to the extent that their credits exceed their
liabilities. For U.S. Federal Income tax purposes, the adjusted basis of the
Trust shares owned by a shareholder of the Trust would be increased by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those purchasing just prior to an ordinary income
dividend or capital gain dividend will be taxable on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
Distributions by the Trust that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in the reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Trust will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Trust. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. Ordinarily, shareholders are required to take
distributions by the Trust into account in the year in which the distributions
are made. However, distributions declared in October, November or December of
any year and payable to shareholders of record on a specified date in such a
month will be deemed to have been received by the shareholders (and made by the
Trust) on December 31 of such calendar year if such distributions are actually
made in January of the following year. Shareholders will be advised annually as
to the U.S. federal income tax consequences of distributions made (or deemed
made) during the year.
Backup Withholding. The Trust may be required to withhold U.S. Federal Income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide the Trust with their correct taxpayer identification number or
to make required certifications, or where the Trust or the shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal Income tax liability.
Sale of Shares. In general, upon the sale or other disposition of shares of the
Trust, a shareholder will realize a capital gain or loss which will be long-term
or short-term, depending upon the shareholder's holding
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<PAGE>
period for the shares. However, if the shareholder sells Trust shares to the
Trust, proceeds received by the shareholders may, in some cases, be
characterized for tax purposes as dividends. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on a disposition of Trust shares held by the shareholder for six months or less
will be treated as a long-term capital loss to the extent of any distributions
of capital gain dividends received by the shareholder with respect to such
shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from the Trust is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Trust is not effectively connected with a U.S. trade or
business carried on by the foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate, if
applicable) upon the gross amount of the dividend. Such foreign shareholders
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Trust and on capital gain dividends and amounts retained
by the Trust that are designated as undistributed capital gains.
If the income from the Trust is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Trust will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens and residents or domestic corporations.
In the case of foreign noncorporate shareholders, the Trust may be required to
withhold U.S. federal income tax at a rate of 20% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Trust with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Trust, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Trust.
INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of the Trust to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms
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<PAGE>
of total return and yield. Under the rules of the SEC ("SEC Rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(1+T)(superior)N=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years (1, 5 or 10).
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5 and
10 year periods or a shorter period dating from the effectiveness of the Trust's
Registration Statement. In calculating the ending redeemable value, the maximum
sales load, if any, is deducted from the initial $1,000 payment and all
dividends and distributions by the Trust are assumed to have been reinvested at
net asset value as described in the Prospectus on the reinvestment dates during
the period. Total return, or "T" in the formula above, is computed by finding
the average annual compounded rates of return over the 1, 5 and 10 year periods
(or fractional portion thereof) that would equate the initial amount invested to
the ending redeemable value, including any applicable contingent deferred sales
charge. Any recurring account charges that might in the future be imposed by the
Trust would be included at that time.
The Trust's average annual compounded rate of return for the fiscal year ended
October 31, 1995 and for the period February 21, 1991 to October 31, 1995 were
- -11.78% and .34%, respectively.
The Trust may also from time to time include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of the Trust with other measures of
investment return. For example, in comparing the Trust's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock Index of the Dow Jones Industrial Average, the Trust
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Trust shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value. The Trust does not, for these purposes, deduct any amount
representing contingent deferred sales charges. As appropriate, the Trust will,
however, disclose the maximum contingent deferred sales charge and will also
disclose that the performance data does not reflect contingent deferred sales
charges and that inclusion of contingent deferred sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
Rules.
In addition to the total return quotations discussed above, the Trust may
advertise its yield based on a 30-day (or one month) period ended on the date of
the most recent balance sheet included in its Registration Statement, computed
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
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<PAGE>
a-b
YIELD=2[(------+1)(superior6)-1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the Trust based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Trust's portfolio (assuming a month of 30 days) and
(3) computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in the Trust's portfolio. For purposes of "b" above, Rule 12b-1 Plan
expenses, as applicable, are included among the expenses accrued for the period.
Any amounts representing sales charges will not be included among these
expenses; however, the Trust will disclose the maximum sales charge as well as
any amount or specific rate of any nonrecurring account charges. Undeclared
earned income, computed in accordance with generally accepted accounting
principles, may be subtracted from the maximum offering price calculation
required pursuant to "d" above.
The Trust may also from time to time advertise its yield based on a 30-day
period ending on a date other than the most recent balance sheet included in its
Registration Statement, computed in accordance with the yield formula described
above, as adjusted to conform with the differing period for which the yield
computation is based.
Any quotation of performance stated in terms of yield (whether based on a 30-day
or one month period) will be given no greater prominence than the information
prescribed under SEC Rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The Trust's yield as of October 31, 1995, based on a 30-day base period was
4.37%.
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<PAGE>
GENERAL INFORMATION
Underwriting Agreement
The underwriting agreement (the "Underwriting Agreement") between ASIS and Astra
Fund Distributors Corp. ("the Distributor") with respect to the distribution of
shares of the Trust is in effect until August 30, 1996, and thereafter continues
from year to year if approved at least annually (i) by the Trustees of ASIS or
by the vote of a majority of the outstanding voting securities of the Trust and
(ii) by a majority of the Trustees of ASIS who are not parties to the
Underwriting Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Underwriting
Agreement may be terminated without penalty by either party on sixty days'
written notice and shall be automatically terminated in the event of its
assignment as defined in the 1940 Act. The Distributor is a wholly-owned
subsidiary of Atlas Holdings Group, Inc.
Distribution Expenses
The distribution plan (the "Plan") for the Trust is described in the Prospectus
and is designed to meet the requirements of Rule 12b-1 under the 1940 Act. The
purpose of the Plan is to permit the Trust to finance distribution activities
and bear expenses associated with the distribution of their shares. The Plan
provides for daily compensation to the principal underwriter for its
distribution services and facilities.
The Plan provides for two categories of payments. First, the Plan provides daily
compensation to the principal underwriter for its distribution services and
facilities. Pursuant to the plan but subject to the .75% limitation described
below, the Trust will pay the principal underwriter (i) sales commissions equal
to 4% of the amount received by the Trust for each share sold ("Underwriter's
Sales Commissions") and (ii) interest fees in essence calculated by applying the
rate of 1% over the prevailing prime rate to the outstanding balance of
Uncovered Distribution Charges of the principal underwriter.
The principal underwriter currently expects to pay sales commission to a dealer
at the time of the sale of up to 3% of the purchase price of the shares sold by
such dealer. The principal underwriter will use its own funds or funds
facilitated by the principal underwriter (which may be borrowed or otherwise
financed) to pay such amounts. Because the payment of the Underwriter's Sales
Commissions and interest fees to the principal underwriter in the form of daily
compensation is subject to the .75% limitation described below and will
therefore be spread over a period of a number of years, it will take the
principal underwriter a number of years to recoup the sales commissions paid to
dealers and its other sales expenses from the daily compensation payments
received by it from the Trust pursuant to the Plan. In addition to the daily
compensation to the principal underwriter at an annual rate of 0.75% of the
Trust's daily net assets, the Plan also provides for the payment to the
principal underwriter of a trail or maintenance fee, accrued daily and paid
monthly, in an amount equal to an annual rate not to exceed 0.25% of the Trust's
daily net assets, which may be paid to dealers at an annual rate not to exceed
0.25% of the Trust's daily net assets owned by clients of the dealer.
Payment of the Underwriter's Sales Commission and interest fees will be spread
over a period of time, and the Plan requires that the aggregate amount of all
such payments, including payments of trail or maintenance fees, during any
fiscal year shall not exceed 1% of the Trust's average daily net assets for such
year. Accordingly, the Trust will pay the principal underwriter daily
compensation payable monthly at the rate of .75% per annum of the Trust's daily
net assets. Such daily compensation will automatically be discontinued during
any period in which there are no outstanding Uncovered Distribution Charges of
the principal underwriter. The amount of Uncovered Distribution Charges will be
calculated daily. For the purposes of this calculation, Distribution Charges
will include the aggregate amount of Underwriter's Sales Commissions and
interest fees which the principal underwriter is entitled to be paid under the
Plan since its inception. Payments of daily compensation previously paid and
payable under the Plan by the Trust to the principal underwriter and contingent
deferred sales charges previously paid and payable to the principal underwriter
will be subtracted from such Distribution Charges. If the result of such
subtraction is positive, an interest fee (computed at 1%
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<PAGE>
over the prime rate then reported in The Wall Street Journal) will be computed
on such amount and added thereto, with the resulting sum constituting the amount
of Uncovered Distribution Charges with respect to such day. The amount of
outstanding Uncovered Distribution Charges of the principal underwriter
calculated on any day does not constitute a liability recorded on the financial
statements of the Trust. It is anticipated that the Astra organization will
profit by reason of the operation of the Plan through an increase in the Trust's
assets (thereby increasing the advisory fee payable to AMC) resulting from sale
of the Trust shares and through daily compensation and contingent deferred sales
charges paid to the principal underwriter. The Astra organization may be
considered to have realized a profit under the Plan if at any point in time the
aggregate amount of all daily compensation and contingent deferred sales charge
payments previously made to the principal underwriter have exceeded the total
expenses previously incurred by such organization in distributing shares of the
Trust. Total expenses for this purpose will include an allocable portion of the
overhead costs of such organization and its branch offices, which costs will
include without limitation leasing expenses, utilities, communication and
postage expense, compensation and benefits of personnel, travel and promotional
expense, stationery and supplies, literature and sales aids, interest expense,
data processing fees, consulting and temporary help costs, insurance, taxes
other than income taxes, legal and auditing expense and other miscellaneous
overhead items. Overhead is calculated and allocated for such purpose by the
Astra organization in a manner deemed equitable to the Trust.
The amount of daily compensation payable to the principal underwriter with
respect to each day will be accrued on such day as a liability of the Trust and
will accordingly reduce the Trust's net assets upon such accrual. However, in
accordance with generally accepted accounting principles, the Trust does not
accrue future daily compensation as a liability of the Trust or reduce the
Trust's current net assets in respect of daily compensation which may become
payable under the Plan in the future because the standards for accrual of a
liability under such accounting principles have not been satisfied. The amount
of daily compensation payable on each day is limited to 1/365 of .75% of the
Trust's net assets on such day. The level of the Trust's net assets changes each
day and depends upon the amount of sales and redemptions of the Trust's shares,
the changes in the value of the Trust's portfolio investments, the expenses of
the Trust accrued on such day, income on portfolio investments accrued on such
day, and dividends and distributions declared by the Trust.
The amount of Uncovered Distribution Charges of the principal underwriter is
computed daily to determine whether daily compensation is accrued on such day.
The Plan provides that any contingent deferred sales charges received when no
Uncovered Distribution Charges exist will be retained by the principal
underwriter and any investment advisory fee otherwise payable to AMC shall be
reduced in an amount equal to the contingent deferred sales charges received. If
the contingent deferred sales charges available to reduce the investment
advisory fee exceeds the amount of the investment advisory fee, then the
contingent deferred sales charges shall be used to reduce any daily compensation
which may otherwise be payable to the principal underwriter in the future. The
amount of Uncovered Distribution Charges of the principal underwriter at any
particular time depends upon various changing factors, including the level and
timing of sales of the Trust's shares, the level and timing of redemptions of
the Trust's shares upon which a contingent deferred sales charge will be
imposed, the level and timing of redemptions of the Trust shares upon which no
contingent deferred sales charge will be imposed, changes in the level of the
net assets of the Trust, and changes in the interest rate used in the
calculation of the interest fee under the Plan.
Periods with a high level of sales of the Trust's shares accompanied by a low
level of redemptions of Trust shares resulting in the imposition of contingent
deferred sales charges will tend to increase the time during which there will
exist Uncovered Distribution Charges of the principal underwriter. Conversely,
periods with a low level of sales of the Trust's shares accompanied by a high
level of early redemptions of Trust shares resulting in the imposition of
contingent deferred sales charges will tend to reduce the time during which
there will exist Uncovered Distribution Charges of the principal underwriter.
Because of the .75% limitation on the amount of daily compensation paid to the
principal underwriter during any fiscal year, a high level of sales of the
Trust's shares during the first few years of the Trust's operations will cause a
large portion of the Underwriter's Sales Commissions attributable to a sale of
the Trust's shares
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<PAGE>
to be accrued and paid by the Trust to the principal underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of
Underwriter's Sales Commissions payments under the Plan over an extended period
will result in the incurrence and payment of increased interest fees under the
Plan.
Pursuant to Rule 12b-1, the Plan has been approved by the Trust's initial
shareholder and by the Trustees of ASIS, including a majority of the Trustees
who are not interested persons of ASIS and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan. Under the Plan the President or a Vice President of ASIS shall provide to
the Trustees for their review, and the Trustees shall review at least quarterly,
a written report of the amount expended under the Plan and the purposes for
which such expenditures were made. The Plan may not be amended to increase
materially the payments described therein without approval of the shareholders
of the Trust, and all material amendments of the Plan must also be approved by
the Trustees in the manner described above.
The Plan was adopted on September 4, 1991. The Plan provides that it shall
continue in effect for so long as such continuance is approved at least annually
by the vote of a majority of the Trustees and a majority of the Trustees of ASIS
who are not interested persons of ASIS and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan (the "Rule 12b-1 Trustees"). The Plan is expected by the Trustees to be a
significant factor in the growth of the Trust's assets, resulting in increased
investment flexibility and advantages which will benefit the Trust and its
shareholders. Daily compensation payments made to the principal underwriter
under the Plan will compensate the principal underwriter for its present and
future services and expenses in distributing shares of the Trust. Based on the
foregoing and other relevant factors, the Trustees have determined that in their
judgment there is a reasonable likelihood that the Plan will benefit the Trust
and its shareholders. So long as the Plan is in effect, the selection and
nomination of Trustees who are not interested persons of the Trust shall be
committed to the discretion of the Trustees who are not such interested persons.
For the fiscal years ended October 31, 1993, 1994 and 1995 the Distributor
received $5,569,771, $3,691,878 and $1,205,284, respectively, in daily
compensation payments under the Plan. In addition, for the fiscal years ended
October 31, 1993, 1994 and 1995 the Distributor received $1,856,590, 1,230,626
and $401,762 respectively, in maintenance fees under the Plan and $2,290,444,
$4,926,091 and $2,053,485 respectively, from contingent deferred sales charges
paid by the Trust's shareholders. During the same time periods, since sales of
the Trust had ceased, the Distributor did not pay any commissions to new
dealers. As of October 31, 1995, the Trust had total net assets of $94,913,874
and Uncovered Distribution Charges aggregated $11,143,216. Notwithstanding the
existence of such Uncovered Distribution Charges, the amount of daily
compensation payable on each day is limited to 1/365 of .75% of the Trust's net
assets on such day.
The following chart describes all commissions and other compensation received by
the principal underwriter for the fiscal year ended October 31, 1995.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Principal Net Underwriting Compensation on Brokerage Maintenance
Underwriter Discounts and Redemptions and Commissions Fees
----------- Commissions Repurchases ----------- ------------
----------- -----------
<S> <C> <C> <C> <C>
Astra Fund $1,205,284 $ 2,053,485 $ 0 $ 401,762
Distributors Corp.
</TABLE>
Portfolio Turnover
As noted in the Prospectus, the Portfolio's portfolio turnover rate was 83% and
108% for the fiscal years ended October 31, 1994 and 1995. The portfolio
turnover increased on a percentage basis due to, among other things, a decrease
in the actual assets of the Portfolio.
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<PAGE>
Miscellaneous
The Amended and Restated Declaration of Trust dated November 2, 1994, which was
subsequently amended on April 10, 1995 (the "Declaration of Trust") a copy of
which is on file in the office of the Secretary of The Commonwealth of
Massachusetts, authorizes the issuance of series and classes of shares of
beneficial interest in ASIS without par value. Each share of the Trust has one
vote and shares equally in dividends and distributions when and if declared by
the Trustees of ASIS and in the Trust's net assets upon liquidation. All shares,
when issued, are fully paid and non-assessable. There are no preemptive,
conversion or exchange rights. Shares of ASIS do not have cumulative voting
rights and, as such, holders of at least 50% of the shares voting for Trustees
can elect all Trustees and the remaining shareholders would not be able to elect
any Trustees. As used in the Prospectus, the term "majority vote" means the
affirmative vote of (a) more than 50% of the outstanding shares of the Trust or
ASIS (as appropriate) or (b) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares of the Trust or ASIS (as appropriate)
are represented at the meeting in person or by proxy, whichever is less.
The Board of Trustees may classify or reclassify any unissued shares of ASIS
into shares of any series or classes by setting or changing in any one or more
respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, or qualifications, of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act.
The overall management of the business of ASIS is vested with the Trustees. The
Trustees approve all significant agreements between ASIS and persons or
companies furnishing services to ASIS. The day-to-day operations of the Trusts
are delegated to officers of ASIS subject to the investment objective and
policies of ASIS, the general supervision of Trustees and the applicable laws of
The Commonwealth of Massachusetts.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trustee or the Trustees. The
Declaration of Trust provides for indemnification out of ASIS's property for all
loss and expense of any shareholder of ASIS held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
ASIS would be unable to meet its obligations wherein the complaining party was
held out to be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by ASIS of the
Trustees and officers of ASIS except with respect to any matter as to which any
such person did not act in good faith in the reasonable belief that his action
was in or not opposed to the best interests of ASIS. Such person may not be
indemnified against any liability to ASIS or the Trust's shareholders to which
he would otherwise be subjected by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
CUSTODIAN AND TRANSFER AGENT--The cash and securities owned by ASIS are held by
PNC Bank, National Association, Lester, Pennsylvania, as custodian, which takes
no part in the decisions relating to the purchase or sale of any of the Trust's
portfolio securities. DST Systems Inc. acts as ASIS' transfer agent and dividend
disbursing agent.
-25-
<PAGE>
INDEPENDENT ACCOUNTANTS--The Trust's independent public accountant is Tait,
Weller & Baker, Two Penn Center Plaza, Philadelphia, Pennsylvania 19102.
LEGAL COUNSEL--Certain legal matters for ASIS are passed upon by Jorden Burt
Berenson & Johnson LLP, 1025 Thomas Jefferson Street, N.W., Suite 400 East,
Washington, D.C. 20007.
OTHER INFORMATION--ASIS is registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision of the management or policies of ASIS. The Prospectus and
this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the SEC, and copies of such
information may be obtained from the SEC upon payment of the prescribed fee or
examined at the SEC in Washington, D.C. without charge.
As of January 31, 1996 there were no shareholders of the Trust who beneficially
owned more than 5% of the outstanding shares of the Trust.
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust
("PIST"), Pilgrim Strategic Investment Series ("PSIS") (and certain series funds
of PSIS) (predecessors to the Atlas Group, AMC AFDC, AIST and ASIS) and certain
past and present Trustees and officers of AIST and ASIS are defendants. These
actions, which were consolidated in March 31, 1995, in an action entitled In Re:
Pilgrim Securities Litigation, principally allege violations of the Securities
Act of 1933 and the Investment Company Act of 1940 and relate primarily to
disclosure in certain of PSIS' funds concerning pricing and liquidity of
portfolio securities. Management believes the Complaints are without merit and
intends to vigorously defend these actions.
Investors in the Trust will be kept informed of its progress through periodic
reports showing diversification of its portfolio, statistical data and any other
significant data. Financial statements certified by independent public accounts
will be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolio's portfolio as of the close of business on
the last day of each month, may be obtained by written request to the Trust,
together with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Shareholder Servicing Agent, DST
Systems, Inc. (800-441-7267).
The Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representations other than
those contained in the Prospectus.
FINANCIAL STATEMENTS
The financial statements of the Trust and the Portfolio for the fiscal
year ended October 31, 1995, are incorporated herein by reference to the Trust's
1995 Annual Report to Shareholders. A copy of the Trust's Annual Report may be
obtained without charge by contacting the Trust's Shareholder Servicing Agent at
(800) 441-7267.
-26-
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at value* (identified cost $116,709,496) (Notes 1, 2A and 3) ...... $ 95,249,562
Dividends receivable from Portfolio ......................................................... 407,450
Deferred organization expense (net of accumulated amortization of $310,123) (Note 2D) ....... 17,099
Prepaid expenses ............................................................................ 79,548
Other assets ................................................................................ 46,082
------------
Total Assets .............................................................................. 95,799,741
------------
LIABILITIES:
Payable for capital stock redeemed .......................................................... 679,211
Accrued expenses ............................................................................ 206,656
------------
Total Liabilities ......................................................................... 885,867
------------
NET ASSETS ................................................................................... $ 94,913,874
============
Net asset value per share ($94,913,874 / 17,008,720 shares) (Note 6) ......................... $5.58
============
At October 31, 1995 the components of net assets were as follows:
Paid-in capital ............................................................................. $173,549,470
Accumulated net realized loss on investments ................................................ (57,175,662)
Net unrealized depreciation of investments .................................................. (21,459,934)
------------
Net Assets ................................................................................ $ 94,913,874
============
</TABLE>
- ----------
* Investments of Astra Adjustable U.S. Government Securities Trust I consist
entirely of 1,213,318 shares of Astra Institutional Adjustable U.S.
Government Securities Portfolio. Cost for Federal income tax purposes is
$116,709,496. See Notes 1 and 2A.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from Portfolio ................................................................... $ 9,371,660
------------
EXPENSES:
Distribution expenses (Note 4A) ............................................................ 1,607,046
Shareholder servicing costs ................................................................ 324,532
Administrative servicing costs (Note 5) .................................................... 160,705
Professional fees .......................................................................... 116,798
Amortization of organization expense (Note 2D) ............................................. 66,496
Trustees' fees ............................................................................. 44,084
Reports to shareholders .................................................................... 43,241
Miscellaneous expense ...................................................................... 42,753
Insurance expense .......................................................................... 40,511
Registration fees .......................................................................... 33,379
Recordkeeping fees ......................................................................... 8,975
------------
Total expenses ............................................................................ 2,488,520
------------
Net investment income ................................................................... 6,883,140
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ............................................................ (40,720,703)
Net change in unrealized depreciation of investments ........................................ 13,232,526
------------
Net loss on investments ................................................................... (27,488,177)
------------
Net decrease in net assets resulting from operations .................................... $(20,605,037)
============
</TABLE>
See Notes to Trusts' Financial Statements
27
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 6,883,140 $ 19,293,800
Net realized loss on investments .......................................... (40,720,703) (15,425,860)
Net change in unrealized depreciation of investments ...................... 13,232,526 (30,639,354)
------------ ------------
Net decrease in net assets resulting from operations ...................... (20,605,037) (26,771,414)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.254 and $0.321
per share, respectively) ................................................. (7,287,333) (23,049,272)
Distributions from paid-in capital ($0.037 and $0.014 per share,
respectively) ............................................................ (1,050,656) (1,014,546)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change in
the number of outstanding shares (a) ..................................... (185,528,148) (315,589,968)
------------ ------------
Total decrease in net assets ............................................ (214,471,174) (366,425,200)
Net assets at the beginning of the period ................................. 309,385,048 675,810,248
------------ ------------
NET ASSETS at end of period ............................................... $ 94,913,874 $309,385,048
============ ============
</TABLE>
- ----------
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
----------------------------- -----------------------------
Shares Value Shares Value
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................. 168,878 $ 965,700 181,826 $ 1,265,910
Shares issued in reinvestment of
distributions to shareholders .............. 755,068 4,387,623 1,984,454 13,634,888
Shares repurchased .......................... (32,491,157) (190,881,471) (48,086,353) (330,490,766)
----------- ------------- ----------- -------------
Net decrease ............................... (31,567,211) $(185,528,148) (45,920,073) $(315,589,968)
=========== ============= =========== =============
</TABLE>
See Notes to Trusts' Financial Statements
28
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
<TABLE>
<CAPTION>
February 21,
Year Ended October 31, 1991* to
--------------------------------------------------------- October 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period ............................. $ 6.370 $ 7.150 $ 7.290 $ 7.370 $ 7.350
------- ------- ------- ------- -------
Income (loss) from invest-
ment operations--
Net investment income .................. 0.246(c) 0.270 0.364 0.850 0.400
Net realized and unreal-
ized gain (loss) on
investments ........................... (0.745)(c) (0.715) (0.055) 0.007 0.030
------- ------- ------- ------- -------
Total from investment
operations .......................... (0.499) (0.445) 0.309 0.857 0.430
------- ------- ------- ------- -------
Less distributions--
Distributions from net
investment income ..................... 0.254 0.321 0.418 0.850 0.400
Distributions from paid-in
capital ............................... 0.037 0.014 0.031 0.087 0.010
------- ------- ------- ------- -------
Total distributions .................. 0.291 0.335 0.449 0.937 0.410
------- ------- ------- ------- -------
Net asset value, end of
period ................................. $ 5.580 $ 6.370 $ 7.150 $ 7.290 $ 7.370
======= ======= ======= ======= =======
TOTAL RETURN (D) ........................ (8.28%) (6.43%) 4.34% 6.55% 8.79%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ......................... $94,914 $309,385 $675,810 $783,527 $385,195
Ratio to average net assets--
Expenses ............................... 1.55%(b) 1.22%(b) 1.29%(b) 1.32%(b) 1.88%(a)
Net investment income .................. 4.28% 3.92% 4.91% 6.57% 7.43%(a)
Portfolio turnover rate ................. 3% 3% 3% 8% 107%
</TABLE>
- ----------
* Commencement of operations.
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust I.
(c) Based upon average shares outstanding throughout the period.
(d) Calculated without the deduction of sales charges.
See Notes to Trusts' Financial Statements
29
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUSTS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ----------------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Strategic Investment Series (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. On September 15, 1994 the Company's shareholders
approved a change in the Company's Declaration of Trust to permit the creation
of additional classes of shares of each of the Trust's series. Currently, the
Company has authorized an unlimited number of shares of beneficial interest
without par value and at October 31, 1995 offered a single class of shares in
ten series: Astra (formerly Pilgrim) Adjustable Rate Securities Trust I, I-A,
II, III and IV (collectively, the "Astra Adjustable Rate Securities Trusts"),
Astra (formerly Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II,
III and IV (collectively, the "Astra Adjustable U.S. Government Securities
Trusts" or the "Trusts"), all of which are non-diversified series.
The value of the Trusts' investment in shares of Astra (formerly Pilgrim)
Institutional Adjustable U.S. Government Securities Portfolio (the "Portfolio"),
a non-diversified series of Astra (formerly Pilgrim) Institutional Securities
Trust ("AIST"), reflects their proportionate interest in the net assets of the
Portfolio. The financial statements of the Portfolio, including the portfolio of
investments, are included in this report and should be read in conjunction with
the financial statements of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. The investment policy of the Trusts is to invest in
shares of the Portfolio. Shares of the Portfolio held by the Trusts are
valued at the net asset value then determined by the Portfolio. A valuation
committee of the Board of Trustees of AIST is responsible for establishing
security valuation policies, reviewing the valuation of portfolio
securities, monitoring the level of illiquid securities and reviewing
liquidity determinations for securities held by the Portfolio. AIST
considers to be illiquid all securities which cannot be disposed of within
seven days in the ordinary course of business at approximately the amount
at which the Portfolio values the security. Additionally, interest rate
swap contracts, interest-only and principal-only mortgage backed
securities, and special hazard certificates are treated as illiquid
securities in accordance with Securities and Exchange Commission policy.
Liquid securities are valued primarily using prices provided by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield and other data relating to instruments or
securities with similar characteristics, and secondarily based upon market
quotations and/or other available information. Securities for which
reliable market information or pricing service quotes are not readily
available, including illiquid securities, are valued at fair value as
determined in good faith by, or under procedures established by, the Board
of Trustees of AIST, which procedures may include the delegation of certain
responsibilities regarding valuation to Astra (formerly Pilgrim) Management
Corporation (the "Manager"). The Manager reports, as necessary, to the
Trustees of AIST regarding portfolio valuation determinations.
Short-term securities with less than sixty days remaining to maturity when
acquired by the Portfolio are valued on an amortized cost basis by the
Portfolio when the Trustees of AIST have determined that amortized cost is
fair value.
B. FEDERAL INCOME TAXES. The Trusts intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of their taxable income to their shareholders.
Therefore, no Federal income tax provision is required.
30
<PAGE>
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions of the Portfolio and Trusts are accounted
for on the trade date. Interest income on adjustable rate mortgage
securities is recorded on the accrual basis at current interest rates.
Dividends to shareholders of the Portfolio from net investment income are
declared daily and paid or reinvested monthly. Dividends to Shareholders of
the Trusts from net investment income are declared and paid or reinvested
monthly. Prior to May 1, 1995 dividends to shareholders of the Trusts from
net investment income were declared daily and paid or reinvested monthly.
Discounts and premiums on Portfolio debt securities are amortized in
accordance with the provisions of the Internal Revenue Code.
D. DEFERRED ORGANIZATION EXPENSES. All of the expenses incurred in connection
with the organization of the Trusts are being borne ratably by the Trusts
and are being amortized on a straight-line basis over periods of five years
from the date of commencement of operations.
NOTE 3--INVESTMENTS
At October 31, 1995 the Portfolio held subordinated residential and derivative
mortgage securities which the Valuation Committee of the Board of Trustees of
AIST has determined to be illiquid. These securities are valued at $7,007,359
(representing 4.1% of the Portfolio's net assets). The fair value of these
securities is determined under procedures approved by the Board of Trustees of
AIST in the absence of readily ascertainable market values.
For the year ended October 31, 1995 the cost of purchases and the proceeds from
sales of investments in the Portfolio were as follows:
Purchases Sales
---------- -----------
Trust I .......... $5,279,232 $195,464,209
Trust I-A ........ 3,186,340 111,185,139
Trust II ......... 559,914 6,762,708
Trust III ........ 287,175 2,930,885
Trust IV ......... 325,159 9,058,196
At October 31, 1995 the Trusts had capital loss carryforwards for federal income
tax purposes as follows:
Capital loss Expires
Carryforward October 31,
------------ -----------
Trust I $ 534,000 1999
14,000 2000
7,926,000 2002
48,702,000 2003
-----------
$57,176,000
===========
Trust I-A $ 4,253,000 2002
28,118,000 2003
-----------
$32,371,000
===========
Trust II $ 2,284,000 2002
1,647,000 2003
-----------
$ 3,931,000
===========
Trust III $ 1,135,000 2002
864,000 2003
-----------
$ 1,999,000
===========
Trust IV $ 1,896,000 2002
2,043,000 2003
-----------
$ 3,939,000
===========
NOTE 4--DISTRIBUTION PLANS
A. TRUST I AND TRUST I-A DISTRIBUTION PLANS. Trust I and Trust I-A have
adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby they will provide daily compensation to
Astra Fund (formerly Pilgrim) Distributors Corp., the Trusts' principal
underwriter (the "Principal Underwriter") in the form of sales commissions
equal to 4% of the amount received by Trust I for each share sold and 5%
(4.50% prior to August 5, 1994) of the amount received by Trust I-A for
each share sold (excluding reinvestment of dividends and distributions)
plus an interest fee calculated by applying the rate of 1% over prime rate
to the outstanding balance of Uncovered Distribution Charges. Daily
compensation payments will be made monthly and are limited to an annual
rate of 0.75% of each Trust's daily net assets. During the year ended
October 31,
31
<PAGE>
1995 the Principal Underwriter earned daily compensation of $1,205,284 from
Trust I and $754,652 from Trust I-A. At October 31, 1995 Uncovered
Distribution Charges (cumulative sales commissions and interest fees
reduced by cumulative daily compensation and contingent deferred sales
charges paid to the Principal Underwriter) were $11,143,216 for Trust I and
$9,485,628 for Trust I-A.
On August 5, 1994 the shareholders of Trust I and Trust I-A approved
changes to their respective distribution plans to provide a method by which
a proportionate amount of Uncovered Distribution Charges will be
transferred from the Trusts upon exchanges to other mutual funds for which
Astra Fund Distributions Corp. serves as Principal Underwriter and which
have substantially the same contingent deferred sales charge structure and
distribution plan.
Pursuant to the requirements of the Securities and Exchange Commission the
daily compensation (sales commission) payments to the Principal Underwriter
pursuant to the Distribution Plan must be reflected as operating expenses
of Trust I and Trust I-A. For periods through December 31, 1994 these
payments were treated as capital transactions and were not deducted for
Federal income tax purposes.
The Distribution Plans also provide for monthly payments to the Principal
Underwriter of a trail or maintenance fee in an amount equal to an annual
rate of 0.25% of the daily net assets of Trust I and Trust I-A. During the
year ended October 31, 1995 the Principal Underwriter earned maintenance
fees of $401,762 from Trust I and $251,551 from Trust 1-A.
B. TRUST II AND TRUST IV DISTRIBUTION PLANS. Trust II and Trust IV have
adopted distribution plans pursuant to rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby Trust II may pay up to a maximum annual rate
of 0.25% of its average daily net assets and Trust IV may pay up to a
maximum annual rate of 0.60% of its average daily net assets to the
Principal Underwriter as reimbursement for expenses incurred in the
distribution of the shares of Trust II and Trust IV. Pursuant to the
Distribution Plans, the Principal Underwriter is entitled to reimbursement
each month (up to a maximum of 0.25% of Trust II's daily net assets and
0.60% of Trust IV's daily net assets) for its actual expenses incurred in
the distribution and promotion of Trust II's and Trust IV's shares,
including the printing of prospectuses used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
and other distribution related expenses, including any distribution or
service fees paid to security dealers and others who have executed a
distribution or service agreement with the Principal Underwriter. The
Distribution Plans provide that the Principal Underwriter may include as
distribution expenses a portion of its overhead expenses directly
attributable to the Distribution of Trust II's and Trust IV's shares,
including personnel and out-of-pocket costs. The Distribution Plans permit
the Principal Underwriter to carryforward for a maximum of three years
(without carrying charges) distribution expenses covered by the
Distribution Plans for which it has not yet received reimbursement. At
October 31, 1995, the Principal Underwriter had incurred $1,199,108 of
distribution expenses in excess of amounts currently reimbursable by Trust
II and $669,256 of distribution expenses in excess of amounts currently
reimbursable by Trust IV. During the year ended October 31, 1995, the
Principal Underwriter received distribution expense reimbursements of
$18,750 from Trust II and $32,575 from Trust IV. Distribution expenses
incurred by the Principal Underwriter included $8,283 and $7,673 for the
salaries and related costs of certain of its employees involved in the
sales of Trust II's and Trust IV's shares, respectively.
NOTE 5--INVESTMENT MANAGEMENT FEE AND
OTHER TRANSACTIONS WITH AFFILIATES
The Trusts invest substantially all of their assets in the Portfolio, which has
the same investment objective
32
<PAGE>
as each of the Trusts. The Trustees of AIST establish the Portfolio's investment
policies and supervise and review the operations and management of the
Portfolio. For furnishing the Portfolio with investment advice and investment
management and administrative services with respect to the Portfolio's assets,
including making specific recommendations as to the purchase and sale of
portfolio securities, furnishing requisite office space and personnel, and in
general supervising and managing the Portfolio's investments subject to the
ultimate supervision and direction of AIST's Trustees, the Manager is paid
monthly a fee equal to 0.55% per annum of the first $500 million of average
daily net assets of the Portfolio. The annual rate is reduced to 0.50% on net
assets from $500 million to $1 billion and to 0.45% on net assets over $1
billion. The management fees paid by the Portfolio to the Manager are expenses
of the Portfolio and reduce the net investment income available for distribution
by the Portfolio to the Trusts. The Manager has agreed to reimburse the
Portfolio and Trusts to the extent required so that the aggregate expenses do
not exceed the expense limitations applicable under the securities laws or
regulations of those states or jurisdictions in which the Trusts' shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Manager to reimburse the Portfolio and
Trusts to the extent required so that the Portfolio's and Trust's expenses, as
described above, for any fiscal year do not exceed 2.50% of the first $30
million of average net assets, 2.00% of the next $70 million of average net
assets and 1.50% of the remaining average net assets. The amount of any such
required reimbursement, however, is limited to the management fees paid by the
Portfolio to the Manager. Expenses for purposes of these expenses limitations
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation paid or incurred by the Trusts or the Portfolio. During the year
ended October 31, 1995, the Manager subsidized the expenses of Trust IV
resulting in an expense waiver of $1,738.
The Trusts have retained Atlas Holdings (formerly Pilgrim) Group Inc. (the
"Administrator") to provide administration for the Trusts pursuant to an
administration agreement. These administrative services include supervising the
preparation and filing of all documents required for compliance by the Trusts
with applicable laws and regulations, supervising the maintenance of books and
records and other general and administrative responsibilities. For providing
these services the Administrator receives a fee equal to 0.10% of each Trust's
average daily net assets.
During the year ended October 31, 1995 the Principal Underwriter received
commissions of $-0- from the sale of shares of Trust II and $99 from the sale of
shares of Trust III. The Principal Underwriter is an affiliate of the
Administrator and the Manager.
Certain officers and trustees of the Company are also officers and/or
directors/trustees of AIST, the Administrator, the Manager, and the Principal
Underwriter.
NOTE 6--EARLY WITHDRAWAL CHARGES
Shares of Trust I, Trust I-A and Trust IV which are redeemed may be subject to a
contingent deferred sales charge. The contingent deferred sales charge is not
imposed on shares acquired through the reinvestment of dividends and
distributions or on the appreciation of the value of shares acquired over their
purchase price. Redemption proceeds are applied first against shares not subject
to the contingent deferred sales charge for purposes of calculating such charge.
The contingent deferred sales charges are paid by the redeeming shareholder to
the Principal Underwriter at the time of redemption. The contingent deferred
sales charges for Trust I and Trust I-A are imposed at the rate of 4% for
redemptions in the first year after purchase, declining to 3%, 2%, and 1% in the
second, third and fourth years, respectively. The contingent deferred sales
charges for Trust IV are imposed at the rate of 0.25% of redemptions within 3
months of the date of purchase. During the year ended October 31, 1995 the
Principal Underwriter received contingent deferred sales charges of $2,053,485
from redemptions of Trust I shares, $2,725,445 from redemptions of Trust I-A
shares, and $209 from redemptions of Trust IV shares.
33
<PAGE>
NOTE 7--LEGAL MATTERS
Between December 1994 and July 1995, various complaints have been filed by
certain shareholders of the Astra Adjustable U.S. Government Securities Trusts
and the Astra Adjustable Rate Securities Trusts (collectively, the "Astra
Trusts") in the United States District Court for the Central District of
California and in the Superior Court for the State of California against the
Company and certain of its officers and trustees, AIST and certain of its
officers and trustees, Astra Management Corporation, Astra Fund Distributors
Corporation, and, Atlas Holdings Group Inc. and its principal stockholder and
certain of its employees. These complaints have been consolidated in the United
States District Court for the Central District of California in the matter
referred to as "In re Pilgrim Securities Litigation."
The complaints allege violations of the Securities Act of 1993 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the Portfolios of AIST.
The complaints seek relief measured by the consideration each shareholder paid
for shares of the Astra Trusts with interest thereon, less the amount of income
received thereon, or in the event the shareholder no longer owns such shares,
for damages, plus interest. Management of the Company believes the complaints
are without merit and intents, and has been advised that each of the other
defendants intends, to vigorously defend these actions. The ultimate outcome of
these matters, however, cannot presently be determined and accordingly the Astra
Trusts have made no provision for any losses which may result from settlement of
these complaints.
34
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ------------------
To the Shareholders of Astra Adjustable U.S. Government Securities
Trust I, I-A, II, III and IV, and the Trustees of Astra Strategic Investment
Series
San Diego, California
We have audited the statements of assets and liabilities of Astra (formerly
Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II, III and IV
(each a series of shares of beneficial interest of Astra (formerly Pilgrim)
Strategic Investment Series), as of October 31, 1995, and the related statements
of operations for the year then ended, and the statements of changes in net
assets for the each of the two years in the period then ended and the financial
highlights for each of the periods indicated thereon. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Astra
Adjustable U.S. Government Securities Trust I, I-A, II, III and IV as of October
31, 1995, and the results of their operations for the year then ended, and the
changes in their net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated thereon, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the accompanying financial statements Astra Adjustable
U.S. Government Securities Trusts I, I-A, II, III, and IV have been named as
defendants in various complaints alleging violations of the Securities Act of
1933 and the Investment Company Act of 1940 and seeking substantial relief. The
outcome of these matters cannot presently be determined and accordingly no
provision for any losses which may result from settlement of these matters has
been made in the accompanying financial statements.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
35
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STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
750 B Street
Suite 2350
San Diego, California 92101
(800) 219-1080
Astra Adjustable U.S. Government Securities Trust I-A ("Trust I-A") and Astra
Adjustable U.S. Government Securities Trust II ("Trust II") (individually the
"Trust" or collectively, the "Trusts") are non-diversified series of Astra
Strategic Investment Series ("ASIS"), an open-end management investment company.
The investment objective of each of the Trusts is to seek high current income
consistent with low volatility of principal. Each Trust seeks to achieve its
objective by investing all of its investable assets in the Astra Institutional
Adjustable U.S. Government Securities Portfolio (the "Portfolio"), a
non-diversified open-end series of Astra Institutional Securities Trust
("AIST"), which has the same investment objective as those of the Trusts.
The Portfolio seeks to achieve its investment objective by investing at least
65% of its assets in mortgage securities, issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Mortgage
Securities"). The Portfolio will invest the remainder of its assets generally in
adjustable rate mortgage securities which are issued or sponsored by commercial
banks, savings and loan associations, mortgage bankers or other financial
institutions, that have no government guarantee and that are senior or
subordinated to other mortgage securities arising out of the same pool of
mortgages ("Multi-Class Residential Mortgage Securities").
The combined prospectus for Trust I-A and Trust II, dated February 28, 1996 (the
"Prospectus"), which provides the basic information you should know before
investing in any of the Trusts, may be obtained without charge from ASIS at the
address listed above. This Statement of Additional Information is not a
prospectus. It contains information in addition to and more detailed than set
forth in the Prospectus. It is intended to provide you additional information
regarding the activities and operations of the Trusts and ASIS, and should be
read in conjunction with the Prospectus.
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TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY....................................... 3
INVESTMENT OBJECTIVE AND POLICIES..................................... 3
INVESTMENT RESTRICTIONS............................................... 6
TRUSTEES AND OFFICERS................................................. 8
MANAGEMENT OF THE TRUSTS AND THE PORTFOLIO............................ 10
EXECUTION OF PORTFOLIO TRANSACTIONS................................... 11
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION........................ 12
PRICE OF THE SHARES IS DETERMINED DAILY............................... 15
SHAREHOLDER SERVICES AND PRIVILEGES................................... 15
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS.................. 16
INVESTMENT RETURN INFORMATION......................................... 20
GENERAL INFORMATION................................................... 22
FINANCIAL STATEMENTS.................................................. 29
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GENERAL INFORMATION AND HISTORY
On August 18, 1989, the shareholders of PSIS approved a proposal to reorganize
PSIS from a New York common law trust to Pilgrim Strategic Investment Series, a
Massachusetts business trust, with one series, Pilgrim High Yield Trust. The
Declaration of Trust dated July 19, 1989, was filed with the Commonwealth of
Massachusetts on July 21, 1989. Pursuant to an amendment of the Declaration of
Trust dated January 16, 1990, Pilgrim High Yield Trust changed its name to
Pilgrim Strategic Investment Series. The reorganization had no ramifications
with respect to the investment objective and policies, investment restrictions
or general operations of PSIS. On November 12, 1990, the Trustees approved the
creation of a second series, the Pilgrim Adjustable U.S. Government Securities
Trust. On September 4, 1991, the Trustees of PSIS approved the creation of five
additional series of PSIS: Trust II, Trust III, Pilgrim Adjustable Rate
Securities Trust I, Pilgrim Adjustable Rate Securities Trust II and Pilgrim
Adjustable Rate Securities Trust III. On November 22, 1991, the shareholders of
PSIS approved a proposal to change the fundamental policies of the Pilgrim
Adjustable U.S. Government Securities Trust and its name was changed to Pilgrim
Adjustable U.S. Government Securities Trust I. On February 13, 1992 the Trustees
of PSIS approved the creation of two additional series of PSIS: Pilgrim
Adjustable U.S. Government Securities Trust IV and Pilgrim Adjustable Rate
Securities Trust IV, whose names were subsequently changed to Pilgrim Adjustable
U.S. Government Securities Trust I-A and Pilgrim Adjustable Rate Securities
Trust I-A. On April 30, 1993, the Trustees of PSIS approved the creation of two
additional series of PSIS: Pilgrim Adjustable U.S. Government Securities Trust
IV and Pilgrim Adjustable Rate Securities Trust IV. On May 12, 1994, the
Trustees of PSIS approved an amendment to PSIS' Declaration of Trust to permit
PSIS to issue additional classes of shares under a multi-class distribution
system.
On March 17, 1995, the Trustees approved an amendment to PSIS' Declaration of
Trust changing the name of PSIS to Astra Strategic Investment Series ("ASIS").
Effective as of April 10, 1995, the Pilgrim Adjustable U.S Government Securities
Trusts changed their name to Astra Adjustable U.S. Government Securities Trust,
a series of ASIS.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion pertaining to investments by the Portfolio supplements
the discussion of the investment objective of the Portfolio set forth in the
Prospectus under the heading "How The Trust Works."
Multi-Class Residential Mortgage Securities
The following discussion is intended to be a general discussion of certain
features of Multi-Class Residential Mortgage Securities and is not intended as a
discussion of all of the possible terms pursuant to which these types of
securities could be issued. Multi-Class Residential Mortgage Securities are a
type of multi-class pass through security. Such a security represents a
beneficial interest in a pool of mortgage loans or a pool of mortgage pass
through securities, often collectively referred to as "mortgage assets." The
mortgage assets are typically held by a trust, the beneficial interests in which
are evidenced by certificates issued pursuant to a pooling and servicing
agreement. The pooling and servicing agreement is entered into by a trustee
whose main responsibility is to act in the interests of the certificate holders
by enforcing the provisions of the pooling and servicing agreement, and a party
who is responsible for pooling and conveying the mortgages assets to the trust,
sometimes referred to as a depositor. In some cases, the depositor also acts as
a master servicer for the underlying mortgage loans. Payments of principal and
interest made on the mortgage assets provide
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the funds to permit the trust to make scheduled distributions to certificate
holders. See "The Mortgage Loans," discussed below.
The Certificates. In general, a series of certificates is issued in multiple
classes with a stated maturity or final distribution date. One or more classes
of each series may be entitled to receive distributions allocable only to
principal, principal prepayments, interest or any combination thereof prior to
one or more other classes, or only after the occurrence of certain events, and
may be subordinated in the right to receive such distributions on such
certificates to one or more senior classes of certificates. The rights
associated with each class of certificates are set forth in the applicable
pooling and servicing agreement, form of certificate and offering documents for
the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans which
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
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Special Hazard Certificates. Special hazard certificates are typically offered
in conjunction with other classes of mortgage pass through certificates and
constitute a subordinated class. To the extent that losses incurred on the
underlying mortgage loans constitute special hazard losses, the rights of the
special hazard certificate holders to receive distributions of principal and
interest are subordinated to those of the certificate holders of the more senior
classes of the series. A special hazard loss is a loss relating to a defaulting
mortgage loan as to which all recoverable liquidation and insurance proceeds
have been received. Depending on the particular terms of the certificates,
special hazard losses are allocated first to the special hazard certificates
holders and then to the regular certificate holders.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master servicer to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master servicer may also be required to obtain a
pool insurance policy to cover losses in an amount up to a certain percentage of
the aggregate principal balance of the mortgage loans in the pool to the extent
not covered by a primary mortgage insurance policy by reason of default in
payments on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master servicer could effect early termination of a
trust, after a certain specified date or the date on which the aggregate
outstanding principal balance of the underlying mortgage loans is less than a
specific percentage of the original aggregate principal balance of the
underlying mortgage loans by purchasing all of such mortgage loans at a price,
unless otherwise specified, equal to the greater of a specified percentage of
the unpaid principal balance of such mortgage loans, plus accrued interest
thereon at the applicable certificate interest rate, or the fair market value of
such mortgage assets. Generally, the proceeds of such repurchase would be
applied to the distribution of the specified percentage of the principal balance
of each outstanding certificate of such series, plus accrued interest, thereby
retiring such certificates. Notice of such optional termination would be given
by the trustee prior to such distribution date.
Yield and Prepayment Considerations. The rate of principal payments on the
certificates, the aggregate amount of each interest payment and the yield to
maturity on the certificates are related to the rate of principal payments on
the underlying mortgage loans. Such principal payments may be in the form of
scheduled principal payments, prepayments by mortgagors, liquidations due to
default, casualty, condemnation and certain events usually set forth in the
related pooling and servicing agreement. The rate of prepayment may be
influenced by a variety of economic, geographic, social and other factors. In
general, however, if interest rates on comparable obligations were to fall below
the mortgage rates on the underlying mortgage loans, which may be different from
prevailing interest rates, the rate of prepayment would be expected to increase.
Conversely, if prevailing rates on comparable obligations were to rise above the
mortgage rates on the underlying mortgage loans, the mortgage loans would be
expected to prepay at lower rates than if prevailing rates on comparable
obligations were to remain at or below the mortgage rates on the underlying
mortgage loans.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
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Various services provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
servicer and the master servicer. A servicer's duties generally include
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts, collection of insurance claims, foreclosure
procedures, and, if necessary, the advance of funds to the extent certain
payments are not made by the mortgagors and are recoverable under applicable
insurance policies or from proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master servicer who (a) establishes
requirements for each servicer, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master servicer may be an affiliate of the depositor
and also may be the servicer with respect to all or a portion of the mortgage
loans contained in a trust fund for a series of certificates.
Lending of Portfolio Securities
As noted in the Prospectus, the Portfolio may lend its portfolio securities in
order to generate additional income. The Portfolio may pay reasonable
administration and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. Loans are subject to termination at the option of the Portfolio or the
borrower at any time, including when termination is necessary to enable the
Portfolio to be the record owner for each dividend paid by the issuer thereof.
The Portfolio does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Purchase of Mortgage Securities
The Portfolio intends to comply with the provisions of Section 12(d) of the
Investment Company Act of 1940 in connection with purchasing mortgage
securities.
INVESTMENT RESTRICTIONS
The following investment restrictions which have been adopted by each Trust are
fundamental and cannot be changed without approval by the vote of a majority of
the outstanding voting securities of each Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). (All policies not specifically
identified in this Statement of Additional Information or the Prospectus as
fundamental may be changed without a vote of the shareholders.)
The Trusts may not:
1. Borrow money, except if after each borrowing there is asset coverage
of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales, the entry into currency
transactions, options, futures contracts, including those relating to
indexes, options on futures contracts or indexes and forward
commitment transactions shall not constitute borrowing.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that each of the Trusts will
invest more than 25% of the value of its total assets in securities of
issuers in the asset-backed securities industry. However, in some
future period or periods, due to adverse economic conditions or for
defensive purposes, a Trust may temporarily have less than 25% of the
total value of its assets invested in that industry. This limitation
does not apply to investments or obligations of the U.S. Government or
any of its agencies or instrumentalities.
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In addition, this limitation does not prevent a Trust from investing
all or substantially all of its assets in another registered
investment company having the same investment objective as that of
such Trust.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to
the deposit of assets in escrow in connection with (a) the writing of
covered put and call options, (b) the purchase of securities on a
forward commitment or delayed-delivery basis and (c) collateral and
initial or variation margin arrangements with respect to currency
transactions, options, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
4. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but the Trusts and
the Portfolio may make margin deposits in connection with transactions
in currencies, options, futures and options on futures.
5. Make short sales of securities, except short sales against-the-box, or
maintain a short position.
6. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by a Trust may be deemed
to be underwriting, except that, a Trust may invest all or
substantially all of its assets in another registered investment
company with the same investment objective as that of such Trust.
7. Purchase, hold or deal in real estate or oil and gas interests,
although a Trust may purchase and sell securities that are secured by
real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for such Trust
as a result of the ownership of securities.
8. Invest in commodities except that each Trust may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a forward
commitment or delayed-delivery basis.
9. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which
it may invest; however, each Trust may lend portfolio securities in an
amount not to exceed 10% of the value of a Trust's total assets. Any
loans of portfolio securities will be made according to guidelines
established by the SEC and the Board of Trustees.
10. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act), except as permitted herein and in Investment
Restriction Nos. 1, 3, 4 and 8. Obligations under interest rate swaps
will not be treated as senior securities for purposes of this
restriction so long as they are covered in accordance with applicable
regulatory requirements. Obligations under interest rate collars,
caps, and floors will be treated as senior securities unless and until
such time as the Portfolio receives regulatory relief from staff of
the Securities and Exchange Commission or until such time as the staff
no longer deems such instruments to be senior securities. Other good
faith hedging transactions and similar investment strategies will also
not be treated as senior securities for purposes of this restriction
so long as they are covered in accordance with applicable regulatory
requirements and are structured consistent with current staff
interpretation.
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In addition, the Trusts will abide by the following additional investment
restrictions, although they are not fundamental investment policies.
Each Trust will not:
1. Invest in oil, gas and other mineral leases or real estate limited
partnerships.
2. Purchase securities of unseasoned issuers, including their
predecessors or sponsors, which have been in operation for less than
three years, and equity securities of issuers which are not readily
marketable if by reason thereof the value of its aggregate investment
in such classes of securities will exceed 5% of its total assets.
3. Purchase puts, calls, straddles, spreads, and any combination thereof
if by reason thereof the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.
4. Invest any part of its total assets in real estate or interests
therein, excluding readily marketable securities and securities for
which there does not exist a readily available market, i.e., illiquid.
5. Invest any part of its total assets in commodities or commodity
futures contracts.
6. Invest in warrants, valued at the lower of cost or market, in excess
of 5% of the value of its net assets. Included within that amount, but
not to exceed 2% of the value of its net assets, may be warrants which
are not listed on the New York or American Stock Exchange. Warrants
acquired by a Trust in units or attached to securities may be deemed
to be without value.
TRUSTEES AND OFFICERS
Responsibility for management of ASIS and AIST vested in a Board of Trustees.
The Trustees in turn appoint officers of ASIS and AIST to supervise actively the
day-to-day operations of ASIS and AIST. The shareholders of ASIS and AIST may
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose. Each Trustee serves during the continued lifetime of ASIS and AIST
until he dies, resigns or is removed, or if sooner, until the next meeting of
shareholders called for the purpose of electing Trustees.
The affiliations and principal occupations during the past five years of the
Trustees and principal officers are:
PALOMBA WEINGARTEN, CHAIRMAN OF THE BOARD AND TRUSTEE+ (53)
9595 Wilshire Boulevard, Beverly Hills, California 90212. Chairman of the
Board, Director and Chief Executive Officer of Atlas Holdings Group, Inc.,
the parent of Astra Fund Distributors Corp., and Astra Management Corp.,
("AMC") the Trust's distributor and investment manager, respectively.
Chairman of the Board and Trustee of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust.
AL BURTON, TRUSTEE (67)
2300 Coldwater Canyon, Los Angeles, California 90210. President of Al
Burton Productions from 1992 to present; Executive Producer First Run
Syndication for Castle Rock Entertainment Inc. from
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1992 to 1995; Executive Producer-Consultant for Universal Television from
1982 to 1992; Trustee of Astra Global Investment Series, Astra
Institutional Securities Trust, Astra Institutional Trust and Pilgrim Prime
Rate Trust. Director of Pilgrim America MagnaCap Fund, Inc., Pilgrim
Regional BankShares, Inc. and Pilgrim America Government Securities Fund.
FELICE R. CUTLER, TRUSTEE (58)
10601 Wilshire Boulevard, 19th Floor, Los Angeles, California 90024.
Partner in the law firm of Cutler & Cutler, Los Angeles, California since
1991 and for more than five years prior to 1990 and in the law firm of
Dilworth, Paxson, Kalish & Kauffman from 1990 to 1991. Trustee of Astra
Institutional Trust, and Astra Institutional Securities Trust.
GARRY D. PEARSON, TRUSTEE (47)
150 North Myers Street, Los Angeles, California 90033. Senior Vice
President of George Rice & Sons, a printing company located in Los Angeles,
California, since July 1994. Formerly Vice President and Partner in
Anderson Lithograph, a printing company located in Los Angeles, California,
from 1983 to 1994. Trustee of Astra Global Investment Series, Astra
Institutional Trust and Astra Institutional Securities Trust.
RICHARD R. TARTRE, PRESIDENT AND CHIEF EXECUTIVE OFFICER+ (58)
750 B Street, Suite 2350, San Diego, California 92101. President and Chief
Executive Officer of AMC and Astra Fund Distributors Corp. President and
Chief Executive Officer of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust. From March
1982 to July 1995, Managing Director of the securities firm of Fundmark
Investment Co. Services Inc. in San Diego, California. Member of the Board
of Directors of Mission West Properties and Triton Group Ltd. since 1993
and Burnham Pacific Properties since 1986. Chairman of Bio-Safety Systems
from 1982 to 1995.
JOHN R. ELERDING, SENIOR VICE PRESIDENT, SECRETARY, TREASURER AND CHIEF
FINANCIAL OFFICER+ (44)
750 B Street, Suite 2350, San Diego, California 92101. Senior Vice
President, Secretary, Treasurer and Chief Financial Officer of AMC and
Astra Fund Distributors Corp. Senior Vice President, Secretary, Treasurer
and Chief Financial Officer of Astra Global Investment Series, Astra
Institutional Securities Trust and Astra Institutional Trust. From January
1994 to September 1994, Chief Financial Officer at the investment banking
firm of Investment Securities Corp. in San Francisco, California. From 1991
to August 1993, investment manager and assistant to the Chief Operating
Officer at Robertson Stephens & Company in San Francisco, California. From
March 1979 to September 1989, Chief Financial Officer at the financial
services holding company of Omni World Wide in San Mateo, California.
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+ Interested person of ASIS as defined in the 1940 Act.
The officers and Trustees of ASIS and AIST, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Trusts as of October
31, 1995. The Trustees of ASIS and AIST who are not affiliated with or
interested persons of AMC may receive fees for attendance at Trustees' meetings
(during the fiscal year ended October 31, 1995, $21,946 was paid in such fees),
while officers of ASIS and AIST
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receive no compensation directly from AMC for performing the duties of their
offices. However, those officers and Trustees of ASIS and AIST who are
affiliated with AMC may be considered to have received remuneration indirectly
because AMC receives management fees from the AIST.
MANAGEMENT OF THE TRUSTS AND THE PORTFOLIO
Management Agreement
Investment management services are provided to the Portfolio by Astra Management
Corp. ("AMC") (formerly Pilgrim Management Corporation) pursuant to an
Investment Management Agreement (the "Management Agreement") dated September 30,
1991. As compensation for its services with respect to the Portfolio, AMC is
paid monthly a fee equal to 0.55% per annum of the average daily net assets of
the Portfolio on the first $500 million of assets. The annual rate is reduced to
0.50% on net assets from $500 million to $1 billion; and to 0.45% on net assets
over $1 billion. As of October 31, 1995, the total net assets of the Portfolio
were approximately $172 million. For the fiscal years ended October 31, 1993,
1994 and 1995 AMC received compensation under its management agreement with the
Portfolio in the amounts of $6,233,257, $4,739,543 and $1,550,152 respectively.
The Portfolio pays its own operating expenses which are not assumed by AMC, such
as expenses incurred in connection with the issuance, registration and transfer
of its shares; fees and costs of its custodian, transfer and shareholder
servicing agents; costs of pricing and calculating its daily net asset value and
of maintaining its books of account required by the 1940 Act; expenditures in
connection with meetings of each Trust's shareholders; salaries of officers and
fees and expenses of Trustees who are not members of or affiliated with AMC;
insurance premiums on property or personnel of AIST which inure to each Trust's
benefit; salaries of personnel of AIST who are involved in maintaining
registration of its shares under state securities laws; the cost of preparing
and printing reports and proxy statements of each Trust for distribution to its
shareholders; preparing and sending prospectuses and statements of additional
information to existing shareholders; trade association dues; legal and
accounting fees; and fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the Trusts
or the Portfolio, to the extent required so that aggregate expenses do not
exceed the expense limitations applicable under the securities laws or
regulations of those states or jurisdictions in which the Trusts' shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require AMC to reduce its respective fees, or to
reimburse the Trusts or the Portfolio, to the extent required so that aggregate
expenses, as described above, for any fiscal year do not exceed 2-1/2% of the
first $30 million of each Trust's average net assets, 2% of the next $70 million
of each Trust's average net assets, and 1-1/2% of each Trust's remaining average
net assets for any fiscal year. Expenses for purposes of this expense limitation
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, paid or incurred by the Trusts or the Portfolio. The expense
limitation may change to reflect changes in the expense limitations of the state
having the most restrictive limitation in which shares of the Trusts or the
Portfolio are registered for sale.
The Management Agreement for the Portfolio is currently in effect until August
30, 1996, and will be continued in effect from year to year thereafter so long
as such continuation is approved at least annually (1) by the Trustees of AIST
or the vote of a majority of the outstanding voting securities of AIST, and (2)
by a majority of the Trustees who are not interested persons of any party to the
Management Agreement cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement may be terminated at any time
without penalty, by either AIST or AMC upon 60 days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
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Administrative Agreement
Administrative services are provided to each Trust by Atlas Holdings Group, Inc.
("Atlas Group") pursuant to an administration agreement dated September 4, 1991
(the "Administration Agreement"). As compensation for its services thereunder,
Atlas Group is paid a fee equivalent to 0.10% per annum of each Trust's average
daily net assets. For the fiscal year ended October 31, 1995, Trusts I-A and II
each paid $100,620 and $7,500 respectively, to Atlas Group (formerly Pilgrim
Group, Inc.) pursuant to the Administration Agreement.
Each Trust pays its own operating expenses which are not assumed by Atlas Group,
such as expenses incurred in connection with the costs of pricing and
calculating its daily net asset value and of maintaining its books of account
required by the 1940 Act; salaries of officers and fees and expenses of Trustees
who are not members of or affiliated with Atlas Group; insurance premiums on
property or personnel of ASIS which inure to each Trust's benefit; trade
association dues; and legal and accounting fees.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trust) has agreed to pay PFPC
a monthly fee at the annual rate of .07% of the average net assets of the Trust
subject to certain minimums, exclusive of out-of-pocket expenses.
The Atlas Group
AMC is a wholly-owned subsidiary of Atlas Group, a Delaware corporation of which
Mrs. Weingarten is the sole stockholder and Chief Executive Officer. AMC also
acts as the investment manager to Astra Institutional Adjustable U.S. Government
Securities Portfolio and Astra Institutional Adjustable Rate Securities
Portfolio (series of Astra Institutional Securities Trust), Astra Short-Term
Multi-Market Income Fund I and Astra Short-Term Multi-Market Income Fund II
(series of Astra Global Investment Series), Astra All-Americas Government Income
Trust (a series of Astra Institutional Trust), all of which are open-end
investment companies. As of the date of this Statement, total assets under
management of AMC were approximately $200 million.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Portfolio, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Management Agreement, AMC determines, subject to the
instructions of and review by the Trustees of AIST, which securities are to be
purchased and sold by the Portfolio and which brokers are to be eligible to
execute portfolio transactions of the Portfolio. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker," unless in the opinion of AMC, a better price and
execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, AMC will use its best efforts to choose a
broker capable of providing the brokerage services necessary to obtain the most
favorable price and execution available. The full range and quality of brokerage
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operations facilities of
the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the most
favorable price and execution available, consideration may be given to those
brokers which supply research and statistical information to
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the Portfolio and/or AMC, and provide other services in addition to execution
services. AMC considers such information, which is in addition to and not in
lieu of the services required to be performed by AMC under its agreement with
AIST, to be useful in varying degrees, but of indeterminable value. The
placement of portfolio brokerage with broker-dealers who have sold shares of the
Portfolio is subject to rules adopted by the National Association of Securities
Dealers, Inc. Provided officers of AIST are satisfied that the Portfolio is
receiving the most favorable price and execution available, the Portfolio may
also consider the sale of its shares as a factor in the selection of
broker-dealers to execute its portfolio transactions.
While it will continue to be AIST's general policy to seek first to obtain the
most favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Portfolio, AIST may also give weight to the
ability of a broker to furnish brokerage and research services to the Portfolio
or AMC, even if the specific services were not imputed just to the Portfolio and
were useful to AMC in advising other clients. In negotiating commissions with a
broker, the Portfolio may therefore pay a higher commission than would be the
case if no weight were given to the furnishing of these supplemental services,
provided that the amount of such commission has been determined in good faith by
AIST and AMC to be reasonable in relation to the value of the brokerage and
research services provided by such broker, which services either produce a
direct benefit to the Portfolio or assist AMC in carrying out its
responsibilities to the Portfolio. The standard of reasonableness is to be
measured in light of AMC's overall responsibilities to AIST.
For the fiscal years ended October 31, 1993, 1994 and 1995 total brokerage
commissions paid by the Portfolio amounted to approximately $85,000, $109,000
and $79,000, respectively. The Portfolio does not intend to effect any brokerage
transaction in its portfolio securities with any broker-dealer affiliated
directly or indirectly with AMC, except for any sales of portfolio securities
pursuant to a tender offer, in which event AMC will offset against the
management fee a part of any tender fees which legally may be received by such
affiliated broker-dealer.
Although investment decisions for the Portfolio are made independently from
those of the other Astra funds it is possible that at times identical securities
will be selected for purchase or sale by more than one of such funds. However,
the position of each fund in the same issuer may vary and the length of time
that each fund may choose to hold its investment in the same issuer may likewise
vary. To the extent any of these funds seeks to acquire the same security at the
same time, one or more of the funds may not be able to acquire as large a
portion of such security as it desires, or it may have to pay a higher price for
such security. Similarly, any of the funds may not be able to obtain as high a
price for, or as large an execution of, an order to sell any particular security
if any of the other funds desires to sell the same security at the same time. If
more than one of such funds simultaneously purchases or sells the same security,
each day's transaction in such security will be averaged as to price and
allocated between such funds in accordance with the total amount of such
security being purchased or sold by each of such funds. It is recognized that in
some cases this system could have a detrimental effect on the price or value of
the security insofar as AIST is concerned.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Rights of Accumulation (Trust II Only)
Trust II. Under the rights of accumulation privilege, if a shareholder had
previously purchased and still owned shares having a value at the current
offering price of $80,000, and then made another purchase of $20,000, the sales
charge for the latter purchase would be 2.5% of the offering price (2.56% of the
net amount invested).
Letter of Intent (Trust II Only)
As stated in the Prospectus, a shareholder may establish a Letter of Intent to
invest in a certain dollar amount of Trust II shares during a 13-month period.
Purchases by more than one person may not be grouped to
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obtain a reduced sales price under the Letter of Intent except to the extent
provided in Rule 22d-1(b) under the 1940 Act and the regulations promulgated
thereunder. At the time of each purchase the shareholder or the dealer must
inform Astra Fund Distributors Corp. (the "Distributor") that the Letter of
Intent is in effect, in order to insure that the reduced sales price will be
received. Shares of Trust II and other Astra Funds distributed by the
Distributor purchased within 90 days prior to entering into the Letter of Intent
may be included for the quantity discount; however, any adjustment to such
quantity discount will not be made until the terms of the Letter of Intent have
been satisfied. In addition, shares acquired (and still owned) on a cumulative
basis over any period of time in any Astra Fund offering the Letter of Intent
option may be included for purposes of determining whether the Letter of Intent
is met.
Reinstatement Privilege (Trust I-A Only)
Shares of Trust I-A may be sold at net asset value, with credit for any
contingent deferred sales charges paid on the redeemed Trust I-A shares, to
persons who have redeemed their shares of Trust I-A within the previous 30 days.
The amount of any contingent deferred sales charge related to the prior
redemption of Trust I-A shares will be credited to the shareholder's account and
also reinvested.
The reinstatement privilege may be used only once per calendar year. In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent, or be postmarked, within 30 days after the date
of redemption. If the shareholder has realized a gain on the redemption, the
transaction is taxable and any reinstatement will not alter any applicable
Federal capital gains tax. If there has been a loss on the redemption and a
subsequent reinstatement pursuant to this privilege, some or all of the loss may
not be allowed as a tax deduction depending upon the amount reinstated, although
such disallowance is added to the tax basis of the shares acquired upon the
reinstatement.
Redemptions
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent of the written request in proper
form, except that a Trust may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such Exchange is closed for
reasons other than weekends and holidays; (b) an emergency exists as determined
by the SEC making disposal of portfolio securities or valuation of net assets of
a Trust not reasonably practicable; or (c) for such other period as the SEC may
permit for the protection of a Trust's shareholders. At various times a Trust
may be requested to redeem its shares for which it has not yet received good
payment. Accordingly, a Trust may delay the mailing of a redemption check until
such time as it determines that it has received good funds for the purchase of
the shares being redeemed, which may take up to 15 days or longer.
Due to the relatively high cost of handling small investments, each Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account (except for IRAs), as a result of voluntary redemption of shares
and not of investment performance of a Trust or deduction of sales charges, has
a value of less than $5,000. Before a Trust redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in his account is less than the minimum amount and allow him 30 days
to make an additional investment in an amount which will increase the value of
his account to at least $5,000 before the redemption is processed. This policy
will not be implemented where a Trust has previously waived the minimum
investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
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Contingent Deferred Sales Charge (Trust I-A Only)
A contingent deferred sales charge will be imposed on any redemption or
repurchase of shares of Trust I-A which reduces the current value of the
investor's shares of Trust I-A to an amount which is lower than the dollar
amount of all payments by the investor for the purchase of Trust I-A's shares
during the preceding four years. However, no such charge will be imposed to the
extent that the net asset value of the shares redeemed does not exceed (a) the
current net asset value of shares purchased more than four years prior to the
redemption or repurchase, plus (b) the current net asset value of assets
purchased through reinvestment of dividends or distributions, plus (c) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Trust I-A's shares made during the preceding four
years. Accordingly, investors may redeem, without incurring any contingent
deferred sales charge, amounts equal to any net increase in the value of the
shares redeemed above the amount of their purchase payments made with respect to
such shares within the past four years, and amounts equal to the current value
of shares purchased through reinvestment dividends or distributions. The
contingent deferred sales charge will be imposed, in accordance with the table
set forth in the Prospectus, on any redemptions within four years of purchase
which are in excess of these amounts. The amount of any contingent deferred
sales charge will be paid to and retained by the Distributor.
Waiver of Contingent Deferred Sales Charge (Trust I-A Only)
No contingent deferred sales charge will be payable in connection with the
redemption of shares of Trust I-A purchased by officers, directors and bona fide
full-time employees of the Trust I-A, its service agents, and with certain
exceptions, officers, directors and full-time employees and sales
representatives of AMC, the Distributor or affiliated companies thereof (or any
trust, pension, profit-sharing or other benefit plan for such persons),
broker-dealers having sales agreements with the Distributor, all for their own
accounts or for their spouse and children, and employees of such broker-dealer
firms (for their own accounts only), and discretionary advisory accounts of AMC
(if such purchasers state in writing that the purchases are for their own
investment purposes only and the purchaser represents that the shares will not
be resold except to Trust I-A.
The contingent deferred sales charge is waived for certain redemptions of shares
of Trust I-A (i) upon the death or permanent disability of a shareholder, or
(ii) in connection with mandatory distributions from an IRA or other qualified
retirement plan. The contingent deferred sales charge will be waived in the case
of a redemption of shares of Trust I-A following the death or permanent
disability of a shareholder if the redemption is made within one year of death
or initial determination of permanent disability. The waiver is available for
total or partial redemptions of shares of Trust I-A owned by an individual or an
individual in joint tenancy (with rights of survivorship), but only for
redemptions of shares of Trust I-A held at the time of death or initial
determination of permanent disability. The contingent deferred sales charge will
also be waived in the case of a total or partial redemption in connection with
any mandatory distribution from a tax-deferred retirement plan or an IRA. The
waiver does not apply in the case of a tax-free rollover or transfer of assets,
other than one following a separation from services. The shareholder must notify
the Transfer Agent either directly or through the Distributor, at the time of
redemption, that the shareholder is entitled to waiver of the contingent
deferred sales charge. The waiver will be granted subject to confirmation of the
investor's entitlement.
Waiver of Sales Charges (Trust II Only)
Officers, Trustees and bona fide full-time employees of ASIS and with certain
exceptions most officers, Trustees and full-time employees of AMC, the
Distributor or affiliated corporations thereof or any trust, pension, profit
sharing or other benefit plan for such persons and broker-dealers, for their own
accounts or for their spouse and children may purchase shares of a Trust at net
asset value without a sales charge. Such a purchaser is required to sign a
letter stating that the purchase is for his own investment purposes only and
that the securities will not be resold except to such Trust.
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PRICE OF THE SHARES IS DETERMINED DAILY
Since each Trust will invest in the Portfolio, if the securities owned by the
Portfolio increase in value, the value of the Trust shares which the shareholder
owns will increase. If the securities owned by the Portfolio decrease in value,
the value of the shareholder's shares will also decline. As noted in the
Prospectus, the net asset value and offering price of shares of the Portfolio
will be determined once daily as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m., New York Time) on the "business day," which is
any day on which the Exchange is open for business. It is expected that the
Exchange will be closed on Saturdays and Sundays and on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on Saturday or Sunday, respectively.
Portfolio securities, listed or traded on a national securities exchange will be
valued at the last sale price on such exchange on the valuation day. Securities
traded on an exchange for which there has been no sale that day and securities
traded in the over-the-counter market, will be valued at the last reported bid
price or the mean between the bid and the asked prices, as determined by the
Board of Trustees of AIST. Short-term obligations maturing in less than 60 days
will generally be valued at original cost plus accrued daily interest.
Securities for which quotations are not readily available and all other assets
will be valued at their fair value as determined in good faith by, or under
procedures established by, the Board of Trustees of AIST.
All liabilities incurred or accrued (including written call options) are
deducted from the total assets. The resulting net assets are divided by the
number of shares of the Portfolio and the Trusts outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on such Exchange provided the order is received by the Distributor prior
to 3:00 P.M. (Pacific time) on that day. It is the responsibility of the dealer
to insure that all orders are transmitted timely to the Portfolio. Orders
received by dealers after the close of trading on such Exchange will be
confirmed at the next computed offering price.
SHAREHOLDER SERVICES AND PRIVILEGES
For investors purchasing shares of a Trust under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of a Trust on a
periodic basis, a Trust may, in lieu of furnishing confirmations following each
purchase of its shares, send statements not less than quarterly pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, and the rules
thereunder. Such quarterly statements, which will be sent to the investor or to
the person designated by the group for distribution to its members, will be made
within five business days after the end of each quarterly period and shall
reflect all transactions in the investor's account during the preceding quarter.
A Trust's shareholders have the privilege of reinvesting both income dividends
and capital gains distributions, if any, in additional full or fractional shares
of the Trust at the net asset value (without sales charge) in effect at the
reinvestment date. The management of ASIS has made arrangements with its
Transfer Agent to have all income dividends and capital gains distributions
which are declared by a Trust automatically reinvested for the account of each
shareholder unless a shareholder elects in writing to such Trust or the Transfer
Agent to have such dividends or distribution paid to him in cash. In the absence
of such an election, each purchase of shares of a Trust is made upon the
condition and understanding that the Transfer Agent is automatically appointed
to received the dividends and distributions upon all shares in the shareholder's
account and to reinvest them in full and fractional shares of such Trust at the
applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may still at any time after a purchase of a
Trust's shares request that future dividends and/or capital gains distributions
be paid to him in cash.
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Every shareholder will receive a confirmation of each new transaction in his
account, which will also show the total number of Trust shares owned by the
shareholder and the number of shares being held in safekeeping by the Transfer
Agent for the account of the shareholders and a cumulative record of his account
for the entire year. Shareholders may rely on these statements in lieu of
certificates. Certificates representing shares of the Trust will not be issued
unless the shareholder requests them in writing.
Self-Employed and Corporate Retirement Plans
For self-employed individuals and corporate investors who wish to purchase
shares of a Trust, there is available through ASIS a Prototype Plan and Custody
Agreement. The Custody Agreement provides that Investors Fiduciary Trust
Company, Kansas City, Missouri, will act as custodian under the plan, and will
furnish custodial services for which it will charge the investor various service
fees for such annual maintenance. (These fees are in addition to the normal
custodial charges paid by each Trust.) For further details, including the right
to appoint a successor Custodian, see the Plan and Custody Agreement as provided
by ASIS. Employers who wish to use shares of a Trust under a custodianship with
another bank or trust company must make individual arrangements with such
institutions.
Individual Retirement Accounts
Investors having earned income are eligible to purchase shares of a Trust under
an Individual Retirement Account ("IRA") pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model agreement, for which it will charge
the investor various services fees for maintaining the Account (which fees are
in addition to the normal custodial charges paid by a Trust). Full details on
the IRA are contained in an Internal Revenue Service required disclosure
statement, and the Custodian generally will not open an IRA until seven days
after the investor has received such statement from the Trust. An IRA using
shares of a Trust may also be used by employers who have adopted a Simplified
Employee Pension Plan.
Purchases of a Trust's shares by ss.403(b), ss.401(k) and other retirement plans
are also available. It is advisable for an investor considering the funding of
any retirements plan to consult with an attorney or to obtain advice from a
competent retirement plans consultant with respect to the requirements of such
plans, the implications of the 1940 Act and the tax aspects thereof.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Trusts and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of a Trust or its shareholders, and the discussion here and in the
Prospectus are not intended as a substitute for careful tax planning.
Qualification as a Regulated Investment Company
Each Trust intends to elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, a Trust is not subject to federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and net realized capital
gain (i.e., the excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are
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described below. A Trust will be subject to tax at regular corporate rates on
any income or gains that it does not distribute. Distributions by a Trust made
during the taxable year or, under specified circumstances, within one month
after the close of the taxable year, will be considered distributions of income
and gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, the Trust must (1)
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Trust's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement");
and (2) derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forwards, will
not be characterized as Short-Short Gain if they are directly related to the
Trust's investment in stock or securities (or options or futures thereon).
Because of the Short-Short Gain Test, the Trust may have to limit the sale of
appreciated securities it has held for less than three months. However, the
Short-Short Gain Test will not prevent the Trust from disposing of investments
at a loss, since the recognition of a loss before the expiration of the
three-month holding period is disregarded. Interest (including original issue
discount) received by the Trust at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, for purposes of determining whether capital gain or loss recognized
by a Trust on the disposition of an asset is long-term or short-term, the
holding period of the asset may be affected if (i) the asset is used to close a
"short sale" (which includes for certain purposes the acquisition of a put
option) or is substantially identical to another asset so used, (ii) the asset
is otherwise held by such Trust as part of a "straddle" or (iii) the asset is
stock and such Trust grants certain call options with respect thereto. However,
for purposes of the Short-Short Gain Test, the holding period of the asset
disposed of may be reduced only in the case of clause (i) above.
Certain debt securities purchased by a Trust (such as zero-coupon bonds) may be
treated for Federal income tax purposes as having original issue discount.
Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not a Trust actually receives cash, it
is deemed to have earned original issue discount income that is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of a Trust each year is determined on the basis
of a constant yield to maturity that takes into account the compounding of
accrued interest.
A Trust may purchase debt securities at a discount that exceeds any original
issue discount that remained on the securities at the time a Trust purchased the
securities. This additional discount represents market discount for income tax
purposes. For a debt security purchased after April 30, 1993, which had an
original maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest to
the extent it does not exceed the accrued market discount on the security
(unless a Trust elects for all its debt securities having a fixed maturity date
of more than one year from the date of issue to include market discount in
income in taxable years to which it is attributable). Generally, market discount
accrues on a daily basis. A Trust may be required to capitalize, rather than
deduct currently, part or all of any net direct interest expense on indebtedness
incurred or continued to purchase or carry any debt security having market
discount (unless a Trust makes the election to include market discount in income
as it accrues).
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At the close of each quarter of its taxable year, at least 50% of the value of a
Trust's assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which such Trust has not invested more than 5% of the value of
its total assets in securities of such issuer and such Trust does not hold more
than 10% of the outstanding voting securities of such issuer), and no more than
25% of the value of its total assets may be invested in the securities of any
one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Trust
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Test").
If for any taxable year a Trust does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the current and accumulated earnings and
profits of such Trust. In such event, such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment companies that
fail to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.
Treasury regulations may permit a regulated investment company in determining
its investment company taxable income and undistributed net capital gain for any
taxable year to treat any capital loss incurred after October 31 as if it had
been incurred in the succeeding year. For purposes of the excise tax, a
regulated investment company may (1) reduce its capital gain net income by the
amount of any net ordinary loss for any calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Trust intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Trust may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Trust Distributions
Each Trust anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will generally not qualify for the 70% dividends-received
deduction for corporations.
Distributions of net capital gains, if any, which are designated by each Trust
as capital gain dividends are taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the Trust's shares, and
are not eligible for a dividends-received deduction. The Portfolio generally
intends to distribute any net capital gains.
If a Trust should retain net capital gains, it will be subject to a tax of 35%
of the amount retained. Each Trust expects to designate amounts retained, if
any, as undistributed capital gains in a notice to its shareholders
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who, if subject to U.S. Federal Income taxation on long-term capital gains, (i)
would be required to include in income for U.S. Federal Income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
and (ii) would be entitled to credit against their U.S. Federal Income tax
liabilities for their proportionate shares of the tax paid by the Trust on the
undistributed amount and to claim refunds to the extent that their credits
exceed their liabilities. For U.S. Federal Income tax purposes, the adjusted
basis of each Trust's shares owned by a shareholder of a Trust would be
increased by an amount equal to 65% of the amount of undistributed capital gains
included in the shareholder's income.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those purchasing just prior to an ordinary income
dividend or capital gain dividend will be taxable on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
Distributions by a Trust that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in the reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by a Trust will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of such Trust. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. Ordinarily, shareholders are required to take
distributions by a Trust into account in the year in which the distributions are
made. However, distributions declared in October, November or December of any
year and payable to shareholders of record on a specified date in such a month
will be deemed to have been received by the shareholders (and made by such
Trust) on December 31 of such calendar year if such distributions are actually
made in January of the following year. Shareholders will be advised annually as
to the U.S. federal income tax consequences of distributions made (or deemed
made) during the year.
Backup Withholding. Each Trust may be required to withhold U.S. Federal Income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide a Trust with their correct taxpayer identification number or to
make required certifications, or where a Trust or the shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal Income tax liability.
Sale of Shares. In general, upon the sale or other disposition of shares of a
Trust, a shareholder will realize a capital gain or loss which will be long-term
or short-term, depending upon the shareholder's holding period for the shares.
However, if the shareholder sells his Trust shares to a Trust, proceeds received
by the shareholder may, in some cases, be characterized for tax purposes as
dividends. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced within a period of 61 days beginning
30 days before and ending 30 days after disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of a
Trust's shares held by the shareholder for six months or less will be treated as
a long-term capital loss to the extent of any distributions of capital gain
dividends received by the shareholder with respect to such shares.
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<PAGE>
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Trust is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Trust is not effectively connected with a U.S. trade or
business carried on by the foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate, if
applicable) upon the gross amount of the dividend. Such foreign shareholders
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of such Trust and on capital gain dividends and amounts retained
by such Trust that are designated as undistributed capital gains.
If the income from a Trust is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of such
Trust will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens and residents or domestic corporations.
In the case of foreign noncorporate shareholders, a Trust may be required to
withhold U.S. federal income tax at a rate of 20% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish such Trust with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Trust, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in a Trust.
INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of a Trust to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total return and
yield. Under the rules of the SEC ("SEC Rules"), funds advertising performance
must include total return quotes calculated according to the following formula:
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<PAGE>
P(1+T)(superior)N = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years (1, 5 or 10).
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5 and
10 year periods or a shorter period dating from the effectiveness of a Trust's
Registration Statement. In calculating the ending redeemable value, the maximum
sales load, if any, is deducted from the initial $1,000 payment and all
dividends and distributions by a Trust are assumed to have been reinvested at
net asset value as described in the Prospectus on the reinvestment dates during
the period. Total return, or "T" in the formula above, is computed by finding
the average annual compounded rates of return over the 1, 5 and 10 year periods
(or fractional portion thereof) that would equate the initial amount invested to
the ending redeemable value, including any applicable contingent deferred sales
charge. Any recurring account charges that might in the future be imposed by
such Trust would be included at that time.
Each Trust may also from time to time include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of a Trust with other measures of
investment return. For example, in comparing a Trust's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock Index of the Dow Jones Industrial Average, a Trust
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Trust shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value. The Trusts do not, for these purposes, deduct any amount
representing contingent deferred sales charges. As appropriate, a Trust will,
however, disclose the maximum contingent deferred sales charge and will also
disclose that the performance data does not reflect contingent deferred sales
charges and that inclusion of contingent deferred sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
Rules.
The average annual compounded rate of return for the fiscal year ended October
31, 1995 and for the period May 19, 1992 to October 31, 1995 for Trust I-A was
- -11.30% and -2.54%, respectively. The average annual compounded rate of return
for the fiscal year ended October 31, 1995 and for the period November 27, 1991
to October 31, 1995 for Trust II was -10.50% and -1.56%, respectively.
In addition to the total return quotations discussed above, a Trust may
advertise its yield based on a 30-day (or one month) period ended on the date of
the most recent balance sheet included in its Registration Statement, computed
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
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<PAGE>
a-b
YIELD = 2[(---+1)(superior)6 -1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by a Trust based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in a Trust's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in such Trust's portfolio. For purposes of "b" above, Rule 12b-1
Plan expenses, as applicable, are included among the expenses accrued for the
period. Any amounts representing sales charges will not be included among these
expenses; however, each Trust will disclose the maximum sales charge as well as
any amount or specific rate of any nonrecurring account charges. Undeclared
earned income, computed in accordance with generally accepted accounting
principles, may be subtracted from the maximum offering price calculation
required pursuant to "d" above.
A Trust may also from time to time advertise its yield based on a 30-day period
ending on a date other than the most recent balance sheet included in its
Registration Statement, computed in accordance with the yield formula described
above, as adjusted to conform with the differing period for which the yield
computation is based.
Any quotation of performance stated in terms of yield (whether based on a 30-day
or one month period) will be given no greater prominence than the information
prescribed under SEC Rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
The yields as of October 31, 1995, based on a 30-day base period for Trusts I-A
and II were 4.63% and 4.90% respectively.
GENERAL INFORMATION
Underwriting Agreement
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<PAGE>
The underwriting agreement (the "Underwriting Agreement") between ASIS and Astra
Fund Distributors Corp. (the "Distributor") with respect to the distribution of
shares of the Trusts is in effect until August 30, 1996, and thereafter
continues from year to year if approved at least annually (i) by the Trustees of
ASIS or by the vote of a majority of the outstanding voting securities of each
Trust and (ii) by a majority of the Trustees of ASIS who are not parties to the
Underwriting Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. Each
Underwriting Agreement may be terminated without penalty by either party on
sixty days' written notice and shall be automatically terminated in the event of
its assignment as defined in the 1940 Act. The Distributor is a wholly-owned
subsidiary of Atlas Holdings Group, Inc.
The sales charge retained by the Distributor and the commissions allowed to
selling dealers are not expenses of the Trusts and have no effect on the net
asset value of any of the Trusts.
During the fiscal years ended October 31, 1993, 1994 and 1995, the Distributor
received commissions, after allowance to dealers on the sale of Trust II's
shares of $5,084, $0 and $0, in the aggregate. Approximately 16% of the
aggregate concessions of $134,131, 100% of the aggregate concessions of $219 and
100% of the aggregate concessions of $0 was also retained by the Distributor as
a retail dealer in Trust II's shares during Trust II's fiscal years ended
October 31, 1993, 1994 and 1995, respectively.
Distribution Expenses
The distribution plans (the "Plans") for Trusts I-A and II are described in the
Prospectus and are designed to meet the requirements of Rule 12b-1 under the
1940 Act. The purpose of the Plans is to permit Trusts I-A and II to finance
distribution activities and bear expenses associated with the distribution of
their shares. The Plans provide for daily compensation to the principal
underwriter for its distribution services and facilities.
Trust I-A
The Plan provides for two categories of payments. First, the Plan provides daily
compensation to the principal underwriter for its distribution services and
facilities. Pursuant to the Plan but subject to the .75% limitation described
below Trust I-A will pay the principal underwriter (i) sales commissions equal
to 4.5% of the amount received by Trust I-A for each share sold ("Underwriter's
Sales Commissions") and (ii) interest fees in essence calculated by applying the
rate of 1% over the prevailing prime rate to the outstanding balance of
Uncovered Distribution Charges of the principal underwriter.
The principal underwriter currently expects to pay sales commission to a dealer
at the time of the sale of up to 3% of the purchase price of the shares sold by
such dealer. The principal underwriter will use its own funds or funds
facilitated by the principal underwriter (which may be borrowed or otherwise
financed) to pay such amounts. Because the payment of the Underwriter's Sales
Commissions and interest fees to the principal underwriter in the form of daily
compensation is subject to the .75% limitation described below and will
therefore be spread over a period of a number of years, it will take the
principal underwriter a number of years to recoup the sales commissions paid to
dealers and its other sales expenses from the daily compensation payments
received by it from Trust I-A pursuant to the Plan. In addition to the daily
compensation to the principal underwriter at an annual rate of 0.75% of Trust
I-A's daily net assets, the Plan also provides for the payment to the principal
underwriter of a trail or maintenance fee, accrued daily and paid monthly, in an
amount equal to an annual rate not to exceed 0.25% of Trust I-A's daily net
assets, which may be paid to dealers at an annual rate not to exceed 0.25% of
Trust I-A's daily net assets owned by clients of the dealer.
Payment of the Underwriter's Sales Commission and interest fees will be spread
over a period of time, and the Plan requires that the aggregate amount of all
such payments, including payments of trail or maintenance
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<PAGE>
fees, during any fiscal year shall not exceed 1% of Trust I-A's average daily
net assets for such year. Accordingly, Trust I-A will pay the principal
underwriter daily compensation payable monthly at the rate of .75% per annum of
Trust I-A's daily net assets. Such daily compensation will automatically be
discontinued during any period in which there are no outstanding Uncovered
Distribution Charges of the principal underwriter. The amount of Uncovered
Distribution Charges will be calculated daily. For the purposes of this
calculation, Distribution Charges will include the aggregate amount of the
Underwriter's Sales Commissions and interest fees which the principal
underwriter is entitled to be paid under the Plan since its inception. Payments
of daily compensation previously paid and payable under the Plan by Trust I-A to
the principal underwriter and contingent deferred sales charges previously paid
and payable to the principal underwriter will be subtracted from such
Distribution Charges. If the result of such subtraction is positive, an interest
fee (computed at 1% over the prime rate than reported in The Wall Street
Journal) will be computed on such amount and added thereto, with the resulting
sum constituting the amount of Uncovered Distribution Charges with respect to
such day. The amount of outstanding Uncovered Distribution Charges of the
principal underwriter calculated on any day does not constitute a liability
recorded on the financial statements of Trust I-A. It is anticipated that the
Astra organization will profit by reason of the operation of the Plan through an
increase in Trust I-A's assets (thereby increasing the advisory fee payable to
AMC) resulting from sale of Trust I-A shares and through daily compensation and
contingent deferred sales charges paid to the principal underwriter. The Astra
organization may be considered to have realized a profit under the Plan if at
any point in time the aggregate amount of all daily compensation and contingent
deferred sales charge payments previously made to the principal underwriter have
exceeded the total expenses previously incurred by such organization in
distributing shares of Trust I-A. Total expenses for this purpose will include
an allocable portion of the overhead costs of such organization and its branch
offices, which costs will include without limitation leasing expenses,
utilities, communication and postage expense, compensation and benefits of
personnel, travel and promotional expense, stationery and supplies, literature
and sales aids, interest expense, data processing fees, consulting and temporary
help costs, insurance, taxes other than income taxes, legal and auditing expense
and other miscellaneous overhead items. Overhead is calculated and allocated for
such purpose by the Astra organization in a manner deemed equitable to Trust
I-A.
The amount of daily compensation payable to the principal underwriter with
respect to each day will be accrued on such day as a liability of Trust I-A and
will accordingly reduce the Trust I-A's net assets upon such accrual. However,
in accordance with generally accepted accounting principles, Trust I-A does not
accrue future daily compensation as a liability of Trust I-A or reduce Trust
I-A's current net assets in respect of daily compensation which may become
payable under the Plan in the future because the standards for accrual of a
liability under such accounting principles have not been satisfied. The amount
of daily compensation payable on each day is limited to 1/365 of .75% of Trust
I-A's net assets on such day. The level of Trust I-A's net assets changes each
day and depends upon the amount of sales and redemptions of Trust I-A shares,
the changes in the value of Trust I-A's portfolio investments, the expenses of
Trust I-A accrued on such day, income on portfolio investments accrued on such
day, and dividends and distributions declared by Trust I-A.
The amount of Uncovered Distribution Charges of the principal underwriter is
computed daily to determine whether daily compensation is accrued on such day.
The Plan provides that any contingent deferred sales charges received when no
Uncovered Distribution Charges exist will be retained by the principal
underwriter and any investment advisory fee otherwise payable to AMC shall be
reduced in an amount equal to the contingent deferred sales charges received. If
the contingent deferred sales charges available to reduce the investment
advisory fee exceeds the amount of the investment advisory fee, then the
contingent deferred sales charges shall be used to reduce any daily compensation
which may otherwise be payable to the principal underwriter in the future. The
amount of Uncovered Distribution Charges of the principal underwriter at any
particular time depends upon various changing factors, including the level and
timing of sales of Trust I-A shares, the level and timing of redemptions of
Trust I-A shares upon which a contingent deferred sales charge will be imposed,
the level and timing of redemptions of Trust I-A shares upon which no contingent
deferred sales charge will be imposed, changes in the level of the net assets of
Trust I-A, and changes in the interest rate used in the calculation of the
interest fee under the Plan.
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<PAGE>
Periods with a high level of sales of Trust I-A shares accompanied by a low
level of redemptions of Trust I-A shares resulting in the imposition of
contingent deferred sales charges will tend to increase the time during which
there will exist Uncovered Distribution Charges of the principal underwriter.
Conversely, periods with a low level of sales of Trust I-A shares accompanied by
a high level of early redemptions of Trust I-A shares resulting in the
imposition of contingent deferred sales charges will tend to reduce the time
during which there will exist Uncovered Distribution Charges of the principal
underwriter.
Because of the .75% limitation on the amount of daily compensation paid to the
principal underwriter during any fiscal year, a high level of sales of Trust I-A
shares during the first few years of Trust I-A's operations will cause a large
portion of the Underwriter's Sales Commissions attributable to a sale of Trust
I-A shares to be accrued and paid by Trust I-A to the principal underwriter in
fiscal years subsequent to the year in which such shares were sold. This
spreading of Underwriter's Sales Commissions payments under the Plan over an
extended period will result in the incurrence and payment of increased interest
fees under the Plan.
Pursuant to Rule 12b-1, the Plan has been approved by Trust I-A's initial
shareholder and by the Trustees of ASIS, including a majority of the Trustees
who are not interested persons of ASIS and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
plan. Under the Plan the President or a Vice President of ASIS shall provide to
the Trustees for their review, and the Trustees shall review at least quarterly,
a written report of the amount expended under the Plan and the purposes for
which such expenditures were made. The Plan may not be amended to increase
materially the payments described therein without approval of the shareholders
of Trust I-A, and all material amendments of the Plan must also be approved by
the Trustees in the manner described above.
The Plan provides that it shall continue in effect for so long as such
continuance is approved at least annually by the vote of a majority of the
Trustees and a majority of the Trustees of ASIS who are not interested persons
of ASIS and who have no direct or indirect financial interest in the operation
of the Plan or any agreements related to the Plan (the "Rule 12b-1 Trustees").
The Plan and Underwriting Agreement provide that Trust I-A, on termination of
the Plan, will continue to make daily compensation payments to the principal
underwriter (but only with respect to sales of Trust I-A shares which occurred
prior to the termination of the Plan) until the earlier of (a) four years after
the date of such termination or (b) such time as there exist no outstanding
uncovered distribution charges of the principal underwriter under the Plan. Any
continuance of such daily compensation payments after termination of the Plan is
subject to the continuance in effect by the Rule 12b-1 Trustees of the
Underwriting Agreement, and such payments would cease upon termination of the
Underwriting Agreement (unless such payments were made in accordance with
another underwriting agreement entered into by the parties). Whether or not the
Plan or the Underwriting Agreement are still in effect, the principal
underwriter shall be entitled to receive all contingent deferred sales charges
paid or payable with respect to shares purchased prior to the termination of the
Plan. The Plan and Underwriting Agreement may be terminated by vote of a
majority of the Rule 12b-1 Trustees, but in deciding whether to purchase shares
of Trust I-A investors should consider that daily compensation payments could
continue until such time as there are no outstanding uncovered distribution
charges of the principal underwriter under the Plan.
The Plan is expected by the Trustees to be a significant factor in the growth of
Trust I-A's assets, resulting in increased investment flexibility and advantages
which will benefit Trust I-A and its shareholders. Daily compensation payments
made to the principal underwriter under the Plan will compensate the principal
underwriter for its present and future services and expenses in distributing
shares of Trust I-A. Based on the foregoing and other relevant factors, the
Trustees have determined that in their judgment there is a reasonable likelihood
that the Plan will benefit Trust I-A and its shareholders. So long as the Plan
is in effect, the selection and nomination of Trustees who are not interested
persons of Trust I-A shall be committed to the discretion of the Trustees who
are not such interested persons.
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<PAGE>
For the fiscal year ended October 31, 1995, the Distributor received $754,652 in
daily compensation payments under the Plan. In addition, the Distributor
received $251,551 in maintenance fees under the Plan and $2,725,445 from
contingent deferred sales charges paid by Trust I-A's shareholders. During the
same time period, the Distributor paid $205,231 to dealers in commissions on the
sale of Trust I-A shares. As of October 31, 1995, Trust I-A had total net assets
of $65,880,624 and Uncovered Distribution Charges aggregated $9,485,628.
Notwithstanding the existence of such Uncovered Distribution Charges, the amount
of daily compensation payable on each day is limited to 1/365 of .75% of the
Trust's net assets on such day.
The following chart describes all commissions and other compensation
received by the principal underwriter with respect to Trust I-A for the fiscal
year ended October 31, 1995.
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Name of Principal Net Underwriting Compensation on Brokerage Other
Underwriter Discounts and Redemptions and Commissions Compensation
----------- Commissions Repurchases ----------- -------------
----------- -----------
<S> <C> <C> <C> <C>
Astra Fund $754,652 $2,725,445 $205,231 $251,551
Distributors Corp
</TABLE>
Trust II
Trust II's Plan provides that it will pay up to a maximum of 0.25% per annum of
its average daily net assets for expenses incurred in the distribution of its
shares. The Plan may carry over expenses from year to year, provided however,
that in accordance with a policy adopted by ASIS' Board of Trustees, such
expenses may not be carried over for more than three years from the date when
they were incurred and that the Distributor has not yet been reimbursed for such
expenses. The Distributor may include as an expense a portion of its overhead,
including out-of-pocket costs. In the event the Plan is terminated in accordance
with its terms, the obligations of Trust II to make payments to the Distributor
pursuant to the Plan will cease and Trust II will not be required to make any
payments for expenses incurred after the date the Plan terminates.
Pursuant to this Plan, the Distributor will be entitled to reimbursement each
month (up to the maximum of 0.25% per annum of average net assets of Trust II)
for its expenses incurred in the distribution and promotion of Trust II's
shares, including but not limited to the printing of Prospectuses, Statements of
Additional Information and reports use for sales purposes, advertisements,
expenses of preparation and printing of sales literature, and other distribution
related expenses, including any distribution or service fees paid to securities
dealers or other firms who have executed a distribution or service agreement
with the Distributor. The maximum amount which may be paid to such dealers or
firms by the Distributor (which will be determined according to the services
provided in assisting investors with their accounts and/or shares sold) is 0.25%
(on an annual basis) of Trust II's average net assets owned by clients of that
dealer or firm. The maximum annual operating expenses of Trust II, including
this distribution expense, are limited by the expense reimbursement provisions
in the Agreement with AMC (see "Management of the Trusts and the Portfolio").
The expenses of distribution in excess of 0.25% per annum and not carried over
as stated above will be borne by the Distributor without any reimbursement or
payment by Trust II.
The Distributor is required to report in writing to the Board of Trustees of
ASIS at least quarterly on the monies reimbursed to it under the Plan, as well
as to furnish the Board with such other information as may reasonably be
requested in connecting with the payments made under the Plan in order to enable
the Board to make an informed determination of whether the Plans should be
continued.
For the fiscal year ended October 31, 1995, the Trust reimbursed the Distributor
approximately $18,750 pursuant to the Plan, which amounts were attributable to
the total amount spent by the Distributor (approximately $24,995) in the
distribution of the Trust's shares, including expenses for salaries and
commissions - $20,204; advertising - $92; printing, postage and handling - $996;
brokers' servicing fees -
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<PAGE>
$11,980; and miscellaneous and other promotional activities - $3,663. Of the
amount incurred by the Distributor during the last year, approximately $8,283
was for the costs of personnel of the Distributor and its affiliates involved in
the promotion and distribution of the Trust's shares.
The Board of Trustees of ASIS has determined that a consistent cash flow
resulting from the sale of new shares is necessary and appropriate to meet
redemptions and to take advantage of buying opportunities without having to make
unwarranted liquidations of portfolio securities. The Board therefore felt that
it will likely benefit Trust II to have monies available for the direct
distribution activities of the Distributor in promoting the sale of Trust II's
shares. The Board of Trustees, including the non-interested trustees, concluded
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
Trust II and its shareholders.
The Plan has been approved by ASIS' Board of Trustees, including all of the
trustees who are non-interested persons as defined in the 1940 Act, and by Trust
II's initial shareholder. The Plan must be renewed annually by ASIS' Board of
Trustees, including a majority of the trustees who are non-interested persons of
ASIS and who have no direct or indirect financial interest in the operation of
the Plan, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. The Plan and any distribution or service agreement may
be terminated at any time, without any penalty, by such trustees or by a vote of
a majority of a Trust's outstanding shares on 60 days' written notice. The
Distributor or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The Plan and any distribution or service agreement may not be amended to
increase materially the amount spent for distribution expenses or in any other
material way without approval by a majority of a Trust's outstanding shares, and
all material amendments to the Plan or any distribution or service agreement
shall be approved by the non-interested trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
Portfolio Turnover
As noted in the Prospectus, the Portfolio's portfolio turnover rate was 83% and
108% for the fiscal years ended October 31, 1994 and 1995 respectively. The
portfolio turnover increased on a percentage basis due to, among other things, a
decrease in the actual assets of the Portfolio.
Miscellaneous
The Amended and Restated Declaration of Trust dated November 4, 1994 which was
subsequently amended on April 10, 1995 (the "Declaration of Trust"), a copy of
which is on file in the office of the Secretary of The Commonwealth of
Massachusetts, authorizes the issuance of shares of beneficial interest in ASIS
without par value. Each share of the Trust has one vote and shares equally in
dividends and distributions when and if declared by the Trustees of ASIS and in
each Trust's net assets upon liquidation. All shares, when issued, are fully
paid and non-assessable. There are no preemptive, conversion or exchange rights.
Shares of ASIS do not have cumulative voting rights and, as such, holders of at
least 50% of the shares voting for Trustees can elect all Trustees and the
remaining shareholders would not be able to elect any Trustees. As used in the
Prospectus, the term "majority vote" means the affirmative vote of (a) more than
50% of the outstanding shares of a Trust or ASIS (as appropriate) or (b) 67% or
more of the shares present at a meeting if more than 50% of the outstanding
shares of a Trust or ASIS (as appropriate) are represented at the meeting in
person or by proxy, whichever is less.
The Board of Trustees may classify or reclassify any unissued shares of ASIS
into shares of any series by setting or changing in any one or more respects,
from time to time, prior to the issuance of such shares, the
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<PAGE>
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, or qualifications, of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act.
The overall management of the business of ASIS is vested with the Trustees. The
Trustees approve all significant agreements between ASIS and persons or
companies furnishing services to ASIS. The day-to-day operations of the Trusts
are delegated to officers of ASIS subject to the investment objective and
policies of ASIS, the general supervision of Trustees and the applicable laws of
The Commonwealth of Massachusetts.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trustee or the Trustees. The
Declaration of Trust provides for indemnification out of ASIS's property for all
loss and expense of any shareholder of ASIS held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
ASIS would be unable to meet its obligations wherein the complaining party was
held out to be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by ASIS of the
Trustees and officers of ASIS except with respect to any matter as to which any
such person did not act in good faith in the reasonable belief that his action
was in or not opposed to the best interests of ASIS. Such person may not be
indemnified against any liability to ASIS or the Trust's shareholders to which
he would otherwise be subjected by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
CUSTODIAN AND TRANSFER AGENT--The cash and securities owned by ASIS are held by
PNC Bank, National Association, Lester, Pennsylvania, as custodian, which takes
no part in the decisions relating to the purchase or sale of any of the Trusts'
portfolio securities. DST Systems Inc. acts as ASIS' transfer agent and dividend
disbursing agent.
INDEPENDENT ACCOUNTANTS--The Trusts' independent public accountant is Tait,
Weller & Baker, Two Penn Center Plaza, Philadelphia, Pennsylvania 19102.
LEGAL COUNSEL--Certain legal matters for ASIS are passed upon by Jorden Burt
Berenson & Johnson LLP, 1025 Thomas Jefferson Street, N.W., Suite 400 East,
Washington, D.C. 20007.
OTHER INFORMATION--ASIS is registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision of the management or policies of ASIS. The Prospectus and
this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the SEC, and copies of such
information may be obtained from the SEC upon payment of the prescribed fee or
examined at the SEC in Washington, D.C. without charge.
As of January 31, 1996 there were no shareholders of the Trusts who beneficially
owned more than 5% of the outstanding shares of the Trusts.
-28-
<PAGE>
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust
("PIST"), Pilgrim Strategic Investment Series ("PSIS") (and certain series funds
of PSIS) (predecessors to the Atlas Group, AMC AFDC, AIST and ASIS) and certain
past and present Trustees and officers of AIST and ASIS are defendants. These
actions, which were consolidated in March 31, 1995, in an action entitled In Re:
Pilgrim Securities Litigation, principally allege violations of the Securities
Act of 1933 and the Investment Company Act of 1940 and relate primarily to
disclosure in certain of PSIS' funds concerning pricing and liquidity of
portfolio securities. Management believes the Complaints are without merit and
intends to vigorously defend these actions.
Investors in a Trust will be kept informed of its progress through periodic
reports showing diversification of its portfolio, statistical data and any other
significant data. Financial statements certified by independent public accounts
will be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolio's portfolio as of the close of business on
the last day of each month, may be obtained by written request to the Trust,
together with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Shareholder Servicing Agent, DST
Systems, Inc. (800-441- 7267).
The Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representations other than
those contained in the Prospectus.
FINANCIAL STATEMENTS
The Financial Statements of the Trusts and the Portfolio for the period ended
October 31, 1995 are incorporated herein by reference from Trusts' 1995 Annual
Report to Shareholders. Copies of the Trusts' Annual Report may be obtained
without charge by contacting the Trusts' Shareholder Servicing Agent at (800)
441-7267.
-29-
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IA
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at value* (identified cost $81,677,615) (Notes 1, 2A and 3) ....... $ 66,040,754
Dividends receivable from Portfolio ......................................................... 282,506
Receivable for capital stock sold ........................................................... 93
Deferred organization expense (net of accumulated amortization of $69,976) (Note 2D) ........ 17,341
Prepaid expenses ............................................................................ 53,875
------------
Total Assets ............................................................................. 66,394,569
------------
LIABILITIES:
Payable for capital stock redeemed .......................................................... 326,881
Accrued expenses ............................................................................ 187,064
------------
Total Liabilities ........................................................................ 513,945
------------
NET ASSETS ................................................................................... $ 65,880,624
============
Net asset value per share ($65,880,624 / 11,754,025 shares) (Note 6) ........................ $5.60
============
At October 31, 1995 the components of net assets were as follows:
Paid-in capital ............................................................................ $113,887,999
Accumulated net realized loss on investments ............................................... (32,370,514)
Net unrealized depreciation of investments ................................................. (15,636,861)
------------
Net Assets ............................................................................... $ 65,880,624
============
</TABLE>
- ----------
* Investments of Astra Adjustable U.S. Government Securities Trust I-A
consist entirely of 841,247 shares of Astra Institutional Adjustable U.S.
Government Securities Portfolio. Cost for Federal income tax purposes is
$81,677,615. See Notes 1 and 2A.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from Portfolio ................................................................... $ 5,895,907
------------
EXPENSES:
Distribution expenses (Note 4A) ............................................................ 1,006,203
Shareholder servicing costs 218,764
Administrative servicing costs (Note 5) .................................................... 100,620
Professional fees .......................................................................... 94,685
Reports to shareholders .................................................................... 36,306
Miscellaneous expense ...................................................................... 34,276
Registration fees .......................................................................... 27,158
Trustees' fees ............................................................................. 26,856
Insurance expense .......................................................................... 26,421
Amortization of organization expense (Note 2D) ............................................. 17,462
Recordkeeping fees ......................................................................... 5,837
------------
Total expenses ........................................................................... 1,594,588
------------
Net investment income ................................................................... 4,301,319
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ........................................................... (22,801,404)
Net change in unrealized depreciation of investments ....................................... 6,044,252
------------
Net loss on investments .................................................................. (16,757,152)
------------
Net decrease in net assets resulting from operations ..................................... $(12,455,833)
============
</TABLE>
See Notes to Trusts' Financial Statements
30
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IA
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................... $ 4,301,319 $ 10,853,118
Net realized loss on investments ......................................... (22,801,404) (9,530,624)
Net change in unrealized depreciation of investments ..................... 6,044,252 (18,413,828)
------------ ------------
Net decrease in net assets resulting from operations ..................... (12,455,833) (17,091,334)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.252 and $0.308
per share, respectively) ................................................ (4,521,595) (13,081,589)
Distributions from paid-in capital ($0.033 and $0.022 per share,
respectively) ........................................................... (590,146) (918,418)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change in
the number of outstanding shares (a) .................................... (104,061,756) (160,310,266)
------------ ------------
Total decrease in net assets ............................................. (121,629,330) (191,401,607)
Net assets at the beginning of the period ................................ 187,509,954 378,911,561
------------ ------------
NET ASSETS at the end of the period ...................................... $ 65,880,624 $187,509,954
============ ============
</TABLE>
- ----------
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
----------------------------- -----------------------------
Shares Value Shares Value
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................. 519,411 $ 3,050,567 2,198,521 $ 15,433,435
Shares issued in reinvestment of
distributions to shareholders .............. 446,584 2,597,827 1,150,890 7,931,401
Shares repurchased .......................... (18,589,063) (190,710,150) (26,755,225) (183,675,102)
----------- ------------- ----------- -------------
Net decrease ............................... (17,623,068) $(104,061,756) (23,405,814) $(160,310,266)
=========== ============= =========== =============
</TABLE>
See Notes to Trusts' Financial Statements
31
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
<TABLE>
<CAPTION>
May 19, 1992
(commencement of
Year Ended October 31, operations) to
-------------------------------------------------- October 31,
1995 1994 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ........... $6.380 $ 7.180 $ 7.310 $ 7.340
------- ------- ------- -------
Income (loss) from investment
operations--
Net investment income ......................... 0.246(e) 0.256 0.355 0.207
Net realized and unrealized loss
on investments ............................... (0.741)(e) (0.726) (0.041) (0.004)
------- ------- ------- -------
Total from investment
operations ................................. (0.495) (0.470) 0.314 0.203
------- ------- ------- -------
Less distributions--
Distributions from net investment
income ....................................... 0.252 0.308 0.410 0.207
Distributions from paid-in capital ............ 0.033 0.022 0.034 0.026
------- ------- ------- -------
Total distributions ......................... 0.285 0.330 0.444 0.233
------- ------- ------- -------
Net asset value, end of period ................. $5.6000 $ 6.380 $ 7.180 $ 7.310
======= ======= ======= =======
TOTAL RETURN (F) ............................... (7.79)% (6.77)% 4.53% 6.16%(a)
RATIO/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ................................ $65,881 $187,510 $378,912 $220,256
Ratio to average net assets--
Expenses ...................................... 1.58%(b) 1.42%(b) 1.21%(b) 1.36%(a)(b)(c)
Net investment income ......................... 4.27% 3.68% 4.81% 5.59%(a)(d)
Portfolio turnover rate ........................ 3% 3% 1% 0%
</TABLE>
- ----------
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust I-A.
(c) Ratio of expenses to average net assets prior to expense waivers was
1.39%(a).
(d) Ratio of net investment income to average net assets prior to expense
waivers was 5.56%(a).
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
See Notes to Trusts' Financial Statements.
32
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at value* (identified cost $6,005,693) (Notes 1, 2A and 3) ......... $ 5,143,932
Dividends receivable from Portfolio .......................................................... 22,201
Deferred organization expense (net of accumulated amortization of $72,165) (Note 2D) ......... 20,270
Prepaid expenses ............................................................................. 4,406
-----------
Total Assets ............................................................................... 5,190,809
-----------
LIABILITIES:
Payable for capital stock redeemed ........................................................... 31,287
Accrued expenses ............................................................................. 25,949
-----------
Total Liabilities ......................................................................... 57,236
-----------
NET ASSET ..................................................................................... $ 5,133,573
===========
COMPUTATION OF OFFERING PRICE:
Net asset value and redemption price per share ($5,133,573/904,298 shares) ................... $ 5.67
===========
Offering price per share (100/97 of $5.67)(a) ................................................ $ 5.85
===========
(a) On investments of $100,000 or more the offering price is reduced.
At October 1, 1995 the components of net assets were as follows:
Paid-in capital .............................................................................. $ 9,926,326
Accumulated net realized loss on investments ................................................. (3,930,992)
Net unrealized depreciation of investments ................................................... (861,761)
-----------
Net Assets ................................................................................ $ 5,133,573
===========
</TABLE>
- ----------
* Investments of Astra Adjustable U.S. Government Securities Trust II consist
entirely of 42,880 shares of Astra Institutional Adjustable U.S. Government
Securities Portfolio. Cost for Federal income tax purposes is $6,005,693.
See Notes 1 and 2A.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from Portfolio .................................................................... $ 438,243
-----------
EXPENSES:
Registration fees ........................................................................... 23,354
Shareholder servicing costs ................................................................. 22,989
Distribution expenses (Note 4B) ............................................................. 18,750
Amortization of organization expense (Note 2D) .............................................. 18,381
Professional fees ........................................................................... 12,350
Administrative servicing costs (Note 5) ..................................................... 7,500
Miscellaneous expense ....................................................................... 6,900
Trustees' fees .............................................................................. 2,230
Reports to shareholders ..................................................................... 2,222
Insurance expense ........................................................................... 2,115
Recordkeeping fees .......................................................................... 828
-----------
Total expenses ............................................................................ 117,619
-----------
Net investment income .................................................................... 320,624
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ............................................................ (1,281,838)
Net change in unrealized depreciation of investments ........................................ 139,950
-----------
Net loss on investments ................................................................... (1,141,888)
-----------
Net decrease in net assets resulting from operations ..................................... $ (821,264)
===========
</TABLE>
See Notes to Trusts' Financial Statements.
33
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 320,624 $ 1,565,749
Net realized loss on investments .......................................... (1,281,838) (2,322,304)
Net change in unrealized depreciation of investments ...................... 139,950 (457,646)
------------ ------------
Net decrease in net assets resulting from operations ...................... (821,264) (1,214,201)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.260 and $0.303
per share, respectively) ................................................. (339,005) (1,584,130)
Distributions from paid-in capital ($0.042 and $0.030
per share, respectively) ................................................. (55,052) (157,003)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change in
the number of outstanding shares (a) ..................................... (6,009,841) (84,573,630)
------------ ------------
Total decrease in net assets ........................................... (7,225,162) (87,528,964)
Net assets at the beginning of period ...................................... 12,358,735 99,887,699
------------ ------------
NET ASSETS at the end of period ............................................ $ 5,133,573 $ 12,358,735
============ ============
</TABLE>
- ----------
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
--------------------------- ----------------------------
Shares Value Shares Value
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................... 68,732 $ 404,493 565,002 $ 4,057,487
Shares issued in reinvestment of
distributions to shareholders ................ 45,988 270,443 176,909 1,247,716
Shares repurchased ............................ (1,119,210) (6,684,777) (12,624,628) (89,878,833)
---------- ------------ ----------- -------------
Net decrease ................................ (1,004,490) $ (6,009,841) (11,882,717) $ (84,573,630)
========== ============ =========== =============
</TABLE>
See Notes to Trusts' Financial Statements
34
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
<TABLE>
<CAPTION>
November 27, 1991
(commencement of
Year Ended October 31, operations) to
--------------------------------------- October 31,
1995 1994 1993 1992
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ...... $ 6.470 $ 7.240 $ 7.320 $ 7.350
------- ------- ------- -------
Income (loss) from investment
operations--
Net investment income .................... 0.251(e) 0.293 0.410 0.505
Net realized and unrealized loss
on investments .......................... (0.749)(e) (0.730) (0.044) (0.033)
------- ------- ------- -------
Total from investment
operations ............................ (0.498) (0.437) 0.366 0.472
------- ------- ------- -------
Less distributions--
Distributions from net investment
income .................................. 0.260 0.303 0.415 0.502
Distributions from realized gains
on investments .......................... -- -- 0.003 --
------- ------- ------- -------
Distributions from paid-in capital ....... 0.042 0.030 0.028 --
------- ------- ------- -------
Total distributions .................... 0.302 0.333 0.446 0.502
------- ------- ------- -------
Net asset value, end of period ............ $ 5.670 $ 6.470 $ 7.240 $ 7.320
======= ======= ======= =======
TOTAL RETURN (F) .......................... (7.74)% (6.25)% 5.12% 7.13%(a)
RATIO/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ........................... $5,134 $12,359 $99,888 $88,901
Ratio to average net assets--
Expenses ................................. 1.57%(b) 0.76%(b) 0.51%(b) 0.57%(a)(b)(c)
Net investment income .................... 4.27% 4.27% 5.57% 7.09%(a)(d)
Portfolio turnover rate ................... 7% 12% 79% 97%
</TABLE>
- ----------
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61% and
0.64%(a), respectively, of expenses of the Portfolio, which reduced
dividends paid to Trust II.
(c) Ratio of expenses to average net assets prior to expense waivers was
0.59%(a).
(d) Ratio of net investment income to average net assets prior to expense
waivers was 7.07%(a).
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
See Notes to Trusts' Financial Statements.
35
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUSTS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ----------------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Strategic Investment Series (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. On September 15, 1994 the Company's shareholders
approved a change in the Company's Declaration of Trust to permit the creation
of additional classes of shares of each of the Trust's series. Currently, the
Company has authorized an unlimited number of shares of beneficial interest
without par value and at October 31, 1995 offered a single class of shares in
ten series: Astra (formerly Pilgrim) Adjustable Rate Securities Trust I, I-A,
II, III and IV (collectively, the "Astra Adjustable Rate Securities Trusts"),
Astra (formerly Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II,
III and IV (collectively, the "Astra Adjustable U.S. Government Securities
Trusts" or the "Trusts"), all of which are non-diversified series.
The value of the Trusts' investment in shares of Astra (formerly Pilgrim)
Institutional Adjustable U.S. Government Securities Portfolio (the "Portfolio"),
a non-diversified series of Astra (formerly Pilgrim) Institutional Securities
Trust ("AIST"), reflects their proportionate interest in the net assets of the
Portfolio. The financial statements of the Portfolio, including the portfolio of
investments, are included in this report and should be read in conjunction with
the financial statements of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. The investment policy of the Trusts is to invest in
shares of the Portfolio. Shares of the Portfolio held by the Trusts are
valued at the net asset value then determined by the Portfolio. A valuation
committee of the Board of Trustees of AIST is responsible for establishing
security valuation policies, reviewing the valuation of portfolio
securities, monitoring the level of illiquid securities and reviewing
liquidity determinations for securities held by the Portfolio. AIST
considers to be illiquid all securities which cannot be disposed of within
seven days in the ordinary course of business at approximately the amount
at which the Portfolio values the security. Additionally, interest rate
swap contracts, interest-only and principal-only mortgage backed
securities, and special hazard certificates are treated as illiquid
securities in accordance with Securities and Exchange Commission policy.
Liquid securities are valued primarily using prices provided by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield and other data relating to instruments or
securities with similar characteristics, and secondarily based upon market
quotations and/or other available information. Securities for which
reliable market information or pricing service quotes are not readily
available, including illiquid securities, are valued at fair value as
determined in good faith by, or under procedures established by, the Board
of Trustees of AIST, which procedures may include the delegation of certain
responsibilities regarding valuation to Astra (formerly Pilgrim) Management
Corporation (the "Manager"). The Manager reports, as necessary, to the
Trustees of AIST regarding portfolio valuation determinations.
Short-term securities with less than sixty days remaining to maturity when
acquired by the Portfolio are valued on an amortized cost basis by the
Portfolio when the Trustees of AIST have determined that amortized cost is
fair value.
B. FEDERAL INCOME TAXES. The Trusts intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of their taxable income to their shareholders.
Therefore, no Federal income tax provision is required.
36
<PAGE>
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions of the Portfolio and Trusts are accounted
for on the trade date. Interest income on adjustable rate mortgage
securities is recorded on the accrual basis at current interest rates.
Dividends to shareholders of the Portfolio from net investment income are
declared daily and paid or reinvested monthly. Dividends to Shareholders of
the Trusts from net investment income are declared and paid or reinvested
monthly. Prior to May 1, 1995 dividends to shareholders of the Trusts from
net investment income were declared daily and paid or reinvested monthly.
Discounts and premiums on Portfolio debt securities are amortized in
accordance with the provisions of the Internal Revenue Code.
D. DEFERRED ORGANIZATION EXPENSES. All of the expenses incurred in connection
with the organization of the Trusts are being borne ratably by the Trusts
and are being amortized on a straight-line basis over periods of five years
from the date of commencement of operations.
NOTE 3--INVESTMENTS
At October 31, 1995 the Portfolio held subordinated residential and derivative
mortgage securities which the Valuation Committee of the Board of Trustees of
AIST has determined to be illiquid. These securities are valued at $7,007,359
(representing 4.1% of the Portfolio's net assets). The fair value of these
securities is determined under procedures approved by the Board of Trustees of
AIST in the absence of readily ascertainable market values.
For the year ended October 31, 1995 the cost of purchases and the proceeds from
sales of investments in the Portfolio were as follows:
Purchases Sales
---------- -----------
Trust I .......... $5,279,232 $195,464,209
Trust I-A ........ 3,186,340 111,185,139
Trust II ......... 559,914 6,762,708
Trust III ........ 287,175 2,930,885
Trust IV ......... 325,159 9,058,196
At October 31, 1995 the Trusts had capital loss carryforwards for federal income
tax purposes as follows:
Capital loss Expires
Carryforward October 31,
------------ -----------
Trust I $ 534,000 1999
14,000 2000
7,926,000 2002
48,702,000 2003
-----------
$57,176,000
===========
Trust I-A $ 4,253,000 2002
28,118,000 2003
-----------
$32,371,000
===========
Trust II $ 2,284,000 2002
1,647,000 2003
-----------
$ 3,931,000
===========
Trust III $ 1,135,000 2002
864,000 2003
-----------
$ 1,999,000
===========
Trust IV $ 1,896,000 2002
2,043,000 2003
-----------
$ 3,939,000
===========
NOTE 4--DISTRIBUTION PLANS
A. TRUST I AND TRUST I-A DISTRIBUTION PLANS. Trust I and Trust I-A have
adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby they will provide daily compensation to
Astra Fund (formerly Pilgrim) Distributors Corp., the Trusts' principal
underwriter (the "Principal Underwriter") in the form of sales commissions
equal to 4% of the amount received by Trust I for each share sold and 5%
(4.50% prior to August 5, 1994) of the amount received by Trust I-A for
each share sold (excluding reinvestment of dividends and distributions)
plus an interest fee calculated by applying the rate of 1% over prime rate
to the outstanding balance of Uncovered Distribution Charges. Daily
compensation payments will be made monthly and are limited to an annual
rate of 0.75% of each Trust's daily net assets. During the year ended
October 31,
37
<PAGE>
1995 the Principal Underwriter earned daily compensation of $1,205,284 from
Trust I and $754,652 from Trust I-A. At October 31, 1995 Uncovered
Distribution Charges (cumulative sales commissions and interest fees
reduced by cumulative daily compensation and contingent deferred sales
charges paid to the Principal Underwriter) were $11,143,216 for Trust I and
$9,485,628 for Trust I-A.
On August 5, 1994 the shareholders of Trust I and Trust I-A approved
changes to their respective distribution plans to provide a method by which
a proportionate amount of Uncovered Distribution Charges will be
transferred from the Trusts upon exchanges to other mutual funds for which
Astra Fund Distributions Corp. serves as Principal Underwriter and which
have substantially the same contingent deferred sales charge structure and
distribution plan.
Pursuant to the requirements of the Securities and Exchange Commission the
daily compensation (sales commission) payments to the Principal Underwriter
pursuant to the Distribution Plan must be reflected as operating expenses
of Trust I and Trust I-A. For periods through December 31, 1994 these
payments were treated as capital transactions and were not deducted for
Federal income tax purposes.
The Distribution Plans also provide for monthly payments to the Principal
Underwriter of a trail or maintenance fee in an amount equal to an annual
rate of 0.25% of the daily net assets of Trust I and Trust I-A. During the
year ended October 31, 1995 the Principal Underwriter earned maintenance
fees of $401,762 from Trust I and $251,551 from Trust 1-A.
B. TRUST II AND TRUST IV DISTRIBUTION PLANS. Trust II and Trust IV have
adopted distribution plans pursuant to rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby Trust II may pay up to a maximum annual rate
of 0.25% of its average daily net assets and Trust IV may pay up to a
maximum annual rate of 0.60% of its average daily net assets to the
Principal Underwriter as reimbursement for expenses incurred in the
distribution of the shares of Trust II and Trust IV. Pursuant to the
Distribution Plans, the Principal Underwriter is entitled to reimbursement
each month (up to a maximum of 0.25% of Trust II's daily net assets and
0.60% of Trust IV's daily net assets) for its actual expenses incurred in
the distribution and promotion of Trust II's and Trust IV's shares,
including the printing of prospectuses used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
and other distribution related expenses, including any distribution or
service fees paid to security dealers and others who have executed a
distribution or service agreement with the Principal Underwriter. The
Distribution Plans provide that the Principal Underwriter may include as
distribution expenses a portion of its overhead expenses directly
attributable to the Distribution of Trust II's and Trust IV's shares,
including personnel and out-of-pocket costs. The Distribution Plans permit
the Principal Underwriter to carryforward for a maximum of three years
(without carrying charges) distribution expenses covered by the
Distribution Plans for which it has not yet received reimbursement. At
October 31, 1995, the Principal Underwriter had incurred $1,199,108 of
distribution expenses in excess of amounts currently reimbursable by Trust
II and $669,256 of distribution expenses in excess of amounts currently
reimbursable by Trust IV. During the year ended October 31, 1995, the
Principal Underwriter received distribution expense reimbursements of
$18,750 from Trust II and $32,575 from Trust IV. Distribution expenses
incurred by the Principal Underwriter included $8,283 and $7,673 for the
salaries and related costs of certain of its employees involved in the
sales of Trust II's and Trust IV's shares, respectively.
NOTE 5--INVESTMENT MANAGEMENT FEE AND
OTHER TRANSACTIONS WITH AFFILIATES
The Trusts invest substantially all of their assets in the Portfolio, which has
the same investment objective
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as each of the Trusts. The Trustees of AIST establish the Portfolio's investment
policies and supervise and review the operations and management of the
Portfolio. For furnishing the Portfolio with investment advice and investment
management and administrative services with respect to the Portfolio's assets,
including making specific recommendations as to the purchase and sale of
portfolio securities, furnishing requisite office space and personnel, and in
general supervising and managing the Portfolio's investments subject to the
ultimate supervision and direction of AIST's Trustees, the Manager is paid
monthly a fee equal to 0.55% per annum of the first $500 million of average
daily net assets of the Portfolio. The annual rate is reduced to 0.50% on net
assets from $500 million to $1 billion and to 0.45% on net assets over $1
billion. The management fees paid by the Portfolio to the Manager are expenses
of the Portfolio and reduce the net investment income available for distribution
by the Portfolio to the Trusts. The Manager has agreed to reimburse the
Portfolio and Trusts to the extent required so that the aggregate expenses do
not exceed the expense limitations applicable under the securities laws or
regulations of those states or jurisdictions in which the Trusts' shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Manager to reimburse the Portfolio and
Trusts to the extent required so that the Portfolio's and Trust's expenses, as
described above, for any fiscal year do not exceed 2.50% of the first $30
million of average net assets, 2.00% of the next $70 million of average net
assets and 1.50% of the remaining average net assets. The amount of any such
required reimbursement, however, is limited to the management fees paid by the
Portfolio to the Manager. Expenses for purposes of these expenses limitations
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation paid or incurred by the Trusts or the Portfolio. During the year
ended October 31, 1995, the Manager subsidized the expenses of Trust IV
resulting in an expense waiver of $1,738.
The Trusts have retained Atlas Holdings (formerly Pilgrim) Group Inc. (the
"Administrator") to provide administration for the Trusts pursuant to an
administration agreement. These administrative services include supervising the
preparation and filing of all documents required for compliance by the Trusts
with applicable laws and regulations, supervising the maintenance of books and
records and other general and administrative responsibilities. For providing
these services the Administrator receives a fee equal to 0.10% of each Trust's
average daily net assets.
During the year ended October 31, 1995 the Principal Underwriter received
commissions of $-0- from the sale of shares of Trust II and $99 from the sale of
shares of Trust III. The Principal Underwriter is an affiliate of the
Administrator and the Manager.
Certain officers and trustees of the Company are also officers and/or
directors/trustees of AIST, the Administrator, the Manager, and the Principal
Underwriter.
NOTE 6--EARLY WITHDRAWAL CHARGES
Shares of Trust I, Trust I-A and Trust IV which are redeemed may be subject to a
contingent deferred sales charge. The contingent deferred sales charge is not
imposed on shares acquired through the reinvestment of dividends and
distributions or on the appreciation of the value of shares acquired over their
purchase price. Redemption proceeds are applied first against shares not subject
to the contingent deferred sales charge for purposes of calculating such charge.
The contingent deferred sales charges are paid by the redeeming shareholder to
the Principal Underwriter at the time of redemption. The contingent deferred
sales charges for Trust I and Trust I-A are imposed at the rate of 4% for
redemptions in the first year after purchase, declining to 3%, 2%, and 1% in the
second, third and fourth years, respectively. The contingent deferred sales
charges for Trust IV are imposed at the rate of 0.25% of redemptions within 3
months of the date of purchase. During the year ended October 31, 1995 the
Principal Underwriter received contingent deferred sales charges of $2,053,485
from redemptions of Trust I shares, $2,725,445 from redemptions of Trust I-A
shares, and $209 from redemptions of Trust IV shares.
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NOTE 7--LEGAL MATTERS
Between December 1994 and July 1995, various complaints have been filed by
certain shareholders of the Astra Adjustable U.S. Government Securities Trusts
and the Astra Adjustable Rate Securities Trusts (collectively, the "Astra
Trusts") in the United States District Court for the Central District of
California and in the Superior Court for the State of California against the
Company and certain of its officers and trustees, AIST and certain of its
officers and trustees, Astra Management Corporation, Astra Fund Distributors
Corporation, and, Atlas Holdings Group Inc. and its principal stockholder and
certain of its employees. These complaints have been consolidated in the United
States District Court for the Central District of California in the matter
referred to as "In re Pilgrim Securities Litigation."
The complaints allege violations of the Securities Act of 1993 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the Portfolios of AIST.
The complaints seek relief measured by the consideration each shareholder paid
for shares of the Astra Trusts with interest thereon, less the amount of income
received thereon, or in the event the shareholder no longer owns such shares,
for damages, plus interest. Management of the Company believes the complaints
are without merit and intents, and has been advised that each of the other
defendants intends, to vigorously defend these actions. The ultimate outcome of
these matters, however, cannot presently be determined and accordingly the Astra
Trusts have made no provision for any losses which may result from settlement of
these complaints.
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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To the Shareholders of Astra Adjustable U.S. Government Securities
Trust I, I-A, II, III and IV, and the Trustees of Astra Strategic Investment
Series
San Diego, California
We have audited the statements of assets and liabilities of Astra (formerly
Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II, III and IV
(each a series of shares of beneficial interest of Astra (formerly Pilgrim)
Strategic Investment Series), as of October 31, 1995, and the related statements
of operations for the year then ended, and the statements of changes in net
assets for the each of the two years in the period then ended and the financial
highlights for each of the periods indicated thereon. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Astra
Adjustable U.S. Government Securities Trust I, I-A, II, III and IV as of October
31, 1995, and the results of their operations for the year then ended, and the
changes in their net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated thereon, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the accompanying financial statements Astra Adjustable
U.S. Government Securities Trusts I, I-A, II, III, and IV have been named as
defendants in various complaints alleging violations of the Securities Act of
1933 and the Investment Company Act of 1940 and seeking substantial relief. The
outcome of these matters cannot presently be determined and accordingly no
provision for any losses which may result from settlement of these matters has
been made in the accompanying financial statements.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
41
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STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
750 B Street
Suite 2350
San Diego, California 92101
(800) 219-1080
Astra Adjustable U.S. Government Securities Trust IV (the "Trust") is a
non-diversified series of Astra Strategic Investment Series ("ASIS"), an
open-end management investment company. The investment objective of the Trust is
to seek high current income consistent with low volatility of principal. The
Trust seeks to achieve its objective by investing all of its investable assets
in the Astra Institutional Adjustable U.S. Government Securities Portfolio (the
"Portfolio"), a non-diversified open-end series of Astra Institutional
Securities Trust ("AIST"), which has the same investment objective as that of
the Trust.
The Portfolio seeks to achieve its investment objective by investing at least
65% of its assets in adjustable rate mortgage securities which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities"). The Portfolio invests the remainder of its
assets generally in adjustable rate mortgage securities which are issued or
sponsored by commercial banks, savings and loan associations, mortgage bankers
or other financial institutions, that have no government guarantee, and that are
senior or subordinated to other mortgage securities arising out of the same pool
of mortgages ("Multi-Class Residential Mortgage Securities").
The prospectus for the Trust, dated February 28, 1996 (the "Prospectus"), which
provides the basic information you should know before investing in the Trust,
may be obtained without charge from ASIS at the address listed above. This
Statement of Additional Information is not a prospectus. It contains information
in addition to and more detailed than set forth in the Prospectus. It is
intended to provide you additional information regarding the activities and
operations of the Trust and ASIS, and should be read in conjunction with the
Prospectus.
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TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................................ 3
INVESTMENT OBJECTIVE AND POLICIES.......................................... 3
INVESTMENT RESTRICTIONS.................................................... 6
TRUSTEES AND OFFICERS...................................................... 8
MANAGEMENT OF THE TRUST AND THE PORTFOLIO.................................. 10
EXECUTION OF PORTFOLIO TRANSACTIONS........................................ 11
ADDITIONAL REDEMPTION INFORMATION.......................................... 12
PRICE OF THE SHARES IS DETERMINED DAILY.................................... 14
SHAREHOLDER SERVICES AND PRIVILEGES........................................ 14
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS....................... 15
INVESTMENT RETURN INFORMATION.............................................. 19
GENERAL INFORMATION........................................................ 21
FINANCIAL STATEMENTS....................................................... 24
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GENERAL INFORMATION AND HISTORY
On August 18, 1989, the shareholders of PSIS approved a proposal to reorganize
PSIS from a New York common law trust to Pilgrim Strategic Investment Series, a
Massachusetts business trust, with one series, Pilgrim High Yield Trust. The
Declaration of Trust, dated July 19, 1989, was filed with the Commonwealth of
Massachusetts on July 21, 1989. Pursuant to an amendment of the Declaration of
Trust, dated January 16, 1990, Pilgrim High Yield Trust changed its name to
Pilgrim Strategic Investment Series. The reorganization had no ramifications
with respect to the investment objective and policies, investment restrictions,
or general operations of PSIS. On November 12, 1990, the Trustees approved the
creation of a second series, the Pilgrim Adjustable U.S. Government Securities
Trust. On September 4, 1991, the Trustees of PSIS approved the creation of five
additional series of PSIS: the Trust, Pilgrim Adjustable U.S. Government
Securities Trust II, Pilgrim Adjustable U.S. Government Securities Trust III,
Pilgrim Adjustable Rate Securities Trust I, Pilgrim Adjustable Rate Securities
Trust II, and Pilgrim Adjustable Rate Securities Trust III. On November 22,
1991, the shareholders of PSIS approved a proposal to change the fundamental
policies of the Pilgrim Adjustable U.S. Government Securities Trust and its name
was changed to Pilgrim Adjustable U.S. Government Securities Trust I. On
February 13, 1992, the Trustees of PSIS approved the creation of two additional
series of PSIS: Pilgrim Adjustable U.S. Government Securities Trust IV and
Pilgrim Adjustable Rate Securities Trust IV, whose names were subsequently
changed to Pilgrim Adjustable U.S. Government Securities Trust I-A and Pilgrim
Adjustable Rate Securities Trust I-A. On April 30, 1993, the Trustees of PSIS
approved the creation of two additional series of PSIS: Pilgrim Adjustable U.S.
Government Securities Trust IV and Pilgrim Adjustable Rate Securities Trust IV.
On May 12, 1994, the Trustees of PSIS approved an amendment to PSIS' Declaration
of Trust to permit PSIS to issue additional classes of shares under a
multi-class distribution system.
On March 17, 1995, the Trustees approved an amendment to PSIS' Declaration of
Trust changing the name of PSIS to Astra Strategic Investment Series ("ASIS").
Effective as of April 10, 1995, the Pilgrim Adjustable U.S Government Securities
Trusts changed their name to Astra Adjustable U.S. Government Securities Trusts,
series of ASIS.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion pertaining to investments by the Portfolio supplements
the discussion of the investment objective of the Portfolio set forth in the
Prospectus under the heading "How The Trust Works."
Multi-Class Residential Mortgage Securities
The following discussion is intended to be a general discussion of certain
features of Multi-Class Residential Mortgage Securities and is not intended as a
discussion of all of the possible terms pursuant to which these types of
securities could be issued. Multi-Class Residential Mortgage Securities are a
type of multi-class pass-through security. Such a security represents a
beneficial interest in a pool of mortgage loans or a pool of mortgage
pass-through securities, often collectively referred to as "mortgage assets."
The mortgage assets are typically held by a trust, the beneficial interests in
which are evidenced by certificates issued pursuant to a pooling and servicing
agreement. The pooling and servicing agreement is entered into by a trustee
whose main responsibility is to act in the interests of the certificate holders
by enforcing the provisions of the pooling and servicing agreement, and by a
party who is responsible for pooling and conveying the mortgages assets to the
trust, sometimes referred to as a depositor. In some cases, the depositor also
acts as a master servicer for the underlying mortgage loans. Payments of
principal and interest made on the mortgage assets provide
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the funds to permit the trust to make scheduled distributions to certificate
holders. See "The Underlying Mortgage Loans," discussed below.
The Certificates. In general, a series of certificates is issued in multiple
classes with a stated maturity or final distribution date. One or more classes
of each series may be entitled to receive distributions allocable only to
principal, principal prepayments, interest, or any combination thereof prior to
one or more other classes, or only after the occurrence of certain events, and
may be subordinated in the right to receive such distributions on such
certificates to one or more senior classes of certificates. The rights
associated with each class of certificates are set forth in the applicable
pooling and servicing agreement, form of certificate, and offering documents for
the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest, or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans which
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index, or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
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Special Hazard Certificates. Special hazard certificates are typically offered
in conjunction with other classes of mortgage pass-through certificates and
constitute a subordinated class. To the extent that losses incurred on the
underlying mortgage loans constitute special hazard losses, the rights of the
special hazard certificate holders to receive distributions of principal and
interest are subordinated to those of the certificate holders of the more senior
classes of the series. A special hazard loss is a loss relating to a defaulting
mortgage loan as to which all recoverable liquidation and insurance proceeds
have been received. Depending on the particular terms of the certificates,
special hazard losses are allocated first to the special hazard certificates
holders and then to the regular certificate holders.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master servicer to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master servicer may also be required to obtain a
pool insurance policy to cover losses in an amount up to a certain percentage of
the aggregate principal balance of the mortgage loans in the pool to the extent
not covered by a primary mortgage insurance policy by reason of default in
payments on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master servicer could effect early termination of a
trust, after a certain specified date or the date on which the aggregate
outstanding principal balance of the underlying mortgage loans is less than a
specific percentage of the original aggregate principal balance of the
underlying mortgage loans, by purchasing all of such mortgage loans at a price,
unless otherwise specified, equal to the greater of a specified percentage of
the unpaid principal balance of such mortgage loans, plus accrued interest
thereon at the applicable certificate interest rate, or the fair market value of
such mortgage assets. Generally, the proceeds of such repurchase would be
applied to the distribution of the specified percentage of the principal balance
of each outstanding certificate of such series, plus accrued interest, thereby
retiring such certificates. Notice of such optional termination would be given
by the trustee prior to such distribution date.
Yield and Prepayment Considerations. The rate of principal payments on the
certificates, the aggregate amount of each interest payment and the yield to
maturity on the certificates are related to the rate of principal payments on
the underlying mortgage loans. Such principal payments may be in the form of
scheduled principal payments, prepayments by mortgagors, liquidations due to
default, casualty, condemnation and certain events usually set forth in the
related pooling and servicing agreement. The rate of prepayment may be
influenced by a variety of economic, geographic, social, and other factors. In
general, however, if interest rates on comparable obligations were to fall below
the mortgage rates on the underlying mortgage loans, which may be different from
prevailing interest rates, the rate of prepayment would be expected to increase.
Conversely, if prevailing rates on comparable obligations were to rise above the
mortgage rates on the underlying mortgage loans, the mortgage loans would be
expected to prepay at lower rates than if prevailing rates on comparable
obligations were to remain at or below the mortgage rates on the underlying
mortgage loans.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions, and
mortgage banking companies.
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Various servicers provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
servicer and the master servicer. A servicer's duties generally include
collection and remittance of principal and interest payments, administration of
mortgage escrow accounts, collection of insurance claims, foreclosure
procedures, and, if necessary, the advance of funds to the extent certain
payments are not made by the mortgagors and are recoverable under applicable
insurance policies or from proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master servicer who (a) establishes
requirements for each servicer, (b) administers, supervises and enforces the
performance by the servicers of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance, and any pool insurance required by the
terms of the certificates. The master servicer may be an affiliate of the
depositor and also may be the servicer with respect to all or a portion of the
mortgage loans contained in a trust fund for a series of certificates.
Lending of Portfolio Securities
As noted in the Prospectus, the Portfolio may lend its portfolio securities in
order to generate additional income. The Portfolio may pay reasonable
administration and custodial fees in connection with a loan and may pay a
negotiated portion of the income earned on the cash to the borrower or placing
broker. Loans are subject to termination at the option of the Portfolio or the
borrower at any time, including when termination is necessary to enable the
Portfolio to be the record owner for each dividend paid by the issuer thereof.
The Portfolio does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Purchase of Mortgage Securities
The Portfolio intends to comply with the provisions of Section 12(d) of the
Investment Company Act of 1940 in connection with purchasing mortgage
securities.
INVESTMENT RESTRICTIONS
The following investment restrictions which have been adopted by the Trust are
fundamental and cannot be changed without approval by the vote of a majority of
the outstanding voting securities of the Trust, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). (All policies not specifically
identified in this Statement of Additional Information or the Prospectus as
fundamental may be changed without a vote of the shareholders.)
The Trust may not:
1. Borrow money, except if after each borrowing there is asset
coverage of at least 300% as defined in the Act. For purposes
of this investment restriction, short sales, the entry into
currency transactions, options, futures contracts, including
those relating to indexes, options on futures contracts or
indexes and forward commitment transactions shall not
constitute borrowing.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal
business activities in the same industry, except that each of
the Trusts will invest more than 25% of the value of its total
assets in securities of issuers in the asset-backed securities
industry. However, in some future period or periods, due to
adverse economic conditions or for defensive purposes, the
Trust may temporarily have less than 25% of the total value of
its assets invested in that industry. This limitation does not
apply to investments or obligations of the U.S. Government or
any of its agencies or
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instrumentalities. In addition, this limitation does not
prevent the Trust from investing all or substantially all of
its assets in another registered investment company having the
same investment objective as that of the Trust.
3. Pledge, mortgage or hypothecate its assets, except to the
extent necessary to secure permitted borrowings and to the
extent related to the deposit of assets in escrow in
connection with (a) the writing of covered put and call
options, (b) the purchase of securities on a forward
commitment or delayed-delivery basis and (c) collateral and
initial or variation margin arrangements with respect to
currency transactions, options, futures contracts, including
those relating to indexes, and options on futures contracts or
indexes.
4. Purchase securities on margin, except for such short-term
credits as are necessary for the clearance of transactions,
but the Trust and the Portfolio may make margin deposits in
connection with transactions in currencies, options, futures
and options on futures.
5. Make short sales of securities, except short sales
against-the-box, or maintain a short position.
6. Underwrite any issue of securities issued by others, except to
the extent that the sale of portfolio securities by the Trust
may be deemed to be underwriting, except that, the Trust may
invest all or substantially all of its assets in another
registered investment company with the same investment
objective as that of the Trust.
7. Purchase, hold or deal in real estate or oil and gas
interests, although the Trust may purchase and sell securities
that are secured by real estate or interests therein and may
purchase mortgage-related securities and may hold and sell
real estate acquired for the Trust as a result of the
ownership of securities.
8. Invest in commodities except that the Trust may purchase and
sell futures contracts, including those relating to
securities, currencies, indexes, and options on futures
contracts or indexes and currencies underlying or related to
any such futures contracts, and purchase and sell currencies
(and options thereon) or securities on a forward commitment or
delayed-delivery basis.
9. Lend any funds or other assets except through the purchase of
all or a portion of an issue of securities or obligations of
the type in which it may invest; however, the Trust may lend
portfolio securities in an amount not to exceed 10% of the
value of the Trust's total assets. Any loans of portfolio
securities will be made according to guidelines established by
the SEC and the Board of Trustees.
10. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except as permitted herein and in
Investment Restriction Nos. 1, 3, 4 and 8. Obligations under
interest rate swaps will not be treated as senior securities
for purposes of this restriction so long as they are covered
in accordance with applicable regulatory requirements.
Obligations under interest rate collars, caps, and floors
will be treated as senior securities unless and until such
time as the Portfolio receives regulatory relief from staff
of the Securities and Exchange Commission or until such time
as the staff no longer deems such instruments to be senior
securities. Other good faith hedging transactions and
similar investment strategies will also not be treated as
senior securities for purposes of this restriction so long
as they are covered in accordance with applicable regulatory
requirements and are structured consistent with current
staff interpretation.
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In addition, the Trust will abide by the following additional investment
restrictions, although they are not fundamental investment policies.
The Trust will not:
1. Invest in oil, gas and other mineral leases or real estate
limited partnerships.
2. Purchase securities of unseasoned issuers, including their
predecessors or sponsors, which have been in operation for
less than three years, and equity securities of issuers which
are not readily marketable if by reason thereof the value of
its aggregate investment in such classes of securities will
exceed 5% of its total assets.
3. Purchase puts, calls, straddles, spreads, and any combination
thereof if by reason thereof the value of its aggregate
investment in such classes of securities will exceed 5% of its
total assets.
4. Invest any part of its total assets in real estate or
interests therein, excluding readily marketable securities and
securities for which there does not exist a readily available
market, i.e., illiquid.
5. Invest any part of its total assets in commodities or
commodity futures contracts.
6. Invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of its net
assets, may be warrants which are not listed on the New York
or American Stock Exchange. Warrants acquired by the Trust in
units or attached to securities may be deemed to be without
value.
TRUSTEES AND OFFICERS
Responsibility for management of ASIS and AIST is vested in a Board of Trustees.
The Trustees in turn appoint officers of ASIS and AIST to supervise actively the
day-to-day operations of ASIS and AIST. The shareholders of ASIS and AIST may
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose. Each Trustee serves during the continued lifetime of ASIS and AIST
until he dies, resigns or is removed, or if sooner, until the next meeting of
shareholders called for the purpose of electing Trustees.
The affiliations and principal occupations during the past five years of the
Trustees and principal officers are:
PALOMBA WEINGARTEN, Chairman of the Board and Trustee+ (53)
9595 Wilshire Boulevard, Beverly Hills, California 90212. Chairman of
the Board, Director and Chief Executive Officer of Atlas Holding Group,
Inc., the parent of Astra Fund Distributors Corp., and Astra Management
Corp., ("AMC") the Trust's distributor and investment manager,
respectively. The Chairman of the Board and Trustee of Astra Global
Investment Series, Astra Institutional Securities Trust and Astra
Institutional Trust.
AL BURTON, Trustee (67)
2300 Coldwater Canyon, Los Angeles, California 90210. President of Al
Burton Productions from 1992 to present; Executive Producer First Run
Syndication for Castle Rock Entertainment Inc. from 1992 to 1995;
Executive Producer-Consultant for Universal Television from 1982 to
1992; Trustee of Astra Global Investment Series, Astra Institutional
Securities Trust, Astra Institutional Trust and
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Pilgrim Prime Rate Trust. Director of Pilgrim America MagnaCap Fund,
Inc., Pilgrim Regional BankShares, Inc. and Pilgrim America Government
Securities Fund.
FELICE R. CUTLER, Trustee (58)
10601 Wilshire Boulevard, 19th Floor, Los Angeles, California 90024.
Partner in the law firm of Cutler & Cutler, Los Angeles, California
since 1991 and for more than five years prior to 1990 and in the law
firm of Dilworth, Paxson, Kalish & Kauffman from 1990 to 1991. Trustee
of Astra Institutional Trust, and Astra Institutional Securities Trust.
GARRY D. PEARSON, Trustee (47)
150 North Myers Street, Los Angeles, California 90033. Senior Vice
President of George Rice & Sons, a printing company located in Los
Angeles, California, since July 1994. Formerly Vice President and
Partner in Anderson Lithograph, a printing company located in Los
Angeles, California, from 1983 to 1994. Trustee of Astra Global
Investment Series, Astra Institutional Trust and Astra Institutional
Securities Trust.
RICHARD R. TARTRE, President and Chief Executive Officer+ (58)
750 B Street, Suite 2350, San Diego, California 92101. President and
Chief Executive Officer of AMC and Astra Fund Distributors Corp.
President and Chief Executive Officer of Astra Global Investment
Series, Astra Institutional Securities Trust and Astra Institutional
Trust. From March 1982 to July 1995, Managing Director of the
securities firm of Fundmark Investment Co. Services Inc. in San Diego,
California. Member of the Board of Directors of Mission West
Properties and Triton Group Ltd. since 1993 and Burnham Pacific
Properties since 1986. Chairman of Bio-Safety Systems from 1982 to
1995.
JOHN R. ELERDING, Senior Vice President, Secretary, Treasurer and Chief
Financial Officer+ (44)
750 B Street, Suite 2350, San Diego, California 92101. Senior Vice
President, Secretary, Treasurer and Chief Financial Officer of AMC and
Astra Fund Distributors Corp. Senior Vice President, Secretary,
Treasurer and Chief Financial Officer of Astra Global Investment
Series, Astra Institutional Securities Trust and Astra Institutional
Trust. From January 1994 to September 1994, Chief Financial Officer at
the investment banking firm of Investment Securities Corp. in San
Francisco, California. From 1991 to August 1993, investment manager and
assistant to the Chief Operating Officer at Robertson Stephens &
Company in San Francisco, California. From March 1979 to September
1989, Chief Financial Officer at the financial services holding company
of Omni World Wide in San Mateo, California.
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+ Interested person of ASIS as defined in the 1940 Act.
The officers and Trustees of ASIS and AIST, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Trust as of October
31, 1995. The Trustees of ASIS and AIST who are not affiliated with or
interested persons of AMC may receive fees for attendance at Trustees' meetings
(during the fiscal year ended October 31, 1995, $1,262 was paid in such fees),
while officers of ASIS and AIST receive no compensation directly from AMC for
performing the duties of their offices. However, those officers and
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Trustees of ASIS and AIST who are affiliated with AMC may be considered to have
received remuneration indirectly because AMC receives management fees from AIST.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
Management Agreement
Investment management services are provided to the Portfolio by Astra Management
Corp. ("AMC") (formerly Pilgrim Management Corporation) pursuant to an
Investment Management Agreement (the "Management Agreement") dated September 30,
1991. As compensation for its services with respect to the Portfolio, AMC is
paid monthly a fee equal to 0.55% per annum of the average daily net assets of
the Portfolio on the first $500 million of assets. The annual rate is reduced to
0.50% on net assets from $500 million to $1 billion; and to 0.45% on net assets
over $1 billion. As of October 31, 1995, the total net assets of the Portfolio
were approximately $172 million. For the fiscal years ended October 31, 1993,
1994 and 1995 AMC received compensation under its management agreement with the
Portfolio in the amounts of $6,233,257, $4,739,543 and $1,550,152 respectively.
The Portfolio pays its own operating expenses which are not assumed by AMC, such
as: expenses incurred in connection with the issuance, registration and transfer
of its shares; fees and costs of its custodian, transfer and shareholder
servicing agents; costs of pricing and calculating its daily net asset value and
of maintaining its books of account required by the 1940 Act; expenditures in
connection with meetings of the Trust's shareholders; salaries of officers and
fees and expenses of Trustees who are not members of or affiliated with AMC;
insurance premiums on property or personnel of AIST which inure to the Trust's
benefit; salaries of personnel of AIST who are involved in maintaining
registration of its shares under state securities laws; the cost of preparing
and printing reports and proxy statements of the Trust for distribution to its
shareholders; preparing and sending prospectuses and statements of additional
information to existing shareholders; trade association dues; legal and
accounting fees; and fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the Trust
or the Portfolio, to the extent required so that aggregate expenses do not
exceed the expense limitation applicable under the securities laws or
regulations of those states or jurisdictions in which the Trust's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require AMC to reduce its respective fees, or to
reimburse the Trust or the Portfolio, to the extent required so that aggregate
expenses, as described above, for any fiscal year do not exceed 2-1/2% of the
first $30 million of the Trust's average net assets, 2% of the next $70 million
of the Trust's average net assets, and 1-1/2% of the Trust's remaining average
net assets. Expenses for purposes of this expense limitation include the
management fee, but exclude distribution expenses, brokerage commissions and
fees, taxes, interest, and extraordinary expenses such as litigation, paid or
incurred by the Trust or the Portfolio. The expense limitation may change to
reflect changes in the expense limitations of the state having the most
restrictive limitation in which shares of the Trust or the Portfolio are
registered for sale. AMC voluntarily agreed to limit the Trusts' and Portfolios'
aggregate operating expenses during this period ending October 31, 1995,
resulting in a waiver of expenses in the amount of $1,738.
The Management Agreement for the Portfolio is currently in effect until August
30, 1996, and will be continued in effect from year to year thereafter so long
as such continuation is approved at least annually (i) by the Trustees of AIST,
or the vote of a majority of the outstanding voting securities of AIST, and (ii)
by a majority of the Trustees who are not interested persons of any party to the
Management Agreement cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreement may be terminated at any time,
without penalty, by either AIST or AMC upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
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Administrative Agreement
Administrative services are provided to the Trust by Atlas Holdings Group, Inc.
("Atlas Group") pursuant to an administration agreement dated September 4, 1991
(the "Administration Agreement"). As compensation for its services thereunder,
Atlas Group is paid a fee equivalent to 0.10% per annum of the Trust's average
daily net assets. For the period from ending October 31, 1995, the Trust paid
$5,429 to Atlas Group (formerly Pilgrim Group Inc.) pursuant to the
Administration Agreement.
The Trust pays its own operating expenses which are not assumed by Atlas Group,
such as: expenses incurred in connection with the costs of pricing and
calculating its daily net asset value and of maintaining its books of account
required by the 1940 Act; salaries of officers and fees and expenses of Trustees
who are not members of or affiliated with Atlas Group; insurance premiums on
property or personnel of ASIS which inure to the Trust's benefit; trade
association dues; and legal and accounting fees.
Under a sub-administration agreement between Atlas Group and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of ASIS. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to ASIS' registration statement with the Securities and Exchange
Commission (the "Commission"), preparation of annual, semi-annual and other
reports to shareholders and the Commission, filing of federal and state income
tax returns, preparation of financial and management reports, preparation of
board meeting materials, preparation and filing of blue sky registrations and
monitoring compliance with the amounts and conditions of each state
qualification. In consideration of the services provided under the
sub-administration agreement, Atlas Group (not the Trust) has agreed to pay PFPC
a monthly fee at the annual rate of .07% of the average net assets of the Trust
subject to certain minimums, exclusive of out-of-pocket expenses.
The Atlas Group
AMC is a wholly-owned subsidiary of Atlas Group, a Delaware corporation of which
Mrs. Weingarten is the sole stockholder and Chief Executive Officer. AMC also
acts as the investment manager to Astra Institutional Adjustable U.S. Government
Securities Portfolio, and Astra Institutional Adjustable Rate Securities
Portfolio (series of Astra Institutional Securities Trust), Astra Short Term
Multi-Market Income Fund I, and Astra Short Term Multi-Market Income Fund II
(series of Astra Global Investment Series) and Astra All-Americas Government
Income Trust (a series of Astra Institutional Trust), all of which are open-end
investment companies. As of the date of this Statement, total assets under
management of AMC were approximately $200 million.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Portfolio, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Management Agreement, AMC determines, subject to the
instructions of and review by the Trustees of AIST, which securities are to be
purchased and sold by the Portfolio and which brokers are to be eligible to
execute portfolio transactions of the Portfolio. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker," unless, in the opinion of AMC, a better price and
execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, AMC will use its best efforts to choose a
broker capable of providing the brokerage services necessary to obtain the most
favorable price and execution available. The full range and quality of brokerage
services available will be considered in making these determinations, such as
the size of the order, the difficulty of execution, the operations facilities of
the firm involved, the firm's risk in positioning a block of securities, and
other factors. In those instances where it is reasonably determined that more
than one broker can offer the brokerage services needed to obtain the most
favorable price and execution
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<PAGE>
available, consideration may be given to those brokers which supply research and
statistical information to the Portfolio and/or AMC, and provide other services
in addition to execution services. AMC considers such information, which is in
addition to and not in lieu of the services required to be performed by AMC
under its agreement with AIST, to be useful in varying degrees, but of
indeterminable value. The placement of portfolio brokerage with broker-dealers
who have sold shares of the Portfolio is subject to rules adopted by the
National Association of Securities Dealers, Inc. Provided officers of AIST are
satisfied that the Portfolio is receiving the most favorable price and execution
available, the Portfolio may also consider the sale of its shares as a factor in
the selection of broker-dealers to execute its portfolio transactions.
While it will continue to be AIST's general policy to seek first to obtain the
most favorable price and execution available, in selecting a broker to execute
portfolio transactions for the Portfolio, AIST may also give weight to the
ability of a broker to furnish brokerage and research services to the Portfolio
or AMC, even if the specific services were not imputed just to the Portfolio and
were useful to AMC in advising other clients. In negotiating commissions with a
broker, the Portfolio may therefore pay a higher commission than would be the
case if no weight were given to the furnishing of these supplemental services,
provided that the amount of such commission has been determined in good faith by
AIST and AMC to be reasonable in relation to the value of the brokerage and
research services provided by such broker, which services either produce a
direct benefit to the Portfolio or assist AMC in carrying out its
responsibilities to the Portfolio. The standard of reasonableness is to be
measured in light of AMC's overall responsibilities to AIST.
For the fiscal years ended October 31, 1993, 1994 and 1995 total brokerage
commissions paid by the Portfolio amounted to approximately $85,000, $109,000
and $79,000 respectively. The Portfolio does not intend to effect any brokerage
transaction in its portfolio securities with any broker-dealer affiliated
directly or indirectly with AMC, except for any sales of portfolio securities
pursuant to a tender offer, in which event AMC will offset against the
management fee a part of any tender fees which legally may be received by such
affiliated broker-dealer.
Although investment decisions for the Portfolio are made independently from
those of the other Astra funds, it is possible that at times identical
securities will be selected for purchase or sale by more than one of such funds.
However, the position of each fund in the same issuer may vary and the length of
time that each fund may choose to hold its investment in the same issuer may
likewise vary. To the extent any of these funds seeks to acquire the same
security at the same time, one or more of the funds may not be able to acquire
as large a portion of such security as it desires, or it may have to pay a
higher price for such security. Similarly, any of the funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security if any of the other funds desires to sell the same security
at the same time. If more than one of such funds simultaneously purchases or
sells the same security, each day's transaction in such security will be
averaged as to price and allocated between such funds in accordance with the
total amount of such security being purchased or sold by each of such funds. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as AIST is concerned.
ADDITIONAL REDEMPTION INFORMATION
Reinstatement Privilege
Shares of the Trust may be sold at net asset value, with credit for any
contingent deferred sales charges paid on the redeemed Trust shares, to persons
who have redeemed their shares of the Trust within the previous 30 days. The
amount of any contingent deferred sales charge related to the prior redemption
of Trust shares will be credited to the shareholder's account and also
reinvested.
The reinstatement privilege may be used only once per calendar year. In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent, or be postmarked, within 30 days after the date
of redemption. If the shareholder has realized a gain on the redemption, the
transaction
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is taxable and any reinstatement will not alter any applicable Federal capital
gains tax. If there has been a loss on the redemption and a subsequent
reinstatement pursuant to this privilege, some or all of the loss may not be
allowed as a tax deduction depending upon the amount reinstated, although such
disallowance is added to the tax basis of the shares acquired upon the
reinstatement.
Redemptions
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Transfer Agent of the written request in proper
form, except that the Trust may suspend the right of redemption or postpone the
date of payment during any period when: (a) trading on the New York Stock
Exchange ("Exchange") is restricted as determined by the SEC or such Exchange is
closed for reasons other than weekends and holidays; (b) an emergency exists as
determined by the SEC making disposal of portfolio securities or valuation of
net assets of the Trust not reasonably practicable; or (c) for such other period
as the SEC may permit for the protection of the Trust's shareholders. At various
times, the Trust may be requested to redeem its shares for which it has not yet
received good payment. Accordingly, the Trust may delay the mailing of a
redemption check until such time as it determines that it has received good
funds for the purchase of the shares being redeemed, which may take up to
fifteen days or longer.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account, as a result of voluntary redemption of shares and not of
investment performance of the Trust or deduction of sales charges, has a value
of less than $50,000. Before the Trust redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in his account is less than the minimum amount. This policy will not
be implemented where the Trust has previously waived the minimum investment
requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Contingent Deferred Sales Charge
A contingent deferred sales charge will be imposed on any redemption or
repurchase of shares of the Trust which reduces the current value of the
investor's shares of the Trust to an amount which is lower than the dollar
amount of all payments by the investor for the purchase of the Trust's shares
during the preceding three months. However, no such charge will be imposed to
the extent that the net asset value of the shares redeemed does not exceed (a)
the current net asset value of shares purchased more than three months prior to
the redemption or repurchase, plus (b) the current net asset value of shares
purchased through reinvestment of dividends or distributions, plus (c) increases
in the net asset value of the investor's shares above the total amount of
payments for the purchase of Trust shares made during the preceding three
months. Accordingly, investors may redeem, without incurring any contingent
deferred sales charge, amounts equal to any net increase in the value of the
shares redeemed above the amount of their purchase payments made with respect to
such shares within the past three months, and amounts equal to the current value
of shares purchased through reinvestment of dividends or distributions. The
contingent deferred sales charge will be imposed on any redemptions within three
months of purchase which are in excess of these amounts. The amount of any
contingent deferred sales charge will be paid to and retained by the
Distributor.
Waiver of Contingent Deferred Sales Charge
No contingent deferred sales charge will be payable in connection with the
redemption of shares of the Trust purchased by officers, directors and bona fide
full-time employees of the Trust, and its service agents, and with certain
exceptions, officers, directors and full-time employees and sales
representatives of AMC, the Distributor or affiliated companies thereof (or any
trust, pension, profit-sharing or other benefit plan for such persons),
broker-dealers having sales agreements with the Distributor, all for their own
accounts or for their
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spouse and children, and employees of such broker-dealer firms (for their own
accounts only), and discretionary advisory accounts of AMC (if such purchasers
state in writing that the purchases are for their own investment purposes only
and the purchaser represents that the shares will not be resold except to the
Trust.
The contingent deferred sales charge is waived for certain redemptions of shares
of the Trust upon the death or permanent disability of a shareholder. The
contingent deferred sales charge will be waived in the case of a redemption of
shares of the Trust following the death or permanent disability of a shareholder
if the redemption is made within one year of death or initial determination of
permanent disability. The waiver is available for total or partial redemptions
of shares of the Trust owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for redemptions of shares of the Trust
held at the time of death or initial determination of permanent disability. The
waiver does not apply in the case of a tax-free rollover or transfer of assets,
other than one following a separation from services. The shareholder must notify
the Transfer Agent either directly or through the Distributor, at the time of
redemption, that the shareholder is entitled to waiver of the contingent
deferred sales charge. The waiver will be granted subject to confirmation of the
investor's entitlement.
PRICE OF THE SHARES IS DETERMINED DAILY
Since the Trust will invest in the Portfolio, if the securities owned by the
Portfolio increase in value, the value of the Trust shares which the shareholder
owns will increase. If the securities owned by the Portfolio decrease in value,
the value of the shareholder's shares will also decline. As noted in the
Prospectus, the net asset value and offering price of shares of the Portfolio
will be determined once daily as of the close of trading on the New York Stock
Exchange (currently 4:00 p.m., New York Time) on the "business day," which is
any day on which the Exchange is open for business. It is expected that the
Exchange will be closed on Saturdays and Sundays and on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day and on the preceding Friday or subsequent
Monday when one of these holidays falls on Saturday or Sunday, respectively.
Portfolio securities, listed or traded on a national securities exchange will be
valued at the last sale price on such exchange on the valuation day. Securities
traded on an exchange for which there has been no sale that day and securities
traded in the over-the-counter market will be valued at the last reported bid
price or the mean between the bid and the asked prices, as determined by the
Board of Trustees of AIST. Short-term obligations maturing in less than sixty
days will generally be valued at original cost plus accrued daily interest.
Securities for which quotations are not readily available and all other assets
will be valued at their fair value as determined in good faith by, or under
procedures established by, the Board of Trustees of AIST.
All liabilities incurred or accrued (including written call options) are
deducted from the total assets. The resulting net assets are divided by the
number of shares of the Portfolio and the Trusts outstanding at the time of the
valuation and the result (adjusted to the nearest cent) is the net asset value
per share.
Orders received by the Trust's Transfer Agent prior to the close of trading on
the New York Stock Exchange will be confirmed at the offering price computed as
of the close of trading on such Exchange provided the order is received by the
Trust's Transfer Agent prior to 3:00 p.m. (Pacific Time) on that day.
SHAREHOLDER SERVICES AND PRIVILEGES
The Trust's shareholders have the privilege of reinvesting both income dividends
and capital gains distributions, if any, in additional full or fractional shares
of the Trust at the net asset value in effect at the reinvestment date. The
management of ASIS has made arrangements with its Transfer Agent to have all
income dividends and capital gains distributions which are declared by the Trust
automatically reinvested for the account of each shareholder unless a
shareholder elects in writing to the Trust or the Transfer Agent to
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have such dividends or distribution paid to him in cash. In the absence of such
election, each purchase of shares of the Trust is made upon the condition and
understanding that the Transfer Agent is automatically appointed to receive the
dividends and distributions upon all shares in the shareholder's account and to
reinvest them in full and fractional shares of the Trust at the applicable net
asset value in effect at the close of business on the reinvestment date. A
shareholder may at any time request that future dividends and/or capital gains
distributions be paid to him in cash.
Every shareholder will receive a confirmation of each new transaction in his
account, which will also show the total number of Trust shares owned by the
shareholder and the number of shares being held in safekeeping by the Transfer
Agent for the account of the shareholders and a cumulative record of his account
for the entire year. Shareholders may rely on these statements in lieu of
certificates. Certificates representing shares of the Trust will not be issued
unless the shareholder requests them in writing.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Trust and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Trust or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.
Qualification as a Regulated Investment Company
The Trust intends to elect to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Trust is not subject to Federal income tax on
the portion of its net investment income (i.e., its taxable interest, dividends
and other taxable ordinary income, net of expenses) and net realized capital
gain (i.e., the excess of capital gains over capital losses) that it distributes
to shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) and at least 90% of its
tax-exempt income (net of expenses allocable thereto) for the taxable year (the
"Distribution Requirement"), and satisfies certain other requirements of the
Code that are described below. The Trust will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Distributions by the Trust made during the taxable year or, under specified
circumstances, within one month after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, the Trust must: (i)
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to the Trust's principal business of investing in
stock or securities) and other income (including but not limited to gains from
options, futures or forward contracts), derived with respect to its business of
investing in such stock, securities or currencies (the "Income Requirement");
and (ii) derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forwards, will
not be characterized as Short-Short Gain if they are directly related to the
Trust's investment in stock or securities (or options or futures thereon).
Because of the Short-Short Gain Test, the Trust may have to limit the sale of
appreciated securities it has held for less than three months. However, the
Short-Short Gain Test will not prevent the Trust from disposing of investments
at a loss, since the recognition of a loss before the expiration of the
three-month holding period is disregarded. Interest (including original issue
discount) received by the Trust at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However,
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income that is attributable to realized market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
In general, for purposes of determining whether capital gain or loss recognized
by the Trust on the disposition of an asset is long-term or short-term, the
holding period of the asset may be affected if (i) the asset is used to close a
"short sale" (which includes for certain purposes the acquisition of a put
option) or is substantially identical to another asset so used, (ii) the asset
is otherwise held by the Trust as part of a "straddle," or (iii) the asset is
stock and the Trust grants certain call options with respect thereto. However,
for purposes of the Short-Short Gain Test, the holding period of the asset
disposed of may be reduced only in the case of clause (i), above.
Certain debt securities purchased by the Trust (such as zero-coupon bonds) may
be treated for Federal income tax purposes as having original issue discount.
Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not the Trust actually receives cash, it
is deemed to have earned original issue discount income that is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Trust each year is determined on the
basis of a constant yield to maturity that takes into account the compounding of
accrued interest.
The Trust may purchase debt securities at a discount that exceeds any original
issue discount that remained on the securities at the time the Trust purchased
the securities. This additional discount represents market discount for income
tax purposes. For a debt security purchased after April 30, 1993, which had an
original maturity date of more than one year from the date of issue and having
market discount, the gain realized on disposition will be treated as interest to
the extent it does not exceed the accrued market discount on the security
(unless the Trust elects for all its debt securities having a fixed maturity
date of more than one year from the date of issue to include market discount in
income in taxable years to which it is attributable). Generally, market discount
accrues on a daily basis. The Trust may be required to capitalize, rather than
deduct currently, part or all of any net direct interest expense on indebtedness
incurred or continued to purchase or carry any debt security having market
discount (unless the Trust makes the election to include market discount in
income as it accrues).
At the close of each quarter of its taxable year, at least 50% of the value of
the Trust's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers (as to which the Trust has not invested more than 5% of the
value of its total assets in securities of such issuer and the Trust does not
hold more than 10% of the outstanding voting securities of such issuer), and no
more than 25% of the value of its total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which the Trust
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Test").
If for any taxable year the Trust does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of the current and accumulated earnings and
profits of the Trust. In such event, such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on regulated investment companies that
fail to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment
- 16 -
<PAGE>
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
U.S. Treasury regulations may permit a regulated investment company, in
determining its investment company taxable income and undistributed net capital
gain for any taxable year, to treat any capital loss incurred after October 31
as if it had been incurred in the succeeding year. For purposes of the excise
tax, a regulated investment company may (i) reduce its capital gain net income
by the amount of any net ordinary loss for any calendar year and (ii) exclude
foreign currency gains and losses incurred after October 31 of any year in
determining the amount of ordinary taxable income for the current calendar year
(and, instead, include such gains and losses in determining ordinary taxable
income for the succeeding calendar year).
The Trust intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Trust may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Trust Distributions
The Trust anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for Federal income tax
purposes, but they will generally not qualify for the 70% dividends-received
deduction for corporations.
Distributions of net capital gains, if any, which are designated by the Trust
as capital gain dividends are taxable to shareholders as long-term capital
gains, regardless of how long the shareholder has held the Trust's shares, and
are not eligible for the dividends-received deduction. The Portfolio generally
intends to distribute any net capital gains.
If the Trust should retain net capital gains, it will be subject to a tax of 35%
of the amount retained. The Trust expects to designate amounts retained, if any,
as undistributed capital gains in a notice to its shareholders who, if subject
to U.S. Federal Income taxation on long-term capital gains, (i) would be
required to include in income for U.S. Federal Income tax purposes, as long-term
capital gains, their proportionate shares of the undistributed amount, and (ii)
would be entitled to credit against their U.S. Federal income tax liabilities
for their proportionate shares of the tax paid by the Trust on the undistributed
amount and to claim refunds to the extent that their credits exceed their
liabilities. For U.S. Federal Income tax purposes, the adjusted basis of the
Trust shares owned by a shareholder of the Trust would be increased by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those purchasing just prior to an ordinary income
dividend or capital gain dividend will be taxable on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
Distributions by the Trust that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in the reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Trust will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Trust. Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. Ordinarily, shareholders are required to take
distributions by the Trust into account in the year in which the distributions
are made.
- 17 -
<PAGE>
However, distributions declared in October, November or December of any year and
payable to shareholders of record on a specified date in such a month will be
deemed to have been received by the shareholders (and made by the Trust) on
December 31 of such calendar year if such distributions are actually made in
January of the following year. Shareholders will be advised annually as to the
U.S. Federal income tax consequences of distributions made (or deemed made)
during the year.
Backup Withholding. The Trust may be required to withhold U.S. Federal Income
tax at the rate of 31% of all taxable distributions payable to shareholders who
fail to provide the Trust with their correct taxpayer identification number or
to make required certifications, or where the Trust or the shareholder has been
notified by the Internal Revenue Service that the shareholder is subject to
backup withholding. Corporate shareholders and certain other shareholders
specified in the Code generally are exempt from such backup withholding. Backup
withholding is not an additional tax. Any amounts withheld may be credited
against the shareholder's U.S. Federal Income tax liability.
Sale of Shares. In general, upon the sale or other disposition of shares of the
Trust, a shareholder will realize a capital gain or loss which will be long-term
or short-term, depending upon the shareholder's holding period for the shares.
However, if the shareholder sells Trust shares to the Trust, proceeds received
by the shareholder may, in some cases, be characterized for tax purposes as
dividends. Any loss realized on a sale or exchange will be disallowed to the
extent the shares disposed of are replaced within a period of 61 days beginning
30 days before and ending 30 days after disposition of the shares. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on a disposition of Trust
shares held by the shareholder for six months or less will be treated as a
long-term capital loss to the extent of any distributions of capital gain
dividends received by the shareholder with respect to such shares.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from the Trust is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Trust is not effectively connected with a U.S. trade or
business carried on by the foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate, if
applicable) upon the gross amount of the dividend. Such foreign shareholders
would generally be exempt from U.S. Federal income tax on gains realized on the
sale of shares of the Trust and on capital gain dividends and amounts retained
by the Trust that are designated as undistributed capital gains.
If the income from the Trust is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Trust will be subject to U.S. Federal income tax at the rates applicable to U.S.
citizens and residents or domestic corporations.
In the case of foreign noncorporate shareholders, the Trust may be required to
withhold U.S. Federal income tax at a rate of 20% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Trust with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Trust, including the
applicability of foreign taxes.
- 18 -
<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. Federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Trust.
INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of the Trust to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total return and
yield. Under the rules of the SEC ("SEC Rules"), funds advertising performance
must include total return quotes calculated according to the following formula:
P(1+T)n(superior)=ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years (1, 5 or 10).
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at
the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5 and
10 year periods or a shorter period dating from the effectiveness of the Trust's
Registration Statement. In calculating the ending redeemable value, all
dividends and distributions by the Trust are assumed to have been reinvested at
net asset value as described in the Prospectus on the reinvestment dates during
the period. Total return, or "T" in the formula above, is computed by finding
the average annual compounded rates of return over the 1, 5 and 10 year periods
(or fractional portion thereof) that would equate the initial amount invested to
the ending redeemable value, including any applicable contingent deferred sales
charge. Any recurring account charges that might in the future be imposed by the
Trust would be included at that time.
The Trust's average annual compounded rate of return for the fiscal year ended
October 31, 1995 and for the period May 7, 1993 to October 31, 1995 was -8.75%
and -5.47%, respectively.
The Trust may also from time to time include in such advertising a total return
figure that is not calculated according to the formula set forth above in order
to compare more accurately the performance of the Trust with other measures of
investment return. For example, in comparing the Trust's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock
- 19 -
<PAGE>
Index of the Dow Jones Industrial Average, the Trust calculates its aggregate
total return for the specified periods of time by assuming the investment of
$10,000 in Trust shares and assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value. The Trust
does not, for these purposes, deduct any amount representing contingent deferred
sales charges. As appropriate, the Trust will, however, disclose the maximum
contingent deferred sales charge and will also disclose that the performance
data does not reflect contingent deferred sales charges and that inclusion of
contingent deferred sales charges would reduce the performance quoted. Such
alternative total return information will be given no greater prominence in such
advertising than the information prescribed under SEC Rules.
In addition to the total return quotations discussed above, the Trust may
advertise its yield based on a thirty-day (or one month) period ended on the
date of the most recent balance sheet included in its Registration Statement,
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
A-B
YIELD=2[(---+1)6(superior)-1]
CD
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by the Trust based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (ii) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Trust's portfolio (assuming a month of thirty days),
and (iii) computing the total of the interest earned on all debt obligations and
all dividends accrued on all equity securities during the thirty-day or one
month period. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in the Trust's portfolio. For purposes of "b" above, Rule 12b-1 Plan
expenses, as applicable, are included among the expenses accrued for the period.
Any amounts representing sales charges will not be included among these
expenses; however, the Trust will disclose the maximum sales charge as well as
any amount or specific rate of any nonrecurring account charges. Undeclared
earned income, computed in accordance with generally accepted accounting
principles, may be subtracted from the maximum offering price calculation
required pursuant to "d" above.
The Trust may also from time to time advertise its yield based on a thirty-day
period ending on a date other than the most recent balance sheet included in its
Registration Statement, computed in accordance with the
- 20 -
<PAGE>
yield formula described above, as adjusted to conform with the differing period
for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
The Trust's yield as of October 31, 1995, based on a 30-day base period was
3.29%.
GENERAL INFORMATION
Underwriting Agreement
The underwriting agreement (the "Underwriting Agreement") between ASIS and Astra
Fund Distributors Corp. ("the Distributor") with respect to the distribution of
shares of the Trust is in effect until August 30, 1996, and thereafter continues
from year to year if approved at least annually (i) by the Trustees of ASIS or
by the vote of a majority of the outstanding voting securities of the Trust and
(ii) by a majority of the Trustees of ASIS who are not parties to the
Underwriting Agreement or interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such approval. The Underwriting
Agreement may be terminated without penalty by either party on sixty days'
written notice and shall be automatically terminated in the event of its
assignment as defined in the 1940 Act. The Distributor is a wholly-owned
subsidiary of Atlas Holding Group, Inc.
Distribution Expenses
The Trust's Plan provides that it will pay up to a maximum of 0.60% per annum of
its average daily net assets for expenses incurred in the distribution of its
shares. The Plan may carry over expenses from year to year, provided, however,
that in accordance with a policy adopted by ASIS' Board of Trustees, such
expenses may not be carried over for more than three years from the date when
such expenses were incurred and that the Distributor has not yet been reimbursed
for such expenses. The Distributor may include as an expense a portion of its
overhead, including out-of-pocket costs. In the event the Plan is terminated in
accordance with its terms, the obligations of the Trust to make payments to the
Distributor pursuant to the Plan will cease and the Trust will not be required
to make any payments for expenses incurred after the date the Plan terminates.
Pursuant to this Plan, the Distributor will be entitled to reimbursement each
month (up to the maximum of 0.60% per annum of the average net assets of the
Trust) for its expenses incurred in the distribution and promotion of the
Trust's shares, including but not limited to the printing of Prospectuses,
Statements of Additional Information and reports use for sales purposes,
advertisements, expenses of preparation and printing of sales literature, and
other distribution related expenses, including any distribution or service fees
paid to securities dealers or other firms who have executed a distribution or
service agreement with the Distributor. The maximum amount which may be paid to
such dealers or firms by the Distributor (which will be determined according to
the services provided in assisting investors with their accounts and/or shares
sold) is 0.60% (on an annual basis) of the Trust's average net assets owned by
clients of that dealer or firm. The maximum annual operating expenses of the
Trust, including this distribution expense, are limited by the expense
reimbursement provisions in the Agreement with AMC (see "Management of the Trust
and the Portfolio"). The expenses of distribution in excess of 0.60% per annum
and not carried over as stated above will be borne by the Distributor without
any reimbursement or payment by the Trust.
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<PAGE>
The Distributor is required to report in writing to the Board of Trustees of
ASIS at least quarterly on the monies reimbursed to it under the Plan, as well
as to furnish the Board with such other information as may reasonably be
requested in connecting with the payments made under the Plan in order to enable
the Board to make an informed determination of whether the Plan should be
continued.
For the period ending October 31, 1995, the Trust reimbursed the Distributor
approximately $32,575 pursuant to the Plan, which amounts were attributable to
the total amount spent by the Distributor (approximately $37,374) in the
distribution of the Trust's shares, including expenses for: salaries and
commissions - $31,432; advertising -$0; printing, postage and handling -
$1,328; and miscellaneous and other promotional activities - $4,614. Of the
amount incurred by the Distributor during this period, approximately $7,673 was
for the cost of personnel of the Distributor and its affiliates involved in the
promotion and distribution of the Trust's shares.
The Board of Trustees of ASIS has determined that a consistent cash flow
resulting from the sale of new shares is necessary and appropriate to meet
redemptions and to take advantage of buying opportunities without having to make
unwarranted liquidations of portfolio securities. The Board, therefore, felt
that it will likely benefit the Trust to have monies available for the direct
distribution activities of the Distributor in promoting the sale of the Trust's
shares. The Board of Trustees, including the non-interested trustees, concluded
that in the exercise of their reasonable business judgment and in light of their
fiduciary duties, there is a reasonable likelihood that the Plan will benefit
the Trust and its shareholders.
The Plan has been approved by ASIS' Board of Trustees, including all of the
trustees who are non-interested persons as defined in the 1940 Act, and by the
Trust's initial shareholder. The Plan must be renewed annually by ASIS' Board of
Trustees, including a majority of the trustees who are non-interested persons of
ASIS and who have no direct or indirect financial interest in the operation of
the Plan, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. The Plan and any distribution or service agreement may
be terminated at any time, without any penalty, by such trustees or by a vote of
a majority of the Trust's outstanding shares on sixty days' written notice. The
Distributor or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The Plan and any distribution or service agreement may not be amended to
increase materially the amount spent for distribution expenses or in any other
material way without approval by a majority of the Trust's outstanding shares,
and all material amendments to the Plan or any distribution or service agreement
shall be approved by the non-interested trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
Portfolio Turnover
As noted in the Prospectus, the Portfolio's portfolio turnover rate was 83% and
108% for the fiscal years ended October 31, 1994 and 1995, respectively. The
portfolio turnover increased on a percentage basis due to, among other things, a
decrease in the actual assets of the Portfolio.
Miscellaneous
The Amended and Restated Declaration of Trust, dated November 4, 1994 which was
subsequently amended on April 10, 1995 (the "Declaration of Trust"), a copy of
which is on file in the office of the Secretary of The Commonwealth of
Massachusetts, authorizes the issuance of shares of beneficial interest in ASIS
without par value. Each share of the Trust has one vote and shares equally in
dividends and distributions when and if declared by the Trustees of ASIS and in
the Trust's net assets upon liquidation. All shares, when issued, are fully paid
and non-assessable. There are no preemptive, conversion, or exchange rights.
Shares of ASIS do not have cumulative voting rights and, as such, holders of at
least 50% of the shares voting for Trustees
- 22 -
<PAGE>
can elect all Trustees and the remaining shareholders would not be able to elect
any Trustees. As used in the Prospectus, the term "majority vote" means the
affirmative vote of (a) more than 50% of the outstanding shares of the Trust or
ASIS (as appropriate) or (b) 67% or more of the shares present at a meeting if
more than 50% of the outstanding shares of the Trust or ASIS (as appropriate)
are represented at the meeting in person or by proxy, whichever is less.
The Board of Trustees may classify or reclassify any unissued shares of ASIS
into shares of any series by setting or changing in any one or more respects,
from time to time, prior to the issuance of such shares, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, or qualifications, of such shares. Any such classification or
reclassification will comply with the provisions of the 1940 Act.
The overall management of the business of ASIS is vested with the Trustees. The
Trustees approve all significant agreements between ASIS and persons or
companies furnishing services to ASIS. The day-to-day operations of the Trust
are delegated to officers of ASIS subject to the investment objective and
policies of ASIS, the general supervision of Trustees, and the applicable laws
of The Commonwealth of Massachusetts.
Generally, there will not be annual meetings of shareholders. Shareholders may
remove trustees from office by votes cast at a meeting of shareholders or by
written consent.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of ASIS. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of ASIS and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by the Trustee or the Trustees. The
Declaration of Trust provides for indemnification out of ASIS's property for all
loss and expense of any shareholder of ASIS held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
ASIS would be unable to meet its obligations wherein the complaining party was
held out to be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, nothing in the
Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by ASIS of the
Trustees and officers of ASIS except with respect to any matter as to which any
such person did not act in good faith in the reasonable belief that his action
was in or not opposed to the best interests of ASIS. Such person may not be
indemnified against any liability to ASIS or the Trust's shareholders to which
he would otherwise be subjected by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
CUSTODIAN AND TRANSFER AGENT--The cash and securities owned by ASIS are held by
PNC Bank, National Association, Lester, Pennsylvania, as custodian, which takes
no part in the decisions relating to the purchase or sale of any of the Trust's
portfolio securities. DST Systems Inc. acts as ASIS' transfer agent and dividend
disbursing agent.
INDEPENDENT ACCOUNTANTS--The Trust's independent public accountant is Tait,
Weller & Baker, Two Penn Center Plaza, Philadelphia, Pennsylvania 19102.
LEGAL COUNSEL--Certain legal matters for ASIS are passed upon by Jorden Burt
Berenson & Johnson LLP, 1025 Thomas Jefferson Street, N.W., Suite 400 East,
Washington, D.C. 20007.
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<PAGE>
OTHER INFORMATION--ASIS is registered with the Securities and Exchange
Commission as a management investment company. Such registration does not
involve supervision of the management or policies of ASIS. The Prospectus and
this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the SEC, and copies of such
information may be obtained from the SEC upon payment of the prescribed fee or
examined at the SEC in Washington, D.C. without charge.
As of January 31, 1996, there were no shareholders of the Trust who beneficially
owned more than 5% of the outstanding shares of the Trust.
Certain class action lawsuits, the first of which was filed on December 19, 1994
(entitled Lisa Liottali, on behalf of herself and all others similarly situated
v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust
("PIST"), Pilgrim Strategic Investment Series ("PSIS") (and certain series funds
of PSIS) (predecessors to the Atlas Group, AMC AFDC, AIST and ASIS) and certain
past and present Trustees and officers of AIST and ASIS are defendants. These
actions, which were consolidated in March 31, 1995, in an action entitled In Re:
Pilgrim Securities Litigation, principally allege violations of the Securities
Act of 1933 and the Investment Company Act of 1940 and relate primarily to
disclosure in certain of PSIS' funds concerning pricing and liquidity of
portfolio securities. Management believes the Complaints are without merit and
intends to vigorously defend these actions.
Investors in the Trust will be kept informed of its progress through periodic
reports showing diversification of its portfolio, statistical data and any other
significant data. Financial statements certified by independent public accounts
will be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolio's portfolio as of the close of business on
the last day of each month, may be obtained by written request to the Trust,
together with a stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Shareholder Servicing Agent,
DST Systems, Inc. (800-441-7267).
The Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No salesman, dealer or other person
is authorized to give any information or make any representations other than
those contained in the Prospectus.
FINANCIAL STATEMENTS
The Financial Statements of the Trust for the period ending October 31, 1995 and
of the Portfolio for the fiscal year ended October 31, 1995 are incorporated
herein by reference from the Trust's 1995 Annual Report to Shareholders. Copies
of the Trust's Annual Report may be obtained without charge by contacting the
Trust's Shareholder Servicing Agent at (800) 441-7267.
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<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities at value* (identified cost $3,562,675) (Notes 1, 2A and 3) ........ $ 2,944,374
Dividends receivable from Portfolio ......................................................... 13,042
Deferred organization expense (net of accumulated amortization of $26,285) (Note 2D) ........ 26,460
Prepaid expenses ............................................................................ 2,713
-----------
Total Assets .............................................................................. 2,986,589
-----------
LIABILITIES:
Payable for capital stock redeemed .......................................................... 85,410
Accrued expenses ............................................................................ 30,535
-----------
Total Liabilities ......................................................................... 115,945
-----------
NET ASSETS ................................................................................... $ 2,870,644
===========
Net asset value per share ($2,870,644/508,776 shares) (Note 6) .............................. $ 5.64
===========
At October 31, 1995 the components of net assets were as follows:
Paid-in capital ............................................................................. $ 7,427,790
Accumulated net realized loss on investments ................................................ (3,938,845)
Net unrealized depreciation of investments .................................................. (618,301)
-----------
Net Assets ................................................................................ $ 2,870,644
===========
</TABLE>
- ----------
* Investments of Astra Adjustable U.S. Government Securities Trust IV consist
entirely of 37,506 shares of Astra Institutional Adjustable U.S. Government
Securities Portfolio. Cost for Federal income tax purposes was $3,542,675.
See Notes 1 and 2A.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- ------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
INCOME:
Dividends from Portfolio ................................................................... $ 316,759
-----------
EXPENSES:
Distribution expenses (Note 4B) ............................................................ 32,575
Registration fees .......................................................................... 26,584
Professional fees .......................................................................... 15,827
Amortization of organization expense (Note 2D) ............................................. 10,534
Shareholder servicing costs ................................................................ 9,162
Miscellaneous expense ...................................................................... 9,070
Reports to shareholders .................................................................... 7,404
Administrative servicing costs (Note 5) .................................................... 5,429
Insurance expense .......................................................................... 2,040
Trustees' fees ............................................................................. 1,677
Recordkeeping fees ......................................................................... 340
-----------
Total expenses ........................................................................... 120,642
Expenses waived (Note 5) ................................................................... (1,738)
-----------
Net expenses ............................................................................ 118,904
-----------
Net investment income .................................................................. 197,855
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ........................................................... (1,626,315)
Net change in unrealized depreciation of investments ....................................... 691,045
-----------
Net loss on investments .................................................................. (935,270)
-----------
Net decrease in net assets resulting from operations .................................... $ (737,415)
===========
</TABLE>
See Notes to Trusts' Financial Statements.
25
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................. $ 197,855 $ 1,783,356
Net realized loss on investments ....................................... (1,626,315) (2,309,813)
Net change in unrealized depreciation of investments ................... 691,045 (1,034,185)
----------- -----------
Net decrease in net assets resulting from operations ................... (737,415) (1,560,642)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($0.218 and $0.302
per share, respectively) .............................................. (208,389) (1,793,890)
Distributions from paid-in capital
($0.087 and $0.034 per share, respectively) ........................... (82,655) (199,771)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change
in the number of outstanding shares(a) ................................ (8,666,396) (62,024,752)
----------- -----------
Total decrease in net assets ......................................... (9,694,855) (65,579,055)
Net assets at the beginning of the period .............................. 12,565,499 78,144,554
----------- -----------
NET ASSETS at the end of the period .................................... $ 2,870,644 $12,565,499
=========== ===========
</TABLE>
- ----------
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
---------------------------- ---------------------------
Shares Value Shares Value
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold .................................. 28,558 $ 169,566 2,395,547 $ 17,353,149
Shares issued in reinvestment of
distributions to shareholders ............... 30,623 181,378 188,589 1,341,193
Shares repurchased ........................... (1,481,273) (9,017,340) (11,337,922) (80,719,094)
---------- ----------- ---------- ------------
Net decrease ................................ (1,422,092) $(8,666,396) (8,753,786) $(62,024,752)
========== =========== ========== ============
</TABLE>
See Notes to Trusts' Financial Statements.
26
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
<TABLE>
<CAPTION>
May 7, 1993
(commencement of
Year Ended October 31, operations) to
------------------------------- October 31,
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ..................... $ 6.510 $ 7.310 $ 7.350
------- ------- -------
Income (loss) from investment operations--
Net investment income ................................... 0.211(e) 0.300 0.171
Net realized and unrealized loss on investments ......... (0.776)(e) (0.764) (0.025)
------- ------- -------
Total from investment operations ...................... (0.565) (0.464) 0.146
------- ------- -------
Less distributions--
Distributions from net investment income ................ 0.218 0.302 0.172
Distributions from paid-in capital ...................... 0.087 0.034 0.014
------- ------- -------
Total distributions ................................... 0.305 0.336 0.186
------- ------- -------
Net asset value, end of period ........................... $ 5.640 $ 6.510 $ 7.310
======= ======= =======
TOTAL RETURN (F) ......................................... (8.75)% (6.57)% 4.11%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ................. $2,871 $12,565 $78,145
Ratio to average net assets--
Expenses ................................................ 2.19%(b)(c) 0.85%(b)(c) 0.45%(a)(b)(c)
Net investment income ................................... 3.64%(d) 4.23%(d) 4.71%(a)(d)
Portfolio turnover rate .................................. 6% 21% 3%
</TABLE>
- ----------
(a) Annualized.
(b) Ratio of expenses to average net assets excludes 0.86%, 0.62%, 0.61%,
respectively, of expenses of the Portfolio, which reduced dividends paid to
Trust IV.
(c) Ratio of expenses to average net assets prior to expense waivers were
2.22%, 1.06% and 0.76%(a), respectively.
(d) Ratio of net investment income to average net assets prior to expense
waivers were 3.61%, 4.02% and 4.40%(a), respectively.
(e) Based upon average shares outstanding throughout the period.
(f) Calculated without the deduction of sales charges.
See Notes to Trusts' Financial Statements
27
<PAGE>
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUSTS
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ----------------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Strategic Investment Series (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. On September 15, 1994 the Company's shareholders
approved a change in the Company's Declaration of Trust to permit the creation
of additional classes of shares of each of the Trust's series. Currently, the
Company has authorized an unlimited number of shares of beneficial interest
without par value and at October 31, 1995 offered a single class of shares in
ten series: Astra (formerly Pilgrim) Adjustable Rate Securities Trust I, I-A,
II, III and IV (collectively, the "Astra Adjustable Rate Securities Trusts"),
Astra (formerly Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II,
III and IV (collectively, the "Astra Adjustable U.S. Government Securities
Trusts" or the "Trusts"), all of which are non-diversified series.
The value of the Trusts' investment in shares of Astra (formerly Pilgrim)
Institutional Adjustable U.S. Government Securities Portfolio (the "Portfolio"),
a non-diversified series of Astra (formerly Pilgrim) Institutional Securities
Trust ("AIST"), reflects their proportionate interest in the net assets of the
Portfolio. The financial statements of the Portfolio, including the portfolio of
investments, are included in this report and should be read in conjunction with
the financial statements of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. The investment policy of the Trusts is to invest in
shares of the Portfolio. Shares of the Portfolio held by the Trusts are
valued at the net asset value then determined by the Portfolio. A valuation
committee of the Board of Trustees of AIST is responsible for establishing
security valuation policies, reviewing the valuation of portfolio
securities, monitoring the level of illiquid securities and reviewing
liquidity determinations for securities held by the Portfolio. AIST
considers to be illiquid all securities which cannot be disposed of within
seven days in the ordinary course of business at approximately the amount
at which the Portfolio values the security. Additionally, interest rate
swap contracts, interest-only and principal-only mortgage backed
securities, and special hazard certificates are treated as illiquid
securities in accordance with Securities and Exchange Commission policy.
Liquid securities are valued primarily using prices provided by independent
pricing services which use prices provided by market-makers or estimates of
market values obtained from yield and other data relating to instruments or
securities with similar characteristics, and secondarily based upon market
quotations and/or other available information. Securities for which
reliable market information or pricing service quotes are not readily
available, including illiquid securities, are valued at fair value as
determined in good faith by, or under procedures established by, the Board
of Trustees of AIST, which procedures may include the delegation of certain
responsibilities regarding valuation to Astra (formerly Pilgrim) Management
Corporation (the "Manager"). The Manager reports, as necessary, to the
Trustees of AIST regarding portfolio valuation determinations.
Short-term securities with less than sixty days remaining to maturity when
acquired by the Portfolio are valued on an amortized cost basis by the
Portfolio when the Trustees of AIST have determined that amortized cost is
fair value.
B. FEDERAL INCOME TAXES. The Trusts intend to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and
to distribute all of their taxable income to their shareholders.
Therefore, no Federal income tax provision is required.
28
<PAGE>
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions of the Portfolio and Trusts are accounted
for on the trade date. Interest income on adjustable rate mortgage
securities is recorded on the accrual basis at current interest rates.
Dividends to shareholders of the Portfolio from net investment income are
declared daily and paid or reinvested monthly. Dividends to Shareholders of
the Trusts from net investment income are declared and paid or reinvested
monthly. Prior to May 1, 1995 dividends to shareholders of the Trusts from
net investment income were declared daily and paid or reinvested monthly.
Discounts and premiums on Portfolio debt securities are amortized in
accordance with the provisions of the Internal Revenue Code.
D. DEFERRED ORGANIZATION EXPENSES. All of the expenses incurred in connection
with the organization of the Trusts are being borne ratably by the Trusts
and are being amortized on a straight-line basis over periods of five years
from the date of commencement of operations.
NOTE 3--INVESTMENTS
At October 31, 1995 the Portfolio held subordinated residential and derivative
mortgage securities which the Valuation Committee of the Board of Trustees of
AIST has determined to be illiquid. These securities are valued at $7,007,359
(representing 4.1% of the Portfolio's net assets). The fair value of these
securities is determined under procedures approved by the Board of Trustees of
AIST in the absence of readily ascertainable market values.
For the year ended October 31, 1995 the cost of purchases and the proceeds from
sales of investments in the Portfolio were as follows:
Purchases Sales
---------- -----------
Trust I .......... $5,279,232 $195,464,209
Trust I-A ........ 3,186,340 111,185,139
Trust II ......... 559,914 6,762,708
Trust III ........ 287,175 2,930,885
Trust IV ......... 325,159 9,058,196
At October 31, 1995 the Trusts had capital loss carryforwards for federal income
tax purposes as follows:
Capital loss Expires
Carryforward October 31,
------------ -----------
Trust I $ 534,000 1999
14,000 2000
7,926,000 2002
48,702,000 2003
-----------
$57,176,000
===========
Trust I-A $ 4,253,000 2002
28,118,000 2003
-----------
$32,371,000
===========
Trust II $ 2,284,000 2002
1,647,000 2003
-----------
$ 3,931,000
===========
Trust III $ 1,135,000 2002
864,000 2003
-----------
$ 1,999,000
===========
Trust IV $ 1,896,000 2002
2,043,000 2003
-----------
$ 3,939,000
===========
NOTE 4--DISTRIBUTION PLANS
A. TRUST I AND TRUST I-A DISTRIBUTION PLANS. Trust I and Trust I-A have
adopted distribution plans pursuant to Rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby they will provide daily compensation to
Astra Fund (formerly Pilgrim) Distributors Corp., the Trusts' principal
underwriter (the "Principal Underwriter") in the form of sales commissions
equal to 4% of the amount received by Trust I for each share sold and 5%
(4.50% prior to August 5, 1994) of the amount received by Trust I-A for
each share sold (excluding reinvestment of dividends and distributions)
plus an interest fee calculated by applying the rate of 1% over prime rate
to the outstanding balance of Uncovered Distribution Charges. Daily
compensation payments will be made monthly and are limited to an annual
rate of 0.75% of each Trust's daily net assets. During the year ended
October 31,
29
<PAGE>
1995 the Principal Underwriter earned daily compensation of $1,205,284 from
Trust I and $754,652 from Trust I-A. At October 31, 1995 Uncovered
Distribution Charges (cumulative sales commissions and interest fees
reduced by cumulative daily compensation and contingent deferred sales
charges paid to the Principal Underwriter) were $11,143,216 for Trust I and
$9,485,628 for Trust I-A.
On August 5, 1994 the shareholders of Trust I and Trust I-A approved
changes to their respective distribution plans to provide a method by which
a proportionate amount of Uncovered Distribution Charges will be
transferred from the Trusts upon exchanges to other mutual funds for which
Astra Fund Distributions Corp. serves as Principal Underwriter and which
have substantially the same contingent deferred sales charge structure and
distribution plan.
Pursuant to the requirements of the Securities and Exchange Commission the
daily compensation (sales commission) payments to the Principal Underwriter
pursuant to the Distribution Plan must be reflected as operating expenses
of Trust I and Trust I-A. For periods through December 31, 1994 these
payments were treated as capital transactions and were not deducted for
Federal income tax purposes.
The Distribution Plans also provide for monthly payments to the Principal
Underwriter of a trail or maintenance fee in an amount equal to an annual
rate of 0.25% of the daily net assets of Trust I and Trust I-A. During the
year ended October 31, 1995 the Principal Underwriter earned maintenance
fees of $401,762 from Trust I and $251,551 from Trust 1-A.
B. TRUST II AND TRUST IV DISTRIBUTION PLANS. Trust II and Trust IV have
adopted distribution plans pursuant to rule 12b-1 under the 1940 Act (the
"Distribution Plans"), whereby Trust II may pay up to a maximum annual rate
of 0.25% of its average daily net assets and Trust IV may pay up to a
maximum annual rate of 0.60% of its average daily net assets to the
Principal Underwriter as reimbursement for expenses incurred in the
distribution of the shares of Trust II and Trust IV. Pursuant to the
Distribution Plans, the Principal Underwriter is entitled to reimbursement
each month (up to a maximum of 0.25% of Trust II's daily net assets and
0.60% of Trust IV's daily net assets) for its actual expenses incurred in
the distribution and promotion of Trust II's and Trust IV's shares,
including the printing of prospectuses used for sales purposes,
advertisements, expenses of preparation and printing of sales literature,
and other distribution related expenses, including any distribution or
service fees paid to security dealers and others who have executed a
distribution or service agreement with the Principal Underwriter. The
Distribution Plans provide that the Principal Underwriter may include as
distribution expenses a portion of its overhead expenses directly
attributable to the Distribution of Trust II's and Trust IV's shares,
including personnel and out-of-pocket costs. The Distribution Plans permit
the Principal Underwriter to carryforward for a maximum of three years
(without carrying charges) distribution expenses covered by the
Distribution Plans for which it has not yet received reimbursement. At
October 31, 1995, the Principal Underwriter had incurred $1,199,108 of
distribution expenses in excess of amounts currently reimbursable by Trust
II and $669,256 of distribution expenses in excess of amounts currently
reimbursable by Trust IV. During the year ended October 31, 1995, the
Principal Underwriter received distribution expense reimbursements of
$18,750 from Trust II and $32,575 from Trust IV. Distribution expenses
incurred by the Principal Underwriter included $8,283 and $7,673 for the
salaries and related costs of certain of its employees involved in the
sales of Trust II's and Trust IV's shares, respectively.
NOTE 5--INVESTMENT MANAGEMENT FEE AND
OTHER TRANSACTIONS WITH AFFILIATES
The Trusts invest substantially all of their assets in the Portfolio, which has
the same investment objective
30
<PAGE>
as each of the Trusts. The Trustees of AIST establish the Portfolio's investment
policies and supervise and review the operations and management of the
Portfolio. For furnishing the Portfolio with investment advice and investment
management and administrative services with respect to the Portfolio's assets,
including making specific recommendations as to the purchase and sale of
portfolio securities, furnishing requisite office space and personnel, and in
general supervising and managing the Portfolio's investments subject to the
ultimate supervision and direction of AIST's Trustees, the Manager is paid
monthly a fee equal to 0.55% per annum of the first $500 million of average
daily net assets of the Portfolio. The annual rate is reduced to 0.50% on net
assets from $500 million to $1 billion and to 0.45% on net assets over $1
billion. The management fees paid by the Portfolio to the Manager are expenses
of the Portfolio and reduce the net investment income available for distribution
by the Portfolio to the Trusts. The Manager has agreed to reimburse the
Portfolio and Trusts to the extent required so that the aggregate expenses do
not exceed the expense limitations applicable under the securities laws or
regulations of those states or jurisdictions in which the Trusts' shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require the Manager to reimburse the Portfolio and
Trusts to the extent required so that the Portfolio's and Trust's expenses, as
described above, for any fiscal year do not exceed 2.50% of the first $30
million of average net assets, 2.00% of the next $70 million of average net
assets and 1.50% of the remaining average net assets. The amount of any such
required reimbursement, however, is limited to the management fees paid by the
Portfolio to the Manager. Expenses for purposes of these expenses limitations
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation paid or incurred by the Trusts or the Portfolio. During the year
ended October 31, 1995, the Manager subsidized the expenses of Trust IV
resulting in an expense waiver of $1,738.
The Trusts have retained Atlas Holdings (formerly Pilgrim) Group Inc. (the
"Administrator") to provide administration for the Trusts pursuant to an
administration agreement. These administrative services include supervising the
preparation and filing of all documents required for compliance by the Trusts
with applicable laws and regulations, supervising the maintenance of books and
records and other general and administrative responsibilities. For providing
these services the Administrator receives a fee equal to 0.10% of each Trust's
average daily net assets.
During the year ended October 31, 1995 the Principal Underwriter received
commissions of $-0- from the sale of shares of Trust II and $99 from the sale of
shares of Trust III. The Principal Underwriter is an affiliate of the
Administrator and the Manager.
Certain officers and trustees of the Company are also officers and/or
directors/trustees of AIST, the Administrator, the Manager, and the Principal
Underwriter.
NOTE 6--EARLY WITHDRAWAL CHARGES
Shares of Trust I, Trust I-A and Trust IV which are redeemed may be subject to a
contingent deferred sales charge. The contingent deferred sales charge is not
imposed on shares acquired through the reinvestment of dividends and
distributions or on the appreciation of the value of shares acquired over their
purchase price. Redemption proceeds are applied first against shares not subject
to the contingent deferred sales charge for purposes of calculating such charge.
The contingent deferred sales charges are paid by the redeeming shareholder to
the Principal Underwriter at the time of redemption. The contingent deferred
sales charges for Trust I and Trust I-A are imposed at the rate of 4% for
redemptions in the first year after purchase, declining to 3%, 2%, and 1% in the
second, third and fourth years, respectively. The contingent deferred sales
charges for Trust IV are imposed at the rate of 0.25% of redemptions within 3
months of the date of purchase. During the year ended October 31, 1995 the
Principal Underwriter received contingent deferred sales charges of $2,053,485
from redemptions of Trust I shares, $2,725,445 from redemptions of Trust I-A
shares, and $209 from redemptions of Trust IV shares.
31
<PAGE>
NOTE 7--LEGAL MATTERS
Between December 1994 and July 1995, various complaints have been filed by
certain shareholders of the Astra Adjustable U.S. Government Securities Trusts
and the Astra Adjustable Rate Securities Trusts (collectively, the "Astra
Trusts") in the United States District Court for the Central District of
California and in the Superior Court for the State of California against the
Company and certain of its officers and trustees, AIST and certain of its
officers and trustees, Astra Management Corporation, Astra Fund Distributors
Corporation, and, Atlas Holdings Group Inc. and its principal stockholder and
certain of its employees. These complaints have been consolidated in the United
States District Court for the Central District of California in the matter
referred to as "In re Pilgrim Securities Litigation."
The complaints allege violations of the Securities Act of 1993 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the Portfolios of AIST.
The complaints seek relief measured by the consideration each shareholder paid
for shares of the Astra Trusts with interest thereon, less the amount of income
received thereon, or in the event the shareholder no longer owns such shares,
for damages, plus interest. Management of the Company believes the complaints
are without merit and intents, and has been advised that each of the other
defendants intends, to vigorously defend these actions. The ultimate outcome of
these matters, however, cannot presently be determined and accordingly the Astra
Trusts have made no provision for any losses which may result from settlement of
these complaints.
32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ------------------
To the Shareholders of Astra Adjustable U.S. Government Securities
Trust I, I-A, II, III and IV, and the Trustees of Astra Strategic Investment
Series
San Diego, California
We have audited the statements of assets and liabilities of Astra (formerly
Pilgrim) Adjustable U.S. Government Securities Trust I, I-A, II, III and IV
(each a series of shares of beneficial interest of Astra (formerly Pilgrim)
Strategic Investment Series), as of October 31, 1995, and the related statements
of operations for the year then ended, and the statements of changes in net
assets for the each of the two years in the period then ended and the financial
highlights for each of the periods indicated thereon. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Astra
Adjustable U.S. Government Securities Trust I, I-A, II, III and IV as of October
31, 1995, and the results of their operations for the year then ended, and the
changes in their net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated thereon, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the accompanying financial statements Astra Adjustable
U.S. Government Securities Trusts I, I-A, II, III, and IV have been named as
defendants in various complaints alleging violations of the Securities Act of
1933 and the Investment Company Act of 1940 and seeking substantial relief. The
outcome of these matters cannot presently be determined and accordingly no
provision for any losses which may result from settlement of these matters has
been made in the accompanying financial statements.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
33
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE
U.S. GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL STATEMENTS DATED
OCTOBER 31, 1995
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF OCTOBER 31, 1995
- ----------------------
<TABLE>
<CAPTION>
Market
Principal Interest Value
Amount Rate* Maturity (Note 2A)
- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES: 85.5%
U.S. GOVERNMENT AGENCIES: 81.3%
$ 5,186,964 Federal Home Loan Mtge. Corp., Pool 775487 .......... 6.133% 09/01/18 $ 5,164,271
5,618,142 Federal National Mtge. Assoc., Pool 60680 ........... 6.429% 02/01/28 5,628,676
4,895,959 Federal National Mtge. Assoc., Pool 65579 ........... 6.391% 07/01/28 4,905,139
9,096,717 Federal National Mtge. Assoc., Pool 70229 ........... 7.765% 05/01/19 9,386,675
3,582,331 Federal National Mtge. Assoc., Pool 220328 .......... 7.877% 03/01/17 3,707,712
2,374,071 Federal National Mtge. Assoc., Pool 292846 .......... 6.570% 09/01/24 2,423,037
3,989,012 Federal National Mtge. Assoc., Pool 303503 .......... 6.690% 11/01/01 4,032,652
8,562,146 Government National Mtge. Assoc., Pool 8157 ......... 6.500% 03/20/23 8,669,173
8,616,212 Government National Mtge. Assoc., Pool 8288 ......... 6.500% 09/20/23 8,740,070
4,973,171 Government National Mtge. Assoc., Pool 8660 ......... 6.500% 07/20/25 5,032,228
26,511,960 Government National Mtge. Assoc., Pool 8717 ......... 6.000% 10/25/25 26,561,670
9,800,000 Government National Mtge. Assoc., Pool 8720. ........ 6.500% 10/25/25 9,916,375
5,000,000 Government National Mtge. Assoc., Pool 8722 ......... 7.000% 10/01/25 5,109,375
35,500,000 Government National Mtge. Assoc., November TBA ...... 6.500% TBA 35,921,563
5,000,000 Government National Mtge. Assoc., November TBA ...... 7.000% TBA 5,109,375
------------
Total U.S. Government Agencies .................... 140,307,991
------------
SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES: 4.2%
11,675,216 (R)(I)Coast Federal Savings Bank 1991-1 ................... 2.424% 06/01/20 1,364,833
5,193,709 (R) Coast Federal Savings Bank 1991-2, Class B-1 ........ 3.090% 11/25/21 57,707
15,987,737 (R) Paine Webber Acceptance Corp 1991-1, Class B ........ 1.502% 02/21/21 143,138
19,138,236 (R)(I)Ryland Mortgage Securities Corp. 1993-6A, Class C-1 . 7.490% 12/29/31 5,642,526
------------
Total Subordinated Residential Mortgage
Securities 7,208,204
------------
Total Adjustable Rate Mortgage Securities 147,516,195
------------
FIXED RATE MORTGAGE SECURITIES: 7.0%
SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES: 7.0%
7,968,857 (R) Citibank NA Multifamily 1992-1, Class B ............. 8.625% 04/20/00 4,781,314
1,687,100 (R) DLJ Mortgage Acceptance Corp 1992-1, Class B ........ 7.925% 08/01/21 1,555,391
7,764,997 (R) USGI Capital Markets Group Inc, Multi Family
1992-1 ............................................. 8.500% 09/30/07 5,711,341
------------
Total Fixed Rate Mortgage Securities .............. 12,048,046
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Market
Principal Interest Value
Amount Rate* Maturity (Note 2A)
- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
SHORT-TERM SECURITIES: 17.6%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES: 17.6%
$20,515,000 Federal Home Loan Mtge. Corp. .......................... 5.850% 11/01/95 $20,515,000
10,000,000 Federal Home Loan Mtge. Corp. .......................... 5.640% 11/20/95 9,970,233
------------
Total Short-Term Investments 30,485,233
------------
Total Investments in Securities
(Cost $232,605,884) .............................. 110.1% 190,049,474
Liabilities in Excess of Other Assets--Net ........ (10.1)% (17,457,013)
----- ------------
Total Net Assets .................................. 100.0% $172,592,461
===== ============
- -------------
<FN>
(R) Restricted securities (See Note 3).
(I) Illiquid securities (See Note 3).
* Rates shown are as of October 31, 1995. Interest rates on adjustable rate
mortgage securities reset periodically.
** Cost for Federal income tax purposes is $232,605,884 and net unrealized
depreciation consists of:
Gross Unrealized Appreciation ..................... $ 361,145
Gross Unrealized Depreciation ..................... (42,917,555)
------------
Net Unrealized Depreciation ....................... ($42,556,410)
============
</FN>
</TABLE>
See Notes to Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ----------------------
<S> <C>
ASSETS:
Investments in securities at value (identified cost $232,605,884) (Notes 2A and 3) . $ 190,049,474
Cash ............................................................................... 175,828
Receivables:
Interest .......................................................................... 1,356,873
Principal repayments .............................................................. 32,932
Securities sold ................................................................... 28,122,324
Deferred organization expense (net of accumulated amortization of $67,107) (Note 2E) 16,096
Other assets ....................................................................... 19,526
-------------
Total Assets .................................................................... 219,773,053
-------------
LIABILITIES:
Payable for securities purchased ................................................... 46,209,665
Accrued expenses ................................................................... 232,277
Distributions payable to Trusts .................................................... 738,650
-------------
Total Liabilities ............................................................... 47,180,592
NET ASSETS .......................................................................... $ 172,592,461
=============
Net asset value per share ($172,592,461 / 2,198,563 shares) ......................... $ 78.50
=============
At October 31, 1995 the components of net assets were as follows:
Paid-in capital .................................................................... $ 310,164,972
Accumulated net realized loss on investments ....................................... (95,030,989)
Undistributed net investment income ................................................ 14,888
Net unrealized depreciation of investments ......................................... (42,556,410)
-------------
Net Assets ........................................................................ $ 172,592,461
=============
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- ----------------------
INVESTMENT INCOME:
INCOME:
Interest .......................................................................... $ 22,554,011
-------------
EXPENSES:
Investment management fee (Note 4) ................................................ 1,550,152
Recordkeeping fees ................................................................ 512,856
Professional fees ................................................................. 228,225
Custody fees ...................................................................... 51,260
Miscellaneous ..................................................................... 45,928
Amortization of organization expense (Note 2E) .................................... 15,783
Trustees' fees .................................................................... 7,349
Shareholder servicing costs ....................................................... 6,947
-------------
Total expenses .................................................................. 2,418,500
-------------
Net investment income .......................................................... 20,135,511
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments .................................................. (62,035,769)
Net change in unrealized depreciation of investments .............................. 10,936,142
-------------
Net loss on investments .......................................................... (51,099,627)
-------------
Net decrease in net assets resulting from operations ............................ $ (30,964,116)
=============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ----------------------
1995 1994
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 20,135,511 $ 55,439,118
Net realized loss on investments .......................................... (62,035,769) (36,149,068)
Net change in unrealized depreciation of investments ...................... 10,936,142 (55,270,698)
------------ -------------
Net decrease in net assets resulting from operations ...................... (30,964,116) (35,980,648)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($4.828 and $4.786
per share, respectively) ................................................. (16,286,136) (45,148,450)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change in
the number of outstanding shares (a) ..................................... (315,510,221) (677,765,844)
------------ -------------
Total decrease in net assets ........................................... (362,760,473) (758,894,942)
Net assets at the beginning of period ...................................... 535,352,934 1,294,247,876
------------ -------------
NET ASSETS at the end of period (including undistributed
net investment income of $14,888 and $-0-, respectively) .................. $172,592,461 $ 535,352,934
============ =============
- ----------
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
--------------------------- ---------------------------
Shares Value Shares Value
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................... 12,991 $ 1,294,478 155,249 $ 15,049,299
Shares issued in payment of
distributions to shareholders ................ 105,611 8,569,781 257,920 24,531,711
---------- ------------- ---------- -------------
Shares repurchased ............................ (3,958,690) (325,374,480) (7,526,415) (717,346,854)
---------- ------------- ---------- -------------
Net decrease ................................ (3,840,088) $(315,510,221) (7,113,246) $(677,765,844)
========== ============= ========== =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------
November 27, 1991
(commencement of
Year Ended October 31, operations) to
------------------------------------------- October 31,
1995 1994 1993 1992
------- -------- ------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ............. $88.650 $ 98.410 $99.600 $100.000
------- -------- ------- --------
Income (loss) from investment
operations--
Net investment income ........................... 5.750(b) 5.890 6.040 7.539
Net realized and unrealized loss
on investments ................................. (11.072)(b) (10.864) (0.601) (0.419)
------- -------- ------- --------
Total from investment
operations ................................... (5.322) (4.974) 5.439 7.120
------- -------- ------- --------
Less distributions--
Distributions from net investment
income ......................................... 4.828 4.786 6.061 7.520
Distributions from paid-in capital -- -- 0.568
------- -------- ------- --------
Total distributions ........................... 4.828 4.786 6.629 7.520
------- -------- ------- --------
Net asset value, end of period ................... $78.500 $ 88.650 $98.410 $ 99.600
======= ======== ======= ========
TOTAL RETURN ..................................... (6.00)% (5.25)% 5.62% 7.80%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) .................................. $172,592 $535,353 $1,294,248 $1,111,565
Ratio to average net assets--
Expenses ........................................ 0.86% 0.62% 0.61% 0.64%(a)
Net investment income ........................... 7.14% 6.17% 6.66% 7.09%(a)
Portfolio turnover rate .......................... 108% 83% 87% 152%
</TABLE>
- ----------
(a) Annualized.
(b) Based upon average shares outstanding throughout the period.
See Notes to Financial Statements.
5
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ------------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Institutional Securities Trust (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Company was organized as a Massachusetts
Business Trust on September 4, 1991 with an unlimited number of shares of
beneficial interest without par value. The Company offers shares in two
non-diversified series, Astra (formerly Pilgrim) Institutional Adjustable U.S.
Government Securities Portfolio (the "Portfolio") and Astra (formerly Pilgrim)
Institutional Adjustable Rate Securities Portfolio. The Portfolio was structured
to serve as the investment vehicle for five affiliated open-end management
investment companies: Astra (formerly Pilgrim) Adjustable U.S. Government
Securities Trust I, I-A, II, III and IV (collectively, the "Trusts"). The Trusts
invest substantially all of their net assets in the Portfolio, which has the
same investment objective as that of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. A valuation committee of the Board of Trustees is
responsible for establishing security valuation policies, reviewing the
valuation of portfolio securities, monitoring the level of illiquid
securities and reviewing liquidity determinations. The Company considers to
be illiquid all securities which cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which the
Portfolio values the security. Additionally, interest rate swap contracts,
interest-only and principal-only mortgage backed securities, and special
hazard certificates are treated as illiquid securities in accordance with
Securities and Exchange Commission policy. Liquid securities are valued
primarily using prices provided by independent pricing services which use
prices provided by market-makers or estimates of market values obtained
from yield and other data relating to instruments or securities with
similar characteristics, and secondarily based upon market quotations
and/or other available information. Securities for which reliable market
information or pricing service quotes are not readily available, including
illiquid securities, are valued at fair value as determined in good faith
by, or under procedures established by, the Board of Trustees, which
procedures may include the delegation of certain responsibilities regarding
valuation to Astra (formerly Pilgrim) Management Corporation (the
"Manager"). The Manager reports, as necessary, to the Trustees of the
Company regarding portfolio valuation determinations. Short-term securities
with less than sixty days remaining to maturity when acquired by the
Portfolio will be valued on an amortized cost basis by the Portfolio when
the Board of Trustees has determined that amortized cost is fair value.
B. FEDERAL INCOME TAXES. The Portfolio intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions are accounted for on the trade date.
Interest income on adjustable rate mortgage securities is recorded on the
accrual basis at current
6
<PAGE>
interest rates. Dividends to shareholders from net investment income are
declared daily and paid or reinvested monthly. Discounts and premiums on
debt securities are amortized in accordance with the provisions of the
Internal Revenue Code.
D. INTEREST RATE SWAP CONTRACTS. The Portfolio may enter into interest rate
swap contracts as a hedging technique. Interest rate swap contracts are
marked-to-market daily using market quotations or independent pricing
services. The change in market value is recorded by the Portfolio as an
unrealized gain or loss. Interest income (expense) is accrued daily on the
contract's notional amount and applicable interest rates.
Interest rate swap contracts may expose the Portfolio to risks resulting
from unanticipated movements in interest rates or the failure of the
counterparty to the agreement to perform in accordance with the terms of
the contract.
E. DEFERRED ORGANIZATION EXPENSES. All of the Portfolio's expenses in
connection with its organization are being borne by the Portfolio and will
be amortized on a straight-line basis over a period of five years.
NOTE 3--INVESTMENTS
For the year ended October 31, 1995, the cost of purchases and the proceeds from
sales of investments and principal repayments, excluding short-term securities,
aggregated $279,816,300 and $517,132,104, respectively.
On October 31, 1995, the Portfolio held restricted securities (i.e., securities
which may not be publicly sold without registration under the Federal Securities
Act of 1933 (the "'33 Act") or without an exemption under the '33 Act). The
valuation committee of the Board has reviewed the trading markets for certain of
the Portfolio's restricted securities and has determined that they are liquid
and readily marketable. At October 31, 1995 other restricted securities having a
market value of $7,007,359, representing 4.1% of the Portfolio's net assets have
been determined to be illiquid. On October 31, 1995, and on the acquisition
dates of the restricted securities, there were no market quotations available
for unrestricted securities of the same class. Dates of acquisition and costs of
restricted securities are as follows:
<TABLE>
<CAPTION>
Principal Date(s) of
Amount Acquisition Cost
- --------- --------------- ------------
<S> <C> <C> <C>
$ 7,968,857 Citibank NA Multifamily 1992-1, Class B ........... 03/25/92 $ 6,748,374
11,675,216 Coast Federal Savings Bank 1991-1 ................. 06/27/91 TO 08/02/91 10,494,539
5,193,709 Coast Federal Savings Bank 1991-2, Class B-1 ...... 12/04/91 4,396,398
1,687,100 DLJ Mortgage Acceptance Corp 1992-1,
Class B .......................................... 03/05/92 1,361,846
15,987,737 PaineWebber Mortgage Acceptance Corp
1991-1, Class B .................................. 10/24/91 TO 12/11/91 15,916,334
19,138,236 Ryland Mortgage Securities Corp 1993-6A,
Class C-1 ........................................ 09/01/93 16,927,471
7,764,997 USGI Capital Markets Group Inc, Multi Family
1992-1 ........................................... 09/28/92 6,012,758
-----------
Total restricted securities (Market Value of
$19,256,250 was 11.1% of net assets at
October 31, 1995) ................................ $61,857,720
===========
</TABLE>
7
<PAGE>
As of October 31, 1995 U.S. Government Securities with a value of $52,657,404
were placed in a separate account at the Custodian Bank to cover certain
purchases of securities made on a delayed delivery basis.
At October 31, 1995 the Portfolio had a capital loss carryforward for Federal
income tax purposes of $95,031,000 of which $6,618,000 expires in 2000,
$4,385,000 in 2001, $25,842,000 in 2002, and $58,186,000 in 2003.
NOTE 4--INVESTMENT MANAGEMENT FEE AND
OTHER TRANSACTIONS WITH AFFILIATES
The Manager provides the Portfolio with investment management and administrative
services under an Investment Management Agreement. The Manager furnishes all
investment advice, office space and salaries of personnel needed by the
Portfolio, except those involved with record-keeping, daily net asset value
calculations, placing orders for the execution of portfolio transactions,
shareholder servicing, and maintaining registration of shares under state
securities laws. As compensation for its services, the Manager is paid monthly a
fee which is equal to the annual rate of 0.55% of the first $500 million of
average daily net assets, 0.50% on net assets from $500 million to $1 billion
and 0.45% on net assets over $1 billion. The Manager has agreed to reimburse the
Portfolio and Trusts to the extent required so that the aggregate expenses do
not exceed the expense limitations applicable to the Portfolio and Trusts under
the securities laws or regulations of those states or jurisdictions in which the
Trusts' shares are registered or qualified for sale. Currently, the most
restrictive of such expense limitations would require the Manager to reimburse
the Portfolio and Trusts to the extent required so that the Portfolio's and
Trusts' expenses, as described above, for any fiscal year do not exceed 2-1/2%
of the first $30 million of average daily net assets, 2% of the next $70 million
of average net assets and 1-1/2% of the remaining average net assets. The amount
of any such required reimbursement is limited to the management fees paid by the
Portfolio to the Manager. Expenses for purposes of this expense limitation
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, paid or incurred by the Portfolio or Trusts.
Certain officers and trustees of the Company are also officers and/or directors
of the Trusts and the Manager.
NOTE 5--LEGAL MATTERS
Between December 1994 and July 1995, various complaints have been filed by
certain shareholders of Astra Adjustable U.S. Government Securities Trusts I,
I-A, II, III and IV and Astra Adjustable Rate Securities Trusts I, I-A, II, III
and IV (collectively, the "Astra Trusts") in the United States District Court
for the Central District of California and in the Superior Court for the State
of California against the Company and certain of its officers and trustees, the
Astra Trusts and certain of their officers and trustees, Astra Management
Corporation, Astra Fund Distributors Corporation, and, Atlas Holdings Group Inc.
and its principal stockholder and certain of its employees. These complaints
have been consolidated in the United States District Court for the Central
District of California in the matter referred to as "In re Pilgrim Securities
Litigation."
The complaints allege violations of the Securities Act of 1933 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the two Portfolios of the
Company. The complaints seek relief measured by the consideration each
shareholder paid for shares of the Astra Trusts with interest thereon, less the
amount of income received thereon, or in the event the shareholder no longer
owns such shares, for damages, plus interest. Management of the Company believes
the complaints are without merit and intents, and has been advised that each of
the other defendants intends, to vigorously defend these actions. The ultimate
outcome of these matters, however, cannot presently be determined and
accordingly the Portfolios have made no provision for any losses which may
result from settlement of these complaints.
8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------
To the Shareholders of Astra Institutional Adjustable
U.S. Government Securities Portfolio and the
Trustees of Astra Institutional Securities Trust
San Diego, California
We have audited the statement of assets and liabilities of Astra (formerly
Pilgrim) Institutional Adjustable U.S. Government Securities Portfolio (a series
of shares Astra (formerly Pilgrim) Institutional Securities Trust), including
the portfolio of investments, as of October 31, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the three years in the period then ended and for the period from
November 22, 1991 (commencement of operations) to October 31, 1992. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Astra Institutional Adjustable U.S. Government Securities Portfolio as of
October 31, 1995, and the results of its operations for the year then ended, and
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the three years in the period then
ended and for the period from November 22, 1991 to October 31, 1992, in
conformity with generally accepted accounting principles.
As discussed in Note 5 to the accompanying financial statements, Astra
Institutional Adjustable U.S. Government Securities Portfolio has been named as
a defendant in various complaints alleging violations of the Securities Act of
1933 and the Investment Company Act of 1940 and seeking substantial relief. The
outcome of these matters cannot presently be determined and accordingly no
provision for any losses which may result from settlement of these matters has
been made in the accompanying financial statements.
As discussed in Notes 2A and 3, the financial statements include investments in
subordinated residential and derivative mortgage securities valued at $7,007,359
(representing 4.1% of net assets), which the Board of Trustees of Astra
Institutional Securities Trust has determined are illiquid and whose fair value
is determined under procedures approved by Astra Institutional Securities
Trust's Board of Trustees, in the absence of readily ascertainable market
values. We have reviewed the procedures adopted by the Board of Trustees in
determining fair value and have inspected underlying documentation, and in the
circumstances we believe the procedures are reasonable and the documentation of
those procedures appropriate. However, because the market value of these
securities can only be established by negotiation between parties in a sales
transaction, and because of the uncertainty inherent in the valuation process,
the fair values as determined may differ significantly from the values that
would have been used had a ready market for these securities existed.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
9
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
List all financial statements and exhibits filed as part of the Registration
Statement.
(a) Financial Statements:
In Part A: None.
In Part B: Audited Financial Statements of Astra Adjustable U.S.
Government Securities Trusts I, I-A, II and IV, (formerly
Pilgrim Adjustable U.S. Government Securities Trusts I, I-A,
II and IV) and Astra Institutional Adjustable U.S.
Government Securities Portfolio (formerly Pilgrim
Institutional Adjustable U.S. Government Securities
Portfolio) for the period ended October 31, 1995, including
the Reports of Tait, Weller & Baker, independent auditors
for the Registrant.
In Part C: None.
(b) Exhibits
Exhibits filed under Registration Statement on Form N-1 and Amendments thereto
filed on Forms N-1 and N-1A are hereby incorporated by reference into this
post-effective amendment.
<TABLE>
<CAPTION>
<S> <C>
(1)(a) Amended and Restated Agreement and Declaration of Trust.(6)
(1)(b) Name Change Amendment to Amended and Restated Agreement and Declaration of Trust(7)
(2)(a) Amended and Revised By-laws of Pilgrim Strategic Investment Series.(1)
(2)(b) Name Change Amendment to Amended and Revised By-laws(7)
(3) Not applicable.
(4) Specimen share certificates.(2)
(6)(a) Form of Underwriting Agreement between PSIS and Pilgrim Distributors Corp.(3)
(6)(b) Form of Name Change Amendment to Underwriting Agreement.(7)
(7) Not applicable.
(8) Custodian Services Agreement.(7)
(9)(a) Form of Transfer Agency Agreement.(2)
(9)(b) Form of Administration Agreement between PSIS and Pilgrim Group, Inc.(3)
(9)(c) Form of Name Change Amendment to Administration Agreement.(7)
(9)(d) Sub-Administration Agreement.(7)
(9)(e) Accounting Services Agreement.(7)
(10) Consent of Jorden Burt Berenson & Johnson LLP.(7)
(11) Consent of Independent Accountants.(7)
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
</TABLE>
- ----------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 39 to this
Registration Statement, filed November 21, 1990.
(2) Incorporated herein by reference to Post-Effective Amendment No. 40 to this
Registration Statement, filed January 1, 1991.
(3) Incorporated herein by reference to Post-Effective Amendment No. 42 to this
Registration Statement, filed September 9, 1991.
(4) Incorporated herein by reference to Post-Effective Amendment No. 52 to this
Registration Statement, filed March 1, 1993.
(5) Incorporated herein by reference to Post-Effective Amendment No. 55 to the
Registration Statement, filed November 3, 1993.
(6) Incorporated herein by reference to Post-Effective Amendment No. 61 to the
Registration Statement, filed May 2, 1995.
(7) Filed herewith.
C-1
<PAGE>
(b) Exhibits (Continued)
<TABLE>
<CAPTION>
<S> <C>
(15)(a) Distribution Plan for Astra Adjustable U.S. Government Securities Trust I.(2)
(15)(b) Distribution Plans for Astra Adjustable U.S. Government Securities Trust II and Astra Adjustable Rate
Securities Trusts I and II.(3)
(15)(c) Distribution Plans for Astra Adjustable U.S. Government Securities Trust IV and Astra Adjustable Rate
Securities Trust IV.(5)
(15)(d) Forms of Name Change Amendments to Distribution Plans.(7)
(16) Schedule of Performance Quotations.(4)
(17) Financial Data Schedule.(7)
(18) Not Applicable.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON
CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of the date indicated:
Number of Record Holders
Title of Class as of December 31, 1995
--------------------- -------------------------
Astra Adjustable U.S.
Government Securities
Trust I Series - Shares
of Beneficial Interest
(no Par Value) 6,665
Astra Adjustable U.S.
Government Securities
Trust I-A Series - Shares
of Beneficial Interest
(no Par Value) 4,479
- ----------------------
(1 Incorporated herein by reference to Post-Effective Amendment No. 39 to this
Registration Statement, filed November 21, 1990.
(2) Incorporated herein by reference to Post-Effective Amendment No. 40 to this
Registration Statement, filed January 22, 1991.
(3) Incorporated herein by reference to Post-Effective Amendment No. 42 to this
Registration Statement, filed September 9, 1991.
(4) Incorporated herein by reference to Post-Effective Amendment No. 52 to this
Registration Statement, filed March 1, 1993.
(5) Incorporated herein by reference to Post-Effective Amendment No. 55 to the
Registration Statement, filed November 3, 1993.
(6) Incorporated herein by reference to Post-Effective Amendment No. 61 to the
Registration Statement, filed May 2, 1995.
(7) Filed herewith.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (Continued)
Number of Record Holders
Title of Class as of December 31, 1995
-------------------- -------------------------
Astra Adjustable U.S.
Government Securities
Trust II Series - Shares
of Beneficial Interest
(no Par Value) 424
Astra Adjustable U.S.
Government Securities
Trust III Series - Shares
of Beneficial Interest
(no Par Value) 128
Astra Adjustable U.S.
Government Securities
Trust IV Series - Shares
of Beneficial Interest
(no Par Value) 134
Astra Adjustable Rate
Securities Trust I Series -
Shares of Beneficial
Interest (no Par Value) 482
Astra Adjustable Rate
Securities Trust I-A Series -
Shares of Beneficial
Interest (no Par Value) 1,378
Astra Adjustable Rate
Securities Trust II Series -
Shares of Beneficial
Interest (no Par Value) 201
Astra Adjustable Rate
Securities Trust IV Series -
Shares of Beneficial
Interest (no Par Value) 142
ITEM 27. INDEMNIFICATION
Incorporated by reference to Post-Effective Amendment No. 40 to this
Registration Statement, filed January 22, 1991.
C-3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Certain of the officers and directors of the Registrant's investment adviser
also serve as officers and/or directors for other Astra investment companies and
with Atlas Holdings Group, Inc. and subsidiaries. For additional information,
please see Parts A and B.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Astra Fund Distributors Corp., the Registrant's principal underwriter, also
serves as principal underwriter for Astra Global Investment Series and Astra
Institutional Trust.
(b) The following information is furnished with respect to the officers and
directors of Astra Fund Distributors Corp., the Registrant's principal
underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Office
Business Address* with Principal Underwriter with Registrant
- ------------------ -------------------------- ---------------------
<S> <C> <C>
John R. Elerding Senior Vice President, Treasurer, Senior Vice President, Treasurer
Secretary and Chief Financial Officer Secretary and Chief Financial Officer
Richard R. Tartre President and Chief Executive Officer President and Chief Executive Officer
</TABLE>
(c) Not Applicable. The Registrant's principal underwriter is an affiliated
person of the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 will be kept by the Registrant, its
Investment Manager or its Shareholder Servicing Agent.
ITEM 31. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders
upon request and without charge.
* The principal business address for each of the persons listed is:
750 B Street, Suite 2350, San Diego, California 92101
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this post-effective amendment to its
Registration Statement pursuant to Rule 485 (b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Beverly
Hills and the State of California, on the 7th day of February, 1996.
ASTRA STRATEGIC INVESTMENT SERIES
/s/ PALOMBA WEINGARTEN
---------------------------------
Palomba Weingarten, Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ PALOMBA WEINGARTEN Chairman of the Board, February 7, 1996
- ---------------------- President and Trustee
Palomba Weingarten
/s/ RICHARD TARTRE President and Chief February 7, 1996
- ---------------------- Executive Officer
Richard Tartre
/s/ JOHN R. ELERDING Principal Financial and February 7, 1996
- ---------------------- Accounting Officer
John R. Elerding
/s/ AL BURTON Trustee February 7, 1996
- ----------------------
Al Burton
/s/ FELICE R. CUTLER Trustee February 7, 1996
- ----------------------
Felice R. Cutler
/s/ GARRY D. PEARSON Trustee February 7, 1996
- ----------------------
Garry D. Pearson
</TABLE>
S-1
<PAGE>
SIGNATURES
Astra Institutional Securities Trust has duly caused this Amendment to the
Registration Statement of Astra Strategic Investment Series to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Beverly
Hills and the State of California, on the 7th day of February, 1996.
ASTRA INSTITUTIONAL SECURITIES TRUST
/s/ PALOMBA WEINGARTEN
------------------------------------
Palomba Weingarten, Chairman
This Amendment to the Registration Statement on form N-1A of Astra
Strategic Investment Series has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ PALOMBA WEINGARTEN Chairman of the Board, February 7, 1996
- ---------------------- President and Trustee
Palomba Weingarten
/s/ RICHARD TARTRE President and Chief February 7, 1996
- ---------------------- Executive Officer
Richard Tartre
/s/ JOHN R. ELERDING Principal Financial and February 7, 1996
- ---------------------- Accounting Officer
John R. Elerding
/s/ AL BURTON Trustee February 7, 1996
- ----------------------
Al Burton
/s/ FELICE R. CUTLER Trustee February 7, 1996
- ----------------------
Felice R. Cutler
/s/ GARRY D. PEARSON Trustee February 7, 1996
- ----------------------
Garry D. Pearson
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
Page
-----
(1)(b) Name Change Amendment to Amended and Restated Agreement and Declaration of Trust........ 269
(2)(b) Name Change Amendment to Amended and Revised By-laws.................................... 271
(6)(b) Form of Name Change Amendment to Underwriting Agreement. ............................... 272
(8) Custodian Services Agreement. .......................................................... 305
(9)(c) Form of Name Change Amendment to Administration Agreement. .............................. 306
(9)(d) Sub-Administration Agreement. ........................................................... 321
(9)(e) Accounting Services Agreement. .......................................................... 336
(10) Consent of Jorden Burt Berenson & Johnson LLP. .......................................... 337
(11) Consent of Independent Accountants. .................................................... 338
(15)(d) Forms of Name Change Amendments to Distribution Plans. .................................. 346
(17) Financial Data Schedule. ................................................................
</TABLE>
EXHIBIT 1-B
ASTRA STRATEGIC INVESTMENT SERIES
(FORMERLY KNOWN AS PILGRIM STRATEGIC INVESTMENT SERIES)
AMENDMENT TO THE AGREEMENT AND DECLARATION OF TRUST
The following resolution was passed by the Board of Trustees on March 17,
1995, and such resolution is in full force and effect:
WHEREAS, paragraph 9.10 of an Acquisition Agreement, dated
December 7, 1994, among Express America Holdings Corporation, Pilgrim
Group Inc., Pilgrim Management Corporation, Pilgrim Distributors Corp.
and Palomba Weingarten, provides that each of the Non-Acquired Funds
concurrently with and conditional upon the closing of the transactions
contemplated by the Acquisition Agreement shall change its name to a
name which shall not include the word "Pilgrim";
WHEREAS, Pilgrim Adjustable U.S. Government Securities Trust
I, Pilgrim Adjustable U.S. Government Securities Trust I-A, Pilgrim
Adjustable U.S. Government Securities Trust II, Pilgrim Adjustable U.S.
Government Securities Trust III, Pilgrim Adjustable U.S. Government
Securities Trust IV, Pilgrim Adjustable Rate Securities Trust I,
Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Adjustable Rate
Securities Trust II, Pilgrim Adjustable Rate Securities Trust III and
Pilgrim Adjustable Rate Securities Trust IV, series of Pilgrim
Strategic Investment Series ("PSIS" or the "Trust") (collectively, the
"Pilgrim ARM Funds") are deemed to be Non-Acquired Funds as set forth
in Schedule 7.7 to the Acquisition Agreement;
WHEREAS, Article IX, Section 8, of the Trust's Agreement and
Declaration of Trust authorizes the Trustees to amend the Agreement and
Declaration of Trust for the purpose of changing the name of the Trust
without authorization by shareholder vote;
WHEREAS, the Trustees deem it advisable to change the Trust's
name from Pilgrim Strategic Investment Series to Astra Strategic
Investment Series and the name of the Pilgrim ARM Funds to Astra
Adjustable U.S. Government Securities Trust I, Astra Adjustable U.S.
Government Securities Trust I-A, Astra Adjustable U.S. Government
Securities Trust II, Astra Adjustable U.S. Government Securities Trust
III, Astra Adjustable U.S. Government Securities Trust IV, Astra
Adjustable Rate Securities Trust I, Astra Adjustable Rate Securities
Trust I-A, Astra Adjustable Rate Securities Trust II, Astra Adjustable
Rate Securities Trust III and Astra Adjustable Rate Securities Trust
IV;
NOW, THEREFORE, BE IT RESOLVED, that PSIS's name is hereby
changed to Astra Strategic Investment Series, and the names of the
Pilgrim ARM Funds are hereby changed to Astra Adjustable U.S.
Government Securities Trust I, Astra Adjustable U.S. Government
Securities Trust I-A, Astra Adjustable U.S.
<PAGE>
Government Securities Trust II, Astra Adjustable U.S. Government
Securities Trust III, Astra Adjustable U.S. Government Securities Trust
IV, Astra Adjustable Rate Securities Trust I, Astra Adjustable Rate
Securities Trust I-A, Astra Adjustable Rate Securities Trust II, Astra
Adjustable Rate Securities Trust III and Astra Adjustable Rate
Securities Trust IV, effective upon closing of the transactions
contemplated by the Acquisition Agreement and Declaration of Trust is
filed with the Secretary of State of the Commonwealth of Massachusetts;
and
FURTHER RESOLVED, that the officers of the Trust are
authorized to take all necessary steps to effect the name change,
including amending the Trust's Agreement and Declaration of Trust.
By: /s/ NANCY L. PEDEN
-----------------------
Nancy L. Peden
Secretary
Dated this 31st day of March, 1995
EXHIBIT 2-B
AMENDMENT TO THE BY-LAWS OF ASTRA STRATEGIC INVESTMENT SERIES
(FORMERLY PILGRIM STRATEGIC INVESTMENT SERIES)
The By-laws are hereby amended to change all references to the name
"Pilgrim" to "Astra," including the name of the Trust to "Astra Strategic
Investment Series."
As adopted at a meeting of
the Board of Trustees on
April 10th, 1995
EXHIBIT 6-B
AMENDED AND RESTATED UNDERWRITING AGREEMENT
BETWEEN
ASTRA STRATEGIC INVESTMENT SERIES
(FORMERLY PILGRIM STRATEGIC INVESTMENT SERIES)
AND
ASTRA FUND DISTRIBUTORS CORP.
(FORMERLY PILGRIM DISTRIBUTORS CORP.)
Gentlemen:
Pursuant to the terms of the Amended and Restated Underwriting
Agreement dated May 20, 1992 between you and us; we hereby amend such Amended
and Restated Underwriting Agreement to: (i) to delete Pilgrim High Yield Trust
as a party to the Amended and Restated Underwriting Agreement; and (ii) to
change the name of the Pilgrim Strategic Investment Series to Astra Strategic
Investment Series and Pilgrim Distributors Corp. to Astra Fund Distributors
Corp., effective April 10, 1995.
Very truly yours,
ASTRA STRATEGIC INVESTMENT SERIES
By: _____________________________
Its: _____________________________
Agreed to and Accepted:
ASTRA FUND DISTRIBUTORS CORP.
By: _________________________
Its: _________________________
EXHIBIT 8
astrasis.cus
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and ASTRA
STRATEGIC INVESTMENT SERIES, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian services
to its investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PNC Bank wishes to furnish custodian services, either directly or through an
affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as
<PAGE>
amended.
(b) "1934 Act" means the Securities Exchange Act of 1934,
as amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral and Written
Instructions on behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part hereof or any amendment thereto as may be
received by PNC Bank. An Authorized Person's scope of authority may be limited
by the Fund by setting forth such limitation in the Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system maintained by
an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Oral Instructions" mean oral instructions received by
PNC Bank from an Authorized Person or from a person reasonably believed by PNC
Bank to be an Authorized Person.
(g) "PNC Bank" means PNC Bank, National Association or a subsidiary or
affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
2
<PAGE>
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(j) "Shares" mean the shares of beneficial interest of any
series or class of the Fund.
(k) "Property" means:
(i) any and all securities and other investment
items which the Fund may from time to time
deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time
hold for the Fund;
(ii) all income in respect of any of such securities or
other investment items;
(iii) all proceeds of the sale of any of such securities
or investment items; and
(iv) all proceeds of the sale of securities issued by the
Fund, which are received by PNC Bank from time to
time, from or on behalf of the Fund.
(l) "Written Instructions" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide custodian
services to the Fund, on behalf of each of its investment portfolios (each, a
"Portfolio"), and PNC Bank accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where
3
<PAGE>
applicable, will provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of
the Fund's Board of Trustees, approving the appointment
of PNC Bank or its affiliates to provide services;
(b) a copy of the Fund's most recent effective registration
statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect to
each class of Shares;
(e) a copy of each Portfolio's administration agreement if
PNC Bank is not providing the Portfolio with such
services;
(f) copies of any shareholder servicing agreements made
in respect of the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all
amendments or supplements to the foregoing.
4
<PAGE>
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act
only upon Oral and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PNC Bank to be an Authorized Person) pursuant to this Agreement. PNC
Bank may assume that any Oral or Written Instructions received hereunder are not
in any way inconsistent with the provisions of organizational documents of the
Fund or of any vote, resolution or proceeding of the Fund's Board of Trustees or
of the Fund's shareholders, unless and until PFPC receives Written Instructions
to the contrary.
(c) The Fund agrees to forward to PNC Bank Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PNC Bank or its affiliates) so that PNC
5
<PAGE>
Bank receives the Written Instructions by the close of business on the same day
that such Oral Instructions are received. The fact that such confirming Written
Instructions are not received by PNC Bank shall in no way invalidate the
transactions or enforceability of the transactions authorized by the Oral
Instructions. Where Oral or Written Instructions reasonably appear to have been
received from an Authorized Person, PNC Bank shall incur no liability to the
Fund in acting upon such Oral or Written Instructions provided that PNC Bank's
actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice, including
Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any question
of law pertaining to any action it should or should not take, PNC Bank may
request advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PNC Bank, at the option
of PNC Bank).
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral or Written Instructions PNC Bank
6
<PAGE>
receives from the Fund, and the advice it receives from counsel, PNC Bank shall
be entitled to rely upon and follow the advice of counsel. In the event PNC Bank
so relies on the advice of counsel, PNC Bank remains liable for any action or
omission on the part of PNC Bank which constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PNC Bank of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PNC Bank
believes, in good faith, to be consistent with those directions, advice or Oral
or Written Instructions. Nothing in this section shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such directions, advice or Oral
or Written Instructions, or (ii) to act in accordance with such directions,
advice or Oral or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PNC Bank's properly
taking or not taking such action. Nothing in this subsection shall excuse PNC
Bank when an action or omission on the part of PNC Bank constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PNC Bank of
any duties, obligations or
7
<PAGE>
responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Portfolio, which are in the possession or under the control of PNC Bank, shall
be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to such
books and records at all times during PNC Bank's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an authorized representative of the Fund,
at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees on its own behalf and that of its
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), unless the release
of such records or information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be unreasonably withheld and
may not be withheld where PNC Bank may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate
8
<PAGE>
with the Fund's independent public accountants and shall take all reasonable
action in the performance of its obligations under this Agreement to ensure that
the necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PNC Bank shall have no liability with respect to
the loss of data or service interruptions caused by equipment failure provided
such loss or interruption is not covered by PNC Bank's own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties or obligations
under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC Bank
during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio,
9
<PAGE>
agrees to indemnify and hold harmless PNC Bank and its affiliates from all
taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the Securities Laws and any state
and foreign securities and blue sky laws, and amendments thereto, and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or omission to act which PNC Bank takes
(i) at the request or on the direction of or in reliance on the advice of the
Fund or (ii) upon Oral or Written Instructions. Neither PNC Bank, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PNC Bank's or its affiliates' own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties
under this Agreement.
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on
behalf of the Fund or any Portfolio except as specifically set
forth herein or as may be specifically agreed to by PNC Bank in
writing. PNC Bank shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits,
in performing services provided for under this Agreement. PNC
10
<PAGE>
Bank shall be liable for any damages arising out of PNC Bank's failure to
perform its duties under this agreement to the extent such damages arise out of
PNC Bank's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral or Written Instruction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, and which PNC Bank reasonably believes to be genuine; or (B) subject
to section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PNC Bank's control, including acts of civil or military
authority, national emergencies, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, PNC
Bank shall have no liability to the Fund or to any Portfolio for any
consequential, special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PNC Bank's performance of the services provided
hereunder,
11
<PAGE>
whether or not the likelihood of such losses or damages was known by PNC Bank.
14. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all the Property owned by the Portfolios, including cash
received as a result of the distribution of Shares, during the period that is
set forth in this Agreement. PNC Bank will not be responsible for such property
until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in the Fund's name using
all cash received from or for the account of the Fund, subject to the terms of
this Agreement. In addition, upon Written Instructions, PNC Bank shall open
separate custodial accounts for each separate series or Portfolio of the Fund
(collectively, the "Accounts") and shall hold in the Accounts all cash received
from or for the Accounts of the Fund specifically designated to each separate
series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a Portfolio
only for:
(i) purchases of securities in the name of a Portfolio or PNC
Bank or PNC Bank's nominee as provided in sub-section (j)
and for which PNC Bank has received a copy of the broker's
or dealer's confirmation or payee's invoice,
<PAGE>
as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne by
a Portfolio;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Fund purposes.
13
<PAGE>
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Accounts.
(c) Receipt of Securities; Subcustodians.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant to the
terms of this Agreement. PNC Bank shall have no power or
authority to assign, hypothecate, pledge or otherwise
dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution of the
Fund's Board of Trustees, authorizing the transaction. In no
case may any member of the Fund's Board of Trustees, or any
officer, employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States banks or trust companies to perform duties
described in this subsection (c). Such bank or trust company
shall have an aggregate capital, surplus and undivided
profits, according to its last published report, of at least
one million dollars ($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty million dollars
($20,000,000) if such bank or trust company is not a
subsidiary or affiliate of PNC Bank. In addition, such bank
or trust company must be qualified to act as custodian and
agree to comply with the relevant provisions of the 1940 Act
and other applicable rules and regulations. Any such
arrangement will not be entered into without prior written
notice to the Fund.
14
<PAGE>
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund and each Portfolio harmless from its own acts or
omissions, under the standards of care provided for herein,
or the acts and omissions of any sub-custodian chosen by PNC
Bank under the terms of this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral or Written
Instructions and not otherwise, PNC Bank, directly or through the use of the
Book-Entry System, shall:
(i) deliver any securities held for a Portfolio against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of a Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for a Portfolio against receipt
of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, tender
offer, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio to
15
<PAGE>
any protective committee, reorganization committee or other
person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of
any corporation, and receive and hold under the terms of
this Agreement such certificates of deposit, interim
receipts or other instruments or documents as may be issued
to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be stated in
said Oral or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Fund;
(vii) release securities belonging to a Portfolio to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund on behalf of that
Portfolio; provided, however, that securities shall be
released only upon payment to PNC Bank of the monies
borrowed, except that in cases where additional collateral
is required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange
16
<PAGE>
securities owned by the Fund in connection with any
conversion of such securities, pursuant to their terms, into
other securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in kind shares of the Fund upon
delivery thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank certified
resolutions of the Fund's Board of Trustees approving, authorizing and
instructing PNC Bank on a continuous basis, to deposit in the Book-Entry System
all securities belonging to the Portfolios eligible for deposit therein and to
utilize the Book-Entry System to the extent possible in connection with
settlements of purchases and sales of securities by the Portfolios, and
deliveries and returns of securities loaned, subject to repurchase agreements or
used as collateral in connection with borrowings. PNC Bank shall continue to
perform such duties until it receives Written or Oral Instructions authorizing
contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
17
<PAGE>
(i) With respect to securities of each Portfolio which are
maintained in the Book-Entry System, the records of PNC Bank
shall identify by Book-Entry or otherwise those securities
belonging to each Portfolio. PNC Bank shall furnish to the
Fund a detailed statement of the Property held for each
Portfolio under this Agreement at least monthly and from
time to time and upon written request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon receipt
of securities and will deliver securities only upon the
receipt of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open
to the inspection of Authorized Persons, and PNC Bank will
furnish to the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for a Portfolio which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for a Portfolio may be registered in the name of the Fund on
behalf of
18
<PAGE>
that Portfolio, PNC Bank, the Book-Entry System, a sub-custodian, or any duly
appointed nominees of the Fund, PNC Bank, Book-Entry System or sub-custodian.
The Fund reserves the right to instruct PNC Bank as to the method of
registration and safekeeping of the securities of the Fund. The Fund agrees to
furnish to PNC Bank appropriate instruments to enable PNC Bank to hold or
deliver in proper form for transfer, or to register in the name of its nominee
or in the name of the Book-Entry System, any securities which it may hold for
the Accounts and which may from time to time be registered in the name of the
Fund on behalf of a Portfolio.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the account of a
Portfolio, except in accordance with Written Instructions. PNC Bank, directly or
through the use of the Book-Entry System, shall execute in blank and promptly
deliver all notices, proxies and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund on behalf of
a Portfolio, then Written or Oral Instructions must designate the person who
owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, PNC Bank is authorized to take the following actions:
19
<PAGE>
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of each Portfolio, all
income, dividends, distributions, coupons, option premiums, other
payments and similar items, included or to be included in the
Property, and, in addition, promptly advise each Portfolio of
such receipt and credit such income, as collected, to each
Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money;
(C) receive and hold for the account of each Portfolio all securities
received as a distribution on the Portfolio's securities as a
result of a stock dividend, share split-up or reorganization,
recapitalization, readjustment or other rearrangement or
distribution of rights or similar securities issued with respect
to any securities belonging to a Portfolio and held by PNC Bank
hereunder;
(D) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired,
or otherwise become payable on the date such securities become
payable; and
(E) take any action which may be necessary and proper in connection
with the collection and receipt of such income and other payments
and the endorsement for collection of checks, drafts, and other
negotiable instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered Property against payment or
other consideration or
20
<PAGE>
written receipt therefor in the following cases:
(1) for examination by a broker or dealer selling for the
account of a Portfolio in accordance with street delivery
custom;
(2) for the exchange of interim receipts or temporary securities
for definitive securities; and
(3) for transfer of securities into the name of the Fund on
behalf of a Portfolio or PNC Bank or nominee of either, or
for exchange of securities for a different number of bonds,
certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any;
provided that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written Instructions
to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for payment upon
presentation and hold the cash received by it upon such
payment for the account of each Portfolio;
(2) collect interest and cash dividends received, with notice to
the Fund, to the account of each Portfolio;
(3) hold for the account of each Portfolio all stock dividends,
21
<PAGE>
rights and similar securities issued with respect to any
securities held by PNC Bank; and
(4) execute as agent on behalf of the Fund all necessary
ownership certificates required by the Internal Revenue Code
or the Income Tax Regulations of the United States Treasury
Department or under the laws of any state now or hereafter
in effect, inserting the Fund's name, on behalf of a
Portfolio, on such certificate as the owner of the
securities covered thereby, to the extent it may lawfully do
so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated accounts on its records for
and on behalf of each Portfolio. Such accounts may be used to
transfer cash and securities, including securities in the
Book-Entry System:
(A) for the purposs of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and any
releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies; and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA custodian
accounts for such shareholders holding Shares through IRA
accounts, in accordance with the Fund's prospectuses, the
Internal Revenue Code of 1986, as amended (including regulations
promulgated thereunder), and with such other procedures as are
mutually agreed upon from time to time by and among the Fund, PNC
Bank and the
22
<PAGE>
Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased securities
upon receipt of Oral or Written Instructions from the Fund or its investment
advisers that specify:
(i) the name of the issuer and the title of the securities, including
CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker through whom the
purchase was made. PNC Bank shall upon receipt of securities
purchased by or for a Portfolio pay out of the moneys held for
the account of the Portfolio the total amount payable to the
person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable
as set forth in such Oral or Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities upon receipt
of Oral or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security, including
CUSIP number if applicable;
23
<PAGE>
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided that the total amount payable
is the same as was set forth in the Oral or Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in such form as shall be satisfactory to
it, and may deliver securities and arrange for payment in accordance with the
customs prevailing among dealers in securities.
(l) Reports; Proxy Materials.
(i) PNC Bank shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may reasonably
request;
(B) a monthly statement summarizing all transactions and entries
for the
24
<PAGE>
account of each Portfolio, listing each Portfolio securities
belonging to each Portfolio with the adjusted average cost
of each issue and the market value at the end of such month
and stating the cash account of each Portfolio including
disbursements;
(C) the reports required to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from time to
time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy statement,
proxy material, notice of a call or conversion or similar
communication received by it as custodian of the Property. PNC
Bank shall be under no other obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other property in respect, or
which are to become part, of the Property (but not the safekeeping thereof upon
receipt by PNC Bank) shall be at the sole risk of the Fund. If payment is not
received by PNC Bank within a reasonable time after proper demands have been
made, PNC Bank shall notify the Fund in writing, including copies of all demand
letters, any written responses, memoranda of all oral responses and shall await
instructions from the Fund. PNC Bank shall not be obliged to take legal action
for collection unless and until reasonably indemnified to its satisfaction. PNC
Bank shall also notify the Fund as soon as reasonably practicable whenever
income due on securities is not collected in
25
<PAGE>
due course and shall provide the Fund with periodic status reports of such
income collected after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
Portfolios to the Fund. It may deliver them to a bank or trust company of PNC
Bank's choice, having an aggregate capital, surplus and undivided profits, as
shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. PNC Bank shall not be required to make any such
delivery or payment until full payment shall have been made to PNC Bank of all
of its fees, compensation, costs and expenses. PNC Bank shall have a security
interest in and shall have a right of setoff against the Property as security
for the payment of such fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by
26
<PAGE>
confirming telegram, cable, telex or facsimile sending device. Notice shall be
addressed (a) if to PNC Bank at Airport Business Center, International Court 2,
200 Stevens Drive, Lester, Pennsylvania 19113, marked for the attention of the
Custodian Services Department (or its successor) (b) if to the Fund, at Astra
Management Corp., Symphony Towers, 750 B Street, Suite 2350, San Diego, CA
92101; or (c) if to neither of the foregoing, at such other address as shall
have been given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been given
immediately. If notice is sent by first-class mail, it shall be deemed to have
been given five days after it has been mailed. If notice is sent by messenger,
it shall be deemed to have been given on the day it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30)
27
<PAGE>
days' prior written notice; (ii) the delegate (or assignee) agrees with PNC Bank
and the Fund to comply with all relevant provisions of the 1940 Act; and (iii)
PNC Bank and such delegate (or assignee) promptly provide such information as
the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their
28
<PAGE>
construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof
by such party.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ JOHN FOSTER
---------------------------------
Title: Vice President
ASTRA STRATEGIC INVESTMENT SERIES
By: /s/ JOHN ELERDING
---------------------------------
Title: Chief Financial Officer
30
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of______________ , 1995, is Exhibit A to that
certain Custodian Services Agreement dated as of______________ , 1995 between
PNC Bank, National Association and Astra Strategic Investment Series.
PORTFOLIOS
Astra Adjustable Rate Securities Trust I
Astra Adjustable Rate Securities Trust I-A
Astra Adjustable Rate Securities Trust II
Astra Adjustable Rate Securities Trust III
Astra Adjustable Rate Securities Trust IV
Astra Adjustable U.S. Government Securities Trust I
Astra Adjustable U.S. Government Securities Trust I-A
Astra Adjustable U.S. Government Securities Trust II
Astra Adjustable U.S. Government Securities Trust III
Astra Adjustable U.S. Government Securities Trust IV
31
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
32
EXHIBIT 9-C
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
BETWEEN
ASTRA STRATEGIC INVESTMENT SERIES
(FORMERLY PILGRIM STRATEGIC INVESTMENT SERIES)
AND
ATLAS FINANCIAL GROUP, INC.
(FORMERLY PILGRIM GROUP, INC.)
Pursuant to the terms of this Administration Agreement between Pilgrim
Strategic Investment Series and Pilgrim Group, Inc. (the "Agreement"), we hereby
amend this Agreement to change the names of the parties to ASTRA STRATEGIC
INVESTMENT SERIES and ATLAS FINANCIAL GROUP, INC., respectively, effective April
10, 1995. The names of corresponding series of ASTRA STRATEGIC INVESTMENT SERIES
that are affected by this Agreement, namely, Pilgrim Adjustable U.S. Government
Securities Trust I, Pilgrim Adjustable U.S. Government Securities Trust I-A,
Pilgrim Adjustable U.S. Government Securities Trust II, Pilgrim Adjustable U.S.
Government Securities Trust III, Pilgrim Adjustable U.S. Government Securities
Trust IV, Pilgrim Adjustable Rate Securities Trust I, Pilgrim Adjustable Rate
Securities Trust I-A, Pilgrim Adjustable Rate Securities Trust II, Pilgrim
Adjustable Rate Securities Trust III, Pilgrim Adjustable Rate Securities Trust
IV have been changed to Astra Adjustable U.S. Government Securities Trust I,
Astra Adjustable U.S. Government Securities Trust I-A, Astra Adjustable U.S.
Government Securities Trust II, Astra Adjustable U.S. Government Securities
Trust III, Astra Adjustable U.S. Government Securities Trust IV, Astra
Adjustable Rate Securities Trust I, Astra Adjustable Rate Securities Trust I-A,
Astra Adjustable Rate Securities Trust II, Astra Adjustable Rate Securities
Trust III, Astra Adjustable Rate Securities Trust IV, respectively, effective
April 10, 1995.
ASTRA STRATEGIC INVESTMENT SERIES
By:______________________________
Palomba Weingarten, President
ATLAS FINANCIAL GROUP, INC.
By:______________________________
EXHIBIT 9-D
SUB-ADMINISTRATION SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between ATLAS
HOLDINGS GROUP, INC. (the "Company") and PFPC INC., a Delaware corporation
("PFPC"), which is an indirect wholly owned subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, ASTRA STRATEGIC INVESTMENT SERIES, a Massachusetts business trust
(the "Fund") is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company has been appointed by the Fund as Administrator of the
Fund;
and
WHEREAS, the Company wishes to retain PFPC to provide administration
services for the benefit of the Fund's investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be amended from
time to time (each a "Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly
<PAGE>
authorized by the Fund's Board of Trustees to give Oral and Written Instructions
on behalf of the Fund and listed on the Authorized Persons Appendix attached
hereto and made a part hereof or any amendment thereto as may be received by
PFPC. An Authorized Person's scope of authority may be limited by setting forth
such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC
to be an Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "Shares" mean the shares of beneficial interest of any series or
class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC to provide administration
services for the benefit of each of the Portfolios, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where applicable,
will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or
its affiliates to provide services to each Portfolio and
approving this Agreement;
2
<PAGE>
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each class
of Shares representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with respect to
a Portfolio;
(f) a copy of any shareholder servicing agreement made in respect of
the Fund or a Portfolio; and
(f) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any
Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral and Written Instructions
it receives from an Authorized Person (or from a person reasonably believed by
PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume
that any Oral or Written Instruction received hereunder is not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written Instructions to
the contrary.
3
<PAGE>
(c) The Company agrees to forward to PFPC Written Instructions confirming
Oral Instructions (except where such Oral Instructions are given by PFPC or its
affiliates) so that PFPC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral or Written Instructions reasonably appear to
have been received from an Authorized Person, PFPC shall incur no liability to
the Fund or the Company in acting upon such Oral or Written Instructions
provided that PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral or
Written Instructions, from the Company or the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC may request advice
at its own cost from such counsel of its own choosing (who may be counsel for
the Company, the Fund, the Fund's investment adviser or PFPC, at the option of
PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Company or the
Fund and the advice PFPC receives from counsel, PFPC may rely upon and follow
the advice of counsel. In the event PFPC so relies on the advice of counsel,
PFPC remains liable for any action or omission on the part of PFPC which
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or
4
<PAGE>
responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Company, the Fund or from counsel and which
PFPC believes, in good faith, to be consistent with those directions, advice and
Oral or Written Instructions. Nothing in this section shall be construed so as
to impose an obligation upon PFPC (i) to seek such directions, advice or Oral or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral or Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of PFPC's properly taking or not taking
such action. Nothing in this subsection shall excuse PFPC when an action or
omission on the part of PFPC constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard by PFPC of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the Portfolios which
are in the possession or under the control of PFPC shall be the property of the
Company or the Fund as the Company may direct. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws, rules and regulations. The Company, the Fund and their
Authorized Persons shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Company,
copies of any such books and records shall be provided by PFPC to the Fund, the
Company or to an Authorized Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each Portfolio's books of
account;
5
<PAGE>
(ii) records of each Portfolio's securities transactions;
(iii) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act in connection with the
services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Company and the Fund and information
relating to the Fund and its shareholders (past, present and future), unless the
release of such records or information is otherwise consented to, in writing, by
the Company or the Fund. The Company agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable action in the performance of its duties under
this Agreement to assure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the
Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Company, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or
6
<PAGE>
reckless disregard of its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Company will pay to PFPC a fee or fees as may be
agreed to in writing by the Company and PFPC.
12. INDEMNIFICATION. The Company agrees to indemnify and hold harmless PFPC
and its affiliates from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements arising directly or indirectly from any action or
omission to act which PFPC takes (i) at the request or on the direction of or in
reliance on the advice of the Company or the Fund or (ii) upon Oral or Written
Instructions. Neither PFPC, nor any of its affiliates', shall be indemnified
against any liability (or any expenses incident to such liability) arising out
of PFPC's or its affiliates' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. Any amounts payable by the Fund hereunder shall be satisfied only
against the relevant Portfolio's assets and not against the assets of any other
investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Company, the Fund or any Portfolio except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise care and diligence in the performance of its duties hereunder, to act
in good faith and to use its best efforts, within
7
<PAGE>
reasonable limits, in performing services provided for under this Agreement.
PFPC shall be liable for any damages arising out of PFPC's failure to perform
its duties under this Agreement to the extent such damages arise out of PFPC's
willful misfeasance, bad faith, gross negligence or reckless disregard of such
duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral or Written Instruction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Company, the Fund or to any
Portfolio for any consequential, special or indirect losses or damages which the
Company, the Fund or any Portfolio may incur or suffer by or as a consequence of
PFPC's or any affiliate's performance of the services provided hereunder,
whether or not the likelihood of such losses or damages was known by PFPC or its
affiliates.
14. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following administration services with respect to
each Portfolio:
8
<PAGE>
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Portfolio and Fund
statistical data as requested on an ongoing basis;
(iv) Coordinate the preparation and filing of the Fund's Federal and
state tax returns;
(v) Coordinate the preparation and filing of the Fund's Form N-SAR
and Rule 24f-2 Notices;
(vi) Assist in the preparation and coordinate the production and
filing of the Fund's annual, semi-annual, and quarterly
shareholder reports;
(vii) Assist in the preparation of registration statements and other
filings relating to the registration of Shares;
(viii) Assist in monitoring each Portfolio's status as a regulated
investment company under Sub-chapter M of the Internal Revenue
Code of 1986, as amended;
(ix) Assist in coordinating the contractual relationships and
communications between the Fund and its contractual service
providers; and
(x) Assist in monitoring the Fund's state blue sky registration and
compliance with the amounts and conditions of each state
qualification.
15. DESCRIPTION OF ADDITIONAL REGULATORY COMPLIANCE AND ADMINISTRATION
SERVICES.
PFPC will perform the following services with respect to each Portfolio.
(i) Assist the investment adviser in monitoring the Fund's compliance
with certain investment restrictions, limited to
after-transactions testing regarding the following procedures:
- Industry Diversification
- Issuer Diversification
- State Diversification
- Country Diversification
- Limitation of International Holdings;
9
<PAGE>
(ii) Assist management in developing a response to the Securities and
Exchange Commission staff's routine examinations;
(iii) Assist in the preparation of Post Effective Amendments to the
Funds Registration Statement on Form N-1A;
(iv) Monitor various SEC and IRS regulatory developments affecting
investment companies;
(v) Coordinate the administrative details of preparing for the Fund's
Board Meeting, including the preparation of the Administration
report and coordination of reports and related materials from the
adviser, distributor, transfer agent and custodian, etc.;
(vi) Provide the Fund with signatories which may be authorized by the
Fund to facilitate certain required regulatory filings and the
processing of invoices;
(vii) Monitor the maintenance of Directors' and Officers' insurance
and Fidelity Bond insurance coverage on behalf of the Fund;
viii) Coordinate with fund management, independent auditors and
printers for the preparation of shareholder reports;
(ix) Prepare and distribute operational reports to management by the
tenth business day after receiving all applicable reports from
outside vendors; and
(x) Maintain a monthly "task list" calendar noting required
completion dates.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be
10
<PAGE>
deemed to have been given three days after it has been mailed. If notice is sent
by messenger, it shall be deemed to have been given on the day it is delivered.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington,
Delaware 19809; (b) if to the Company, at Atlas Holdings Group, Inc., 9595
Wilshire Boulevard, Beverly Hills, CA 90212; or (c) if to neither of the
foregoing, at such other address as shall have been provided by like notice to
the sender of any such notice or other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Company
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Company to comply with all relevant provisions of the 1940
Act; and (iii) PFPC and such delegate (or assignee) promptly provide such
information as the Company may request, and respond to such questions as the
Company may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
11
<PAGE>
22. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of conflicts
of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ STEPHEN M. WYNNE
--------------------------------
Title: Executive Vice President
ATLAS HOLDINGS GROUP, INC.
By: /s/ JOHN R. ELERDING
--------------------------------
Title: Chief Financial Officer
13
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of September 5, 1995, is Exhibit A to that certain
Administration Services Agreement dated as of September 5, 1995 between PFPC
Inc. and Atlas Holdings Group, Inc.
PORTFOLIOS OF ASTRA STRATEGIC INVESTMENT SERIES
Astra Adjustable Rate Securities Trust I
Astra Adjustable Rate Securities Trust I-A
Astra Adjustable Rate Securities Trust II
Astra Adjustable Rate Securities Trust III
Astra Adjustable Rate Securities Trust IV
Astra Adjustable U.S. Government Securities Trust I
Astra Adjustable U.S. Government Securities Trust I-A
Astra Adjustable U.S. Government Securities Trust II
Astra Adjustable U.S. Government Securities Trust III
Astra Adjustable U.S. Government Securities Trust IV
14
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
15
EXHIBIT 9-E
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between ASTRA
STRATEGIC INVESTMENT SERIES, a Massachusetts business trust (the "Fund"), and
PFPC Inc., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide accounting services to
its investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other person
duly authorized by the Fund's Board of Trustees to give Oral and Written
Instructions on behalf of the Fund and listed on the Authorized Persons Appendix
attached hereto and made a part
<PAGE>
hereof or any amendment thereto as may be received by PFPC. An Authorized
Person's scope of authority may be limited by the Fund by setting forth such
limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(h) "Shares" mean the shares of beneficial interest of any series or class
of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide accounting
services to the each of the Portfolios, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PFPC or its affiliates
to provide services to each Portfolio and approving this Agreement;
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each class of
Shares
2
<PAGE>
representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with respect to a
Portfolio;
(f) a copy of any shareholder servicing agreement made in respect of the
Fund or a Portfolio; and
(f) copies (certified or authenticated, where applicable) of any and all
amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral and Written Instructions
it receives from an Authorized Person (or from a person reasonably believed by
PFPC to be an Authorized Person) pursuant to this Agreement. PFPC may assume
that any Oral or Written Instruction received hereunder is not in any way
inconsistent with the provisions of organizational documents or this Agreement
or of any vote, resolution or proceeding of the Fund's Board of Trustees or of
the Fund's shareholders, unless and until PFPC receives Written Instructions to
the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions (except where such Oral Instructions are given by PFPC or its
affiliates) so that PFPC receives the Written Instructions by the close of
business on the same day that such Oral
3
<PAGE>
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral or Written Instructions reasonably appear to have been received from an
Authorized Person, PFPC shall incur no liability to the Fund in acting upon such
Oral or Written Instructions provided that PFPC's actions comply with the other
provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral or
Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC may request advice
at its own cost from such counsel of its own choosing (who may be counsel for
the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice PFPC receives from counsel, PFPC may rely upon and follow the advice of
counsel. In the event PFPC so relies on the advice of counsel, PFPC remains
liable for any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not
4
<PAGE>
take in reliance upon directions, advice or Oral or Written Instructions it
receives from the Fund or from counsel and which PFPC believes, in good faith,
to be consistent with those directions, advice and Oral or Written Instructions.
Nothing in this section shall be construed so as to impose an obligation upon
PFPC (i) to seek such directions, advice or Oral or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action. Nothing
in this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PFPC of any duties, obligations or responsibilities set forth in
this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the Portfolios which
are in the possession or under the control of PFPC shall be the property of the
Fund. Such books and records shall be prepared and maintained as required by the
1940 Act and other applicable securities laws, rules and regulations. The Fund
and Authorized Persons shall have access to such books and records at all times
during PFPC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PFPC to the Fund or to
an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each Portfolio's books of
account;
(ii) records of each Portfolio's securities transactions;
(iii) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act in connection with the
services provided hereunder.
5
<PAGE>
8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Fund and information relating to the
Fund and its shareholders (past, present and future), unless the release of such
records or information is otherwise consented to, in writing, by the Fund. The
Fund agrees that such consent shall not be unreasonably withheld and may not be
withheld where PFPC may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly constituted
authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable action in the performance of its duties under
this Agreement to assure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during the
6
<PAGE>
term of this Agreement, the Fund, on behalf of each Portfolio, will pay to PFPC
a fee or fees as may be agreed to in writing by the Fund and PFPC.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state or foreign
securities and blue sky laws, and amendments thereto), and expenses, including
(without limitation) attorneys' fees and disbursements arising directly or
indirectly from any action or omission to act which PFPC takes (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither PFPC, nor any of its affiliates',
shall be indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. Any amounts payable by the Fund hereunder shall be
satisfied only against the relevant Portfolio's assets and not against the
assets of any other investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the Fund or
any Portfolio except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise care and
diligence in the performance of its duties hereunder, to act in good faith and
to use its best efforts, within reasonable limits, in performing services
provided for under this Agreement. PFPC shall be liable for any damages arising
out of PFPC's failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless
7
<PAGE>
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond its
control, provided that PFPC has acted in accordance with the standard of care
set forth above; and (ii) PFPC shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral or Written Instruction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund or to any Portfolio for any
consequential, special or indirect losses or damages which the Fund or any
Portfolio may incur or suffer by or as a consequence of PFPC's or any
affiliate's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PFPC or its affiliates.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services with respect to each
Portfolio:
(i) Journalize investment, capital share and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when received from the
investment adviser for a Portfolio (the "Adviser") and transmit
trades to the Fund's custodian (the "Custodian") for proper
settlement;
(iii) Maintain individual ledgers for investment securities;
8
<PAGE>
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Fund with the
Custodian, and provide the Adviser with the beginning cash
balance available for investment purposes;
(vi) Update the cash availability throughout the day as required by
the Adviser;
(vii) Post to and prepare the Statement of Assets and Liabilities and
the Statement of Operations;
(viii) Calculate various contractual expenses (e.g., advisory and
custody fees);
(ix) Monitor the expense accruals and notify an officer of the Fund of
any proposed adjustments;
(x) Control all disbursements and authorize such disbursements upon
Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from independent pricing services
approved by the Adviser, or if such quotes are unavailable, then
obtain such prices from the Adviser, and in either case calculate
the market value of each Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to the
Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average
dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include the
following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
9
<PAGE>
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Fund, at Astra Management Corp., Symphony Towers, 750 B Street, Suite 2350,
San Diego, CA 92101; or (c) if to neither of the foregoing, at such other
address as shall have been provided by like notice to the sender of any such
notice or other communication by the other party.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the 1940 Act;
and (iii) PFPC and such delegate (or assignee) promptly provide such information
as the Fund may request, and respond to such questions as
10
<PAGE>
the Fund may ask, relative to the delegation (or assignment), including (without
limitation) the capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of conflicts
of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11
<PAGE>
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such party.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ STEPHEN M. WYNNE
--------------------------------
Title: Executive Vice President
ASTRA STRATEGIC INVESTMENT SERIES
By: /s/ JOHN R. ELERDING
--------------------------------
Title: Chief Financial Officer
13
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of __________________, 1995, is Exhibit A to that
certain Accounting Services Agreement dated as of__________________, 1995
between PFPC Inc. and Astra Strategic Investment Series.
PORTFOLIOS
Astra Adjustable Rate Securities Trust I
Astra Adjustable Rate Securities Trust I-A
Astra Adjustable Rate Securities Trust II
Astra Adjustable Rate Securities Trust III
Astra Adjustable Rate Securities Trust IV
Astra Adjustable U.S. Government Securities Trust I
Astra Adjustable U.S. Government Securities Trust I-A
Astra Adjustable U.S. Government Securities Trust II
Astra Adjustable U.S. Government Securities Trust III
Astra Adjustable U.S. Government Securities Trust IV
14
<PAGE>
AUTHORIZED
NAME (TYPE) SIGNATURE
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
- --------------------------- ---------------------------
15
JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400-EAST
WASHINGTON, D.C. 20007-0805
(202) 965-8100
February 28, 1996
Astra Strategic Investment Series
750 B Street
Suite 2350
San Diego, California 92101
Re: Astra Strategic Investment Series
---------------------------------
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel" in the Statements of Additional Information of Astra Adjustable U.S.
Government Securities Trusts I, I-A, II and IV, all series of Astra Strategic
Investment Series, contained in Post-Effective Amendment No. 62 to the
Registration Statement on Form N-1A (File No. 2-19659) filed by Astra Strategic
Investment Series with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ JORDEN BURT BERENSON & JOHNSON LLP
--------------------------------------
Jorden Burt Berenson & Johnson LLP
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 7, 1995 accompanying the October
31, 1995 financial statements of Astra Adjustable U.S. Government Securities
Trust I, I-A, II, III, IV (each a series of shares of beneficial interest of
Astra Strategic Investment Series) and our report dated December 7, 1995
accompanying the October 31, 1995 financial statements of Astra Institutional
Adjustable U.S. Government Securities Portfolio (a series of shares of Astra
Institutional Securities Trust) which are incorporated by reference in Part B
of Post-Effective Amendment No. 62 to this Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus.
/s/ TAIT, WELLER & BAKER
------------------------
Tait, Weller & Baker
Philadelphia, Pennsylvania
February 23, 1996
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I
(FORMERLY PILGRIM ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable U.S. Government Securities Trust I, to ASTRA
ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I, effective April 10, 1995, and we
further amend this Distribution Plan to reflect a change in the name of the
underwriter from Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP.,
effective April 10, 1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES
TRUST I
By:______________________________
President
Attest:
_____________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A
(FORMERLY PILGRIM ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable U.S. Government Securities Trust I-A, to ASTRA
ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST I-A, effective April 10, 1995, and
we further amend this Distribution Plan to reflect a change in the name of the
underwriter from Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP.,
effective April 10, 1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES
TRUST I-A
By:______________________________
President
Attest:
______________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II
(FORMERLY PILGRIM ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable U.S. Government Securities Trust II, to ASTRA
ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST II, effective April 10, 1995, and we
further amend this Distribution Plan to reflect a change in the name of the
underwriter from Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP.,
effective April 10, 1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES
TRUST II
By:_______________________________
President
Attest:
_______________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
(FORMERLY PILGRIM ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable U.S. Government Securities Trust IV, to ASTRA
ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV, effective April 10, 1995, and we
further amend this Distribution Plan to reflect a change in the name of the
underwriter from Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP.,
effective April 10, 1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE U.S. GOVERNMENT SECURITIES
TRUST IV
By:______________________________
President
Attest:
___________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE RATE SECURITIES TRUST I
(FORMERLY PILGRIM ADJUSTABLE RATE SECURITIES TRUST I)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable Rate Securities Trust I, to ASTRA ADJUSTABLE
RATE SECURITIES TRUST I, effective April 10, 1995, and we further amend this
Distribution Plan to reflect a change in the name of the underwriter from
Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP., effective April 10,
1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE RATE SECURITIES TRUST I
By:_____________________________
President
Attest:
____________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE RATE SECURITIES TRUST I-A
(FORMERLY PILGRIM ADJUSTABLE RATE SECURITIES TRUST I-A)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable Rate Securities Trust I-A, to ASTRA ADJUSTABLE
RATE SECURITIES TRUST I-A, effective April 10, 1995, and we further amend this
Distribution Plan to reflect a change in the name of the underwriter from
Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP., effective April 10,
1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE RATE SECURITIES TRUST I-A
By:______________________________
President
Attest:
____________________________
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE RATE SECURITIES TRUST II
(FORMERLY PILGRIM ADJUSTABLE RATE SECURITIES TRUST II)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable Rate Securities Trust II, to ASTRA ADJUSTABLE
RATE SECURITIES TRUST II, effective April 10, 1995, and we further amend this
Distribution Plan to reflect a change in the name of the underwriter from
Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP., effective April 10,
1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE RATE SECURITIES TRUST II
By:_______________________
President
Attest:
- ----------------------
Secretary
<PAGE>
EXHIBIT 15-D
AMENDED AND RESTATED DISTRIBUTION PLAN OF
ASTRA ADJUSTABLE RATE SECURITIES TRUST IV
(FORMERLY PILGRIM ADJUSTABLE RATE SECURITIES TRUST IV)
We hereby amend this Distribution Plan to reflect a change in the name of
the fund from Pilgrim Adjustable Rate Securities Trust IV, to ASTRA ADJUSTABLE
RATE SECURITIES TRUST IV, effective April 10, 1995, and we further amend this
Distribution Plan to reflect a change in the name of the underwriter from
Pilgrim Distributors Corp. to ASTRA FUND DISTRIBUTORS CORP., effective April 10,
1995.
ASTRA STRATEGIC INVESTMENT SERIES
on behalf of
ASTRA ADJUSTABLE RATE SECURITIES TRUST IV
By:_______________________
President
Attest:
- ----------------------
Secretary
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 02
<NAME> ADJUSTABLE U.S. GOV'T SECURITIES TRUST I
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 116709496
<INVESTMENTS-AT-VALUE> 95249562
<RECEIVABLES> 407450
<ASSETS-OTHER> 46082
<OTHER-ITEMS-ASSETS> 96162
<TOTAL-ASSETS> 95799256
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 885382
<TOTAL-LIABILITIES> 885382
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173549470
<SHARES-COMMON-STOCK> 17008720
<SHARES-COMMON-PRIOR> 48575931
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (57175662)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (21459934)
<NET-ASSETS> 94913874
<DIVIDEND-INCOME> 9371660
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 2488520
<NET-INVESTMENT-INCOME> 6883140
<REALIZED-GAINS-CURRENT> (40720703)
<APPREC-INCREASE-CURRENT> 13232526
<NET-CHANGE-FROM-OPS> (20605037)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7287333
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1050656
<NUMBER-OF-SHARES-SOLD> 168878
<NUMBER-OF-SHARES-REDEEMED> 32491157
<SHARES-REINVESTED> 755068
<NET-CHANGE-IN-ASSETS> (214471174)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (16454959)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2488520
<AVERAGE-NET-ASSETS> 160705000
<PER-SHARE-NAV-BEGIN> 6.370
<PER-SHARE-NII> 0.246
<PER-SHARE-GAIN-APPREC> (0.745)
<PER-SHARE-DIVIDEND> 0.254
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.037
<PER-SHARE-NAV-END> 5.580
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 08
<NAME> ADJUSTABLE U.S. GOV'T SECURITIES TRUST 1-A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 81677615
<INVESTMENTS-AT-VALUE> 66040754
<RECEIVABLES> 282599
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 71216
<TOTAL-ASSETS> 66394569
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 513945
<TOTAL-LIABILITIES> 513945
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113887999
<SHARES-COMMON-STOCK> 11754025
<SHARES-COMMON-PRIOR> 29377093
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (32370514)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (15636861)
<NET-ASSETS> 65880624
<DIVIDEND-INCOME> 5895907
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1594588
<NET-INVESTMENT-INCOME> 4301319
<REALIZED-GAINS-CURRENT> (22801404)
<APPREC-INCREASE-CURRENT> 6044252
<NET-CHANGE-FROM-OPS> (12455833)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4521595
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 590146
<NUMBER-OF-SHARES-SOLD> 519411
<NUMBER-OF-SHARES-REDEEMED> 18589063
<SHARES-REINVESTED> 446584
<NET-CHANGE-IN-ASSETS> (121629330)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (9569110)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1594588
<AVERAGE-NET-ASSETS> 100620000
<PER-SHARE-NAV-BEGIN> 6.380
<PER-SHARE-NII> 0.246
<PER-SHARE-GAIN-APPREC> (0.741)
<PER-SHARE-DIVIDEND> 0.252
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.033
<PER-SHARE-NAV-END> 5.600
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 03
<NAME> ADJUSTABLE U.S. GOV'T SECURITIES TRUST II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 6005693
<INVESTMENTS-AT-VALUE> 5143932
<RECEIVABLES> 22201
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 24676
<TOTAL-ASSETS> 5190809
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57236
<TOTAL-LIABILITIES> 57236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9926326
<SHARES-COMMON-STOCK> 905298
<SHARES-COMMON-PRIOR> 1909788
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3930992)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (861761)
<NET-ASSETS> 5133573
<DIVIDEND-INCOME> 438243
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 117619
<NET-INVESTMENT-INCOME> 320624
<REALIZED-GAINS-CURRENT> (1281838)
<APPREC-INCREASE-CURRENT> 139950
<NET-CHANGE-FROM-OPS> (821264)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 339005
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 55052
<NUMBER-OF-SHARES-SOLD> 68732
<NUMBER-OF-SHARES-REDEEMED> 1119210
<SHARES-REINVESTED> 45988
<NET-CHANGE-IN-ASSETS> (7225162)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2649154)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117619
<AVERAGE-NET-ASSETS> 7500000
<PER-SHARE-NAV-BEGIN> 6.470
<PER-SHARE-NII> 0.251
<PER-SHARE-GAIN-APPREC> (0.749)
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.042
<PER-SHARE-NAV-END> 5.670
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 04
<NAME> ADJUSTABLE U.S. GOV'T SECURITIES TRUST III
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 3708083
<INVESTMENTS-AT-VALUE> 3165689
<RECEIVABLES> 13240
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 36993
<TOTAL-ASSETS> 3215922
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25942
<TOTAL-LIABILITIES> 25942
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5731791
<SHARES-COMMON-STOCK> 560530
<SHARES-COMMON-PRIOR> 1002514
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1999417)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (542394)
<NET-ASSETS> 3189980
<DIVIDEND-INCOME> 260617
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 67688
<NET-INVESTMENT-INCOME> 192929
<REALIZED-GAINS-CURRENT> (647101)
<APPREC-INCREASE-CURRENT> (22854)
<NET-CHANGE-FROM-OPS> (477026)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 205083
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 31627
<NUMBER-OF-SHARES-SOLD> 27857
<NUMBER-OF-SHARES-REDEEMED> 484185
<SHARES-REINVESTED> 14344
<NET-CHANGE-IN-ASSETS> (3310859)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1352316)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 67688
<AVERAGE-NET-ASSETS> 4487000
<PER-SHARE-NAV-BEGIN> 6.480
<PER-SHARE-NII> 0.257
<PER-SHARE-GAIN-APPREC> (0.743)
<PER-SHARE-DIVIDEND> 0.263
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.041
<PER-SHARE-NAV-END> 5.690
<EXPENSE-RATIO> 1.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 10
<NAME> ADJUSTABLE U.S. GOVERNMENT SECURITIES TRUST IV
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 3562675
<INVESTMENTS-AT-VALUE> 2944374
<RECEIVABLES> 13042
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29173
<TOTAL-ASSETS> 2986589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 115945
<TOTAL-LIABILITIES> 115945
<SENIOR-EQUITY> 0
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<OVERDISTRIBUTION-GAINS> 0
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<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 118904
<NET-INVESTMENT-INCOME> 197855
<REALIZED-GAINS-CURRENT> (1626315)
<APPREC-INCREASE-CURRENT> 691045
<NET-CHANGE-FROM-OPS> (737415)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 208389
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 82655
<NUMBER-OF-SHARES-SOLD> 28558
<NUMBER-OF-SHARES-REDEEMED> 1481273
<SHARES-REINVESTED> 30623
<NET-CHANGE-IN-ASSETS> (9694855)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2312530)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120642
<AVERAGE-NET-ASSETS> 5429000
<PER-SHARE-NAV-BEGIN> 6.510
<PER-SHARE-NII> 0.211
<PER-SHARE-GAIN-APPREC> (0.776)
<PER-SHARE-DIVIDEND> 0.218
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.087
<PER-SHARE-NAV-END> 5.640
<EXPENSE-RATIO> 2.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 05
<NAME> ADJUSTABLE RATE SECURITIES TRUST I
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 9347646
<INVESTMENTS-AT-VALUE> 4857465
<RECEIVABLES> 29530
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 23019
<TOTAL-ASSETS> 4910014
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105894
<TOTAL-LIABILITIES> 105894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24550449
<SHARES-COMMON-STOCK> 1474070
<SHARES-COMMON-PRIOR> 9250066
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> (15256148)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4490181)
<NET-ASSETS> 4804120
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<INTEREST-INCOME> 0
<OTHER-INCOME> 105641
<EXPENSES-NET> 214433
<NET-INVESTMENT-INCOME> 761180
<REALIZED-GAINS-CURRENT> (14118255)
<APPREC-INCREASE-CURRENT> 1774675
<NET-CHANGE-FROM-OPS> (11582400)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 897466
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 373209
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<NUMBER-OF-SHARES-REDEEMED> 7917358
<SHARES-REINVESTED> 79584
<NET-CHANGE-IN-ASSETS> (55004641)
<ACCUMULATED-NII-PRIOR> 120606
<ACCUMULATED-GAINS-PRIOR> (1137893)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 214433
<AVERAGE-NET-ASSETS> 16253000
<PER-SHARE-NAV-BEGIN> 6.470
<PER-SHARE-NII> 0.224
<PER-SHARE-GAIN-APPREC> (3.066)
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.108
<PER-SHARE-NAV-END> 3.260
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000061435
<NAME> ASTRA STRATEGIC INVESTMENT SERIES
<SERIES>
<NUMBER> 09
<NAME> ADJUSTABLE RATE SECURITIES TRUST 1-A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 27910495
<INVESTMENTS-AT-VALUE> 14298509
<RECEIVABLES> 155670
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 26716
<TOTAL-ASSETS> 14480895
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 155371
<TOTAL-LIABILITIES> 155371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68350766
<SHARES-COMMON-STOCK> 4367532
<SHARES-COMMON-PRIOR> 23716348
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (40413256)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13611986)
<NET-ASSETS> 14325524
<DIVIDEND-INCOME> 2469468
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 824756
<NET-INVESTMENT-INCOME> 1644712
<REALIZED-GAINS-CURRENT> (37656821)
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<NET-CHANGE-FROM-OPS> (33643573)
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1634558
<NUMBER-OF-SHARES-SOLD> 286384
<NUMBER-OF-SHARES-REDEEMED> 19919439
<SHARES-REINVESTED> 284239
<NET-CHANGE-IN-ASSETS> (139476518)
<ACCUMULATED-NII-PRIOR> (2756435)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 824756
<AVERAGE-NET-ASSETS> 46917000
<PER-SHARE-NAV-BEGIN> 6.490
<PER-SHARE-NII> 0.169
<PER-SHARE-GAIN-APPREC> (3.032)
<PER-SHARE-DIVIDEND> 0.184
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.163
<PER-SHARE-NAV-END> 3.280
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