As Filed With The Securities And Exchange Commission On April 25, 1997
Registration No. 33-1474
ICA No. 811-4468
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 18 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 19 (X)
ASTRA GLOBAL INVESTMENT SERIES
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(Exact Name of Registrant as Specified in Charter)
11400 West Olympic Boulevard, Suite 200, Los Angeles, California 90064
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(Address of Principal Executive Offices) (Zip Code)
(310) 445-8850
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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:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, NY 10022
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 December 31, 1996 on February
20, 1997.
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<PAGE>
ASTRA GLOBAL INVESTMENT SERIES
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I SERIES
Registration Statement on Form N-1A
CROSS-REFERENCE SHEET
Form N-1A
Item Number
- -----------
Prospectus
Part A Prospectus Caption Page Number
- ------ ------------------ -----------
1. Cover Page Cover Page
2. Key Features 2
3. *
4. The Fund's Investment Objectives and
Policies; The Astra Group;
General Information 6;25;29
5. (a) General Information 25
(b) The Astra Group; Management Fees;
Distribution Plan 25;25;26
(c) Management Fees; Distribution Plan 25;26
(d) Back Cover
Transfer and Shareholder
Servicing Agent Back Cover
(e) Management Fees; Distribution Plan 25;26
(f) Management Fees; Distribution Plan 25;26
6. (a) General Information 29
(b) The Astra Group; Management
Fees; Distribution Plan 25;25;26
(c) General Information 29
(d) *
(e) Cover Page Cover Page
(f) Distributions and Taxes 13
(g) Distributions and Taxes 13
7. (a) How to Buy Shares of the Funds 15
(b) How the Funds Value Their Shares 24
(c) *
(d) How to Buy Shares of the Funds 15
(e) Management Fees; Distribution Plan 25;26
8. How to Redeem Shares of the Fund 20
9. *
<PAGE>
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I SERIES
Statement of
Additional
Statement of Additional Information
Part B Information Caption Page Number
- ------ ------------------- ------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. *
13. Investment Objectives and Policies;
Investment Restrictions 2;11
14. Trustees and Officers 12
15. *
16. (a) Investment Management 12
(b) Investment Management 12
(c) Distribution Plan 16
(d) *
(e) *
(f) Distribution Plan 16
(g) *
(h) Accountants 28
(i) *
17. (a) Execution of Portfolio Transactions 14
(b) *
(c) Execution of Portfolio Transactions 14
(d) *
(e) *
18. *
19. (a) See Part A - How to Buy Shares of the Funds
(b) The Price of the Shares is Determined Daily 18
(c) *
20. (a) Tax Matters 19
21. Principal Underwriter 16
22. Investment Return Information 25
23. *
<PAGE>
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND II SERIES
Prospectus
Part A Prospectus Caption Page Number
- ------ ------------------ -----------
1. Cover Page Cover Page
2. Key Features 2
3. *
4. The Fund's Investment Objectives and
Policies; The Astra Group;
General Information 6;25;29
5. (a) General Information 25
(b) The Astra Group; Management Fees;
Distribution Plan 25;25;26
(c) Management Fees; Distribution Plan 25
(d) Back Cover
Transfer and Shareholder
Servicing Agent Back Cover
(e) Management Fees; Distribution Plan 25;26
(f) Management Fees; Distribution Plan 25;26
6. (a) General Information 29
(b) The Astra Group; Management
Fees; Distribution Plan 25;25;26
(c) General Information 29
(d) *
(e) Cover Page Cover Page
(f) Distributions and Taxes 13
(g) Distributions and Taxes 13
7. (a) How to Buy Shares of the Funds 15
(b) How the Funds Value Their Shares 24
(c) *
(d) How to Buy Shares of the Funds 15
(e) Management Fees; Distribution Plan 25
8. How to Redeem Shares of the Fund 20
9. *
<PAGE>
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND II SERIES
Statement of
Additional
Statement of Additional Information
Part B Information Caption Page Number
- ------ ------------------- ------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. *
13. Investment Objectives and Policies;
Investment Restrictions 2;11
14. Trustees and Officers 12
15. *
16. (a) Investment Management 13
(b) Investment Management 13
(c) Distribution Plan 16
(d) *
(e) *
(f) Distribution Plan 16
(g) *
(h) Accountants 32
(i) *
17. (a) Execution of Portfolio Transactions 15
(b) *
(c) Execution of Portfolio Transactions 15
(d) *
(e) *
18. *
19. (a) See Part A - How to Buy Shares of the Funds
(b) The Price of the Shares is Determined Daily 21
(c) *
20. (a) Tax Matters 21
21. Principal Underwriter 16
22. Investment Return Information 28
23. *
Part C Information required to be included in Part C is set forth under the
- ------ appropriate Item, so numbered, in Part C to this Registration
- -------------
* Not Applicable
<PAGE>
Prospectus
[ASTRA Astra Short-Term Multi-Market Income Fund I
LOGO] Astra Short-Term Multi-Market Income Fund II
11400 WEST OLYMPIC BOULEVARD, SUITE 200, LOS ANGELES, CALIFORNIA 90064
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o HOW THE FUNDS WORK PAGE 6
O SHAREHOLDER'S GUIDE PAGE 15
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Astra Short-Term Multi-Market Income Fund I and Astra Short-Term Multi-Market
Income Fund II (collectively, the "Funds" or individually, a "Fund") are
non-diversified, open-end management investment companies, and are each a series
of Astra Global Investment Series ("AGIS"). The primary investment objective of
the Funds is to provide investors with high current income with capital
preservation as a secondary objective.
To achieve the primary objective the Funds will invest in non-diversified
portfolios of high quality debt instruments having remaining maturities of not
more than 3 years denominated in the U.S. Dollar and a range of foreign
currencies and by writing call options on the currencies and securities in which
the Funds are invested. In addition, the Funds may hedge their currency exposure
through the use of forward selling, futures contracts, options on futures
contracts and options on foreign currencies.
The Funds are designed for the investor who seeks higher yield than a money
market fund and less fluctuation in net asset value than a longer-term bond
fund. There can be no assurance that the Funds' investment objectives will be
attained.
Shares of Fund II 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
Fund II, however, will cause Fund II to have a higher expense ratio than shares
of Fund I. In choosing between an investment in Fund I or Fund II an investor
should consider which method of purchasing shares is the 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 Fund I would
be less or greater than the accumulated continuing distribution fees plus the
contingent deferred sales charges imposed on shares of Fund II and to what
extent such differential would be offset or increased by the higher yield of
Fund I shares.
Fund I 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. Fund II 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. Fund I
incurs an annual distribution fee of up to .30% of its daily net assets. Fund II
incurs, subject to certain limitations, an annual distribution fee of .75% and a
shareholder maintenance fee of .25% of its average daily net assets.
This combined Prospectus sets forth concisely information about the Funds that
prospective investors should know before investing. Please read this Prospectus
carefully and retain it for future reference. Each Fund's Statement of
Additional Information, dated April 25, 1997, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. It is available
upon request to the Fund without charge to the investor at the address 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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 25, 1997.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Key Features 2
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The Funds' Investment Objectives and Policies 6
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Distributions and Taxes 13
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How to Buy Shares of the Funds 15
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How to Redeem Shares of the Funds 20
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Shareholder Options/Privileges 23
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Expedited Redemption and Telephone Exchange Information 24
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How the Funds Value Their Shares 24
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The Astra Organization 25
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Management and Distribution Fees 25
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General Information 29
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New Account Application 31
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Additional Account Privileges 35
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KEY FEATURES
- -----------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
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Astra Short-Term Multi-Market Income Fund I and Astra Short-Term Multi-Market
Income Fund II are non-diversified, open-end management investment companies.
The Funds are each a series of Astra Global Investment Series which was
organized as a Massachusetts business trust on November 21, 1985 under the name
Pilgrim Preferred Fund. The Funds, renamed on April 7, 1995, were formerly known
as Pilgrim Short-Term Multi-Market Income Fund and Pilgrim Short-Term
Multi-Market Income Fund II. The Trust, also renamed on April 7, 1995, was
formerly known as Pilgrim Global Investment Series. The primary investment
objective of each Fund is to provide investors with high current income with
capital preservation as a secondary objective. To achieve the primary objective
the Funds will invest in non-diversified portfolios of high quality debt
instruments having remaining maturities of not more than 3 years denominated in
the U.S. Dollar and a range of foreign currencies and by writing call options on
the currencies and securities in which the Funds are invested. In addition, the
Funds may hedge their currency exposure through the use of forward selling,
futures contracts, options on futures contracts and options on foreign
currencies.
HIGH CURRENT INCOME WITH LESS FLUCTUATION IN NET ASSET VALUE
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By investing in high quality debt instruments having remaining maturities of not
more than 3 years denominated in the U.S. Dollar and a range of foreign
currencies and writing call options on the currencies and securities in which
the Funds invest, the Funds seek to provide investors with a higher yield than a
money market fund and less fluctuation in net asset value than a longer-term
bond fund. However, the Funds are not money market funds and their net asset
values will fluctuate.
FOREIGN AND DOMESTIC INVESTMENT OPPORTUNITIES
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The Funds will seek investment opportunities in foreign as well as domestic
securities markets. The Funds intend to maintain, in normal circumstances, a
substantial portion of their assets in high quality debt securities denominated
in a range of foreign currencies.
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2
<PAGE>
HOW DO I BUY AND SELL (REDEEM) MY SHARES OF THE FUNDS?
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Shares of Fund I are available through selected broker-dealers and other
financial services firms or by check or wire sent directly to the Funds'
Transfer Agent at the net asset value per share plus a varying sales charge,
depending on the amount of purchase. Shares of Fund II are available through
such financial services firms at the net asset value per share. The minimum
initial investment is $5,000 ($2,000 for IRAs), $250 for subsequent investments,
however, this may be changed from time to time at management's discretion.
Shares of Fund I are redeemable at the net asset value per share on any business
day. Shares of Fund II are redeemable at the net asset value per share on any
business day, reduced by the amount of any contingent deferred sales charge.
Payments to you can be made through brokers, directly to you, or to your
designated bank. In addition, for the convenience of shareholders, each Fund
provides certain shareholder services and privileges which may be suited to your
particular investment needs. See "Shareholder's Guide."
WHEN DO I RECEIVE INCOME?
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The Funds pay dividends on a monthly basis. Dividends are paid in cash or
reinvested in additional shares at no charge. See "Choosing a Distribution
Option."
WHO IS ASTRA GROUP?
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Astra Management Corporation ("AMC"), the Funds' investment manager, and Astra
Fund Distributors Corp. ("AFDC"), the Funds' principal underwriter, are part of
Atlas Holdings Group, Inc. ("Atlas Group"), a financial services holding company
that provides services to mutual funds. Atlas Group has total combined assets
under management of approximately $98 million. AMC and AFDC are part of the
umbrella name "Astra Group."
FEE TABLE
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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 Fund. The rules of the Securities and Exchange Commission
require that Fund I's maximum sales charge be reflected in the fee table.
However, certain investors may qualify for reduced sales charges as described
under "How to Buy Shares of the Funds." The percentages shown below expressing
Annual Fund Operating Expenses are based on actual amounts incurred by the Funds
for the calendar year ended December 31, 1996.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES FUND I FUND II
- -------------------------------- ------ -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) .. 3% NONE
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) .......................................... NONE NONE
Deferred Sales Charge
1st year ..................................................................... NONE 4%
2nd year ..................................................................... NONE 3%
3rd year ..................................................................... NONE 2%
4th year ..................................................................... NONE 1%
5th year and thereafter ...................................................... NONE 0%
Redemption Fees ................................................................ NONE NONE
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(As a Percentage of Average Net Assets)
Management Fees (See "Management and Distribution Fees") ....................... .63% .63%
12b-1 Fees (See "Management and Distribution Fees")(a).......................... .30% .75%
Shareholder Maintenance Fees (See "Management and Distribution Fees") .......... .00% .25%
Other Expenses (After Expense Reimbursements) .................................. 2.23% 4.40%
Total Fund Operating Expenses(b)................................................ 3.16% 6.03%
</TABLE>
(a) As a result of 12b-1 fees, a long-term shareholder in the Funds may pay
more than the economic equivalent of the maximum sales charges permitted by
the Rules of the National Association of Securities Dealers, Inc.
(b) The Manager voluntarily waived certain of the Funds' aggregate expenses
during the year ended December 31, 1996. As a result, total operating
expenses were 2.80% for Fund I and 6.41% for Fund II.
- -----
3
<PAGE>
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 Fund would have paid
transaction and operating expenses at the end of each time period as follows:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Fund I .......... $ 61 $125 $190 $366
Fund II ......... $100 $198 $294 $573
You would pay the following expenses on the same investment assuming no
redemption.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Fund II ......... $60 $178 $294 $573
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses an investor in the Funds will bear. Effective
January 1, 1997, the Manager is no longer waiving certain expenses for the
Funds. Accordingly, the above table has been restated to reflect this change.
This Example should not be considered as representative of past or future
expenses and actual expenses may be greater or lesser than those shown. The
foregoing table has not been audited by Tait, Weller & Baker, the Funds'
independent certified public accountants.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following financial highlights relating to the Funds have been audited by
Tait, Weller & Baker, independent certified public accountants, whose reports
thereon for each of the five years in the period ended December 31, 1996 appear
in the Funds' Annual Report to Shareholders for the year ended December 31,
1996, and are incorporated by reference in this Prospectus. A copy of the Funds'
Annual Report to Shareholders may be obtained without charge by contacting the
Funds' Shareholder Servicing Agent at (800) 441-7267.
FUND I
------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990* 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
PER SHARE OPERATING
PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ........................ $6.76 $6.73 $6.89 $7.27 $9.31 $10.17 $14.00 $19.32 $20.24 $25.09
----- ----- ----- ----- ----- ------ ------ ------ ------ ------
Income (loss) from investment
operations--
Net investment income ......... 0.22 0.25 0.08 0.45 0.86 1.04 1.14 2.35 2.82 2.97
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions ................. 0.10 0.13 0.12 (0.35) (2.16) (0.88) (3.11) (4.79) (0.74) (5.08)
----- ----- ----- ----- ----- ------ ------ ------ ------ ------
Total from investment
operations .................. 0.32 0.38 0.20 0.10 (1.30) 0.16 (1.97) (2.44) 2.08 (2.11)
----- ----- ----- ----- ----- ------ ------ ------ ------ ------
Less distributions--
Distributions from net
investment income ............ 0.22 0.25 0.08 -- 0.74 1.02 1.14 2.66 3.00 2.74
Distributions from paid-in
capital ...................... 0.04 0.10 0.28 0.48 -- -- 0.72 0.22 -- --
----- ----- ----- ----- ----- ------ ------ ------ ------ ------
Total distributions .......... 0.26 0.35 0.36 0.48 0.74 1.02 1.86 2.88 3.00 2.74
----- ----- ----- ----- ----- ------ ------ ------ ------ ------
Net asset value, end of period.. $6.82 $6.76 $6.73 $6.89 $7.27 $9.31 $10.17 $14.00 $19.32 $20.24
===== ===== ===== ===== ===== ===== ====== ====== ====== ======
TOTAL RETURN(e) ................ 4.94% 5.77% 2.96% 1.54% (15.08%) 1.39% (14.95%) (14.71%) 10.26% (9.53%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) ................ $6,794 $10,601 $15,566 $27,630 $59,283 $170,377 $139,643 $49,442 $139,186 $126,581
Ratio to average net assets--
Expenses ...................... 2.80%(c) 2.45% 1.68% 1.85% 1.31% 1.47% 1.65% 1.34% 1.14%(c) 1.12
Net investment income ......... 3.99%(d) 3.98% 3.42% 6.41% 9.46% 10.14% 10.02% 13.30% 12.64%(d) 12.65%
Portfolio turnover rate ........ 87% 382% 337% 151% 167% 193% 247% 147% 77% 81%
</TABLE>
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4
<PAGE>
FUND II
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<TABLE>
<CAPTION>
OCTOBER 1,
YEAR ENDED DECEMBER 31, 1991(f) to
------------------------------------------------------- DECEMBER 31,
1996 1995 1994 1993(a) 1992 1991
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ............... $7.37 $7.39 $7.71 $8.10 $9.73 $10.00
----- ----- ----- ----- ----- -----
Income (loss) from investment operations--
Net investment income ............................. -- 0.21 0.04 0.34 0.73 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .... 0.13 0.08 0.01 (0.21) (1.61) (0.33)
----- ----- ----- ----- ----- -----
Total from investment operations ................. 0.13 0.29 0.05 0.13 (0.88) (0.22)
----- ----- ----- ----- ----- -----
Less distributions--
Distributions from net investment income .......... -- 0.21 0.04 -- 0.75 0.05
Distributions from paid-in capital ................ 0.19 0.10 0.33 0.52 -- --
----- ----- ----- ----- ----- -----
Total distributions .............................. 0.19 0.31 0.37 0.52 0.75 0.05
----- ----- ----- ----- ----- -----
Net asset value, end of period ..................... $7.31 $7.37 $7.39 $7.71 $8.10 $9.73
===== ===== ===== ===== ===== =====
TOTAL RETURN(e) .................................... 1.81% 3.96% 0.69% 1.63% (9.80%) (8.48%)(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ........... $1,387 $3,436 $6,488 $8,127 $14,909 $13,040
Ratio to average net assets--
Expenses .......................................... 5.41%(g) 3.49%(g) 2.66% 3.10% 1.87%(g) 0.16%(b)(g)
Net investment income ............................. 1.45%(h) 2.80%(h) 2.37% 4.32% 7.85%(h) 7.59%(b)(h)
Portfolio turnover rate ............................ 119% 414% 301% 153% 216% 0%
---------------
* On July 2, 1990 the Fund's shareholders approved a change in the Fund's
investment objective to provide investors with high current income
generated by a non-diversified portfolio of high quality debt instruments
having remaining maturities of two years or less denominated in the U.S.
dollar and a range of foreign currencies. For periods prior to July 2,
1990 the Fund's investment objective was to produce high after-tax income
generated by a diversified portfolio of high-yield preferred stocks.
(a) Calculation based on average shares outstanding.
(b) Annualized.
(c) Ratio of expenses to average net assets prior to reimbursement from
Manager was 3.16% and 1.17% in 1996 and 1988, respectively.
(d) Ratio of net investment income to average net assets prior to
reimbursement from Manager was 3.63% and 12.62% in 1996 and 1988,
respectively.
(e) Calculated without the deduction of sales charges.
(f) Commencement of operations.
(g) Ratio of expenses to average net assets prior to expense waiver and
reimbursement from Manager was 6,03%, 3.78%, 2.64% and 2.58%(b) in 1996,
1995, 1992 and 1991, respectively.
(h) Ratio of net investment income to average net assets prior to expense
waiver and reimbursement from Manager was 0.83%, 2.51%, 7.08% and 5.17%(b)
in 1996, 1995, 1992 and 1991, respectively.
</TABLE>
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5
<PAGE>
HOW THE FUNDS WORK
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
- -----------------
The primary investment objective of each Fund is to provide investors with high
current income with capital preservation as a secondary objective. These
investment objectives are fundamental policies and may not be changed except by
a majority vote of shareholders.
To achieve its objective, each Fund will invest in a non-diversified portfolio
of high quality debt instruments having remaining maturities of not more than 3
years denominated in the U.S. Dollar and a range of foreign currencies and by
writing call options on the currencies and securities in which each Fund is
invested. Each Fund also may invest in repurchase agreements, cash or cash
equivalents or such other high quality debt instruments as is consistent with
its objectives. In addition, each Fund may hedge its currency exposure through
the use of forward selling, futures contracts, options on futures contracts and
options on foreign currencies.
Each Fund seeks to provide the highest level of current income, consistent with
what the Funds' investment adviser, AMC, considers to be prudent investment
risk, that is available from a portfolio of high-quality debt securities having
remaining maturities of not more than three years. Each Fund seeks high current
yields by investing in a portfolio of debt securities denominated in the U.S.
Dollar and a range of foreign currencies. Accordingly, each Fund will seek
investment opportunities in foreign, as well as domestic, securities markets.
While each Fund normally will maintain a substantial portion of its assets in
debt securities denominated in foreign currencies, each Fund may invest a
portion of its total assets in U.S. Dollar denominated securities. It is
anticipated that, in normal circumstances, each Fund's assets will include
securities in at least three countries, including the United States. Each Fund
is designed for the investor who seeks a higher yield than a money market fund
and less fluctuation in net asset value than a longer-term bond fund. There can
be no assurance that the Funds' yield will at all times exceed that of a money
market fund. To the extent domestic short-term interest rates are higher than
domestic long-term or foreign short or long-term interest rates, and the Funds
are not substantially invested in U.S. Dollar denominated money market
instruments, the Funds' yield may not be higher than that of a money market
fund.
In pursuing its investment objectives, the Funds seek to minimize credit risk
and fluctuations in net asset value by investing only in shorter-term debt
securities. AMC actively manages the Funds' portfolio in accordance with a
multi-market investment strategy, allocating the Funds' investments among
securities denominated in the U.S. Dollar and the currencies of a number of
foreign countries and, within each such country, among different types of debt
securities. AMC adjusts the Funds' exposure to each currency based on its
perception of the most favorable markets and issuers. In this regard, the
percentage of assets invested in securities of a particular country or
denominated in a particular currency will vary in accordance with AMC's
assessment of the relative yield and appreciation potential of such securities
and the relationship of a country's currency to the U.S. Dollar. Fundamental
economic strength, credit quality and interest rate trends are the principal
factors considered by AMC in determining whether to increase or decrease the
emphasis placed upon a particular type of security or industry sector within the
Funds' investment portfolio. Each Fund will not invest more than 25% of its
total assets in debt securities denominated in a single currency other than the
U.S. Dollar.
The attractive returns currently available from short-term foreign currency
denominated debt instruments can be adversely affected by changes in exchange
rates. AMC believes that the use of foreign currency hedging techniques,
including "cross-hedges" (see "Investment Practices--Forward Foreign Currency
Exchange Contract," below), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of the Funds' shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated in
a particular foreign currency would diminish in the event the value of the U.S.
Dollar increased against such
- -----
6
<PAGE>
currency. Such a decline could be partially or completely offset by an increase
in value of a cross-hedge involving a forward currency, where such contract is
available on terms more advantageous to the Funds than a contract to sell the
currency in which the position being hedged is denominated. It is AMC's belief
that cross-hedges can therefore provide significant protection of net asset
value in the event of a general rise in the U.S. Dollar against foreign
currencies. However, a cross-hedge cannot protect against exchange rate risks
perfectly, and if AMC is incorrect in its judgment of future exchange rate
relationships, the Funds could be in a less advantageous position than if such a
hedge had not been established.
In addition to the U.S. Dollar, such currencies include, among others, the
Australian Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar,
Dutch Guilder, European Currency Unit ("ECU"), French Franc, Japanese Yen, New
Zealand Dollar, Spanish Peseta, Swedish Krona, Swiss Franc, German Mark,
Portuguese Escudo, and the Finnish Markka. An issuer of debt securities
purchased by the Funds may be domiciled in a country other than the country in
whose currency the instrument is denominated.
Each Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Funds'
portfolio consists only of: (i) debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities");
(ii) obligations issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, or instrumentalities, or by
supranational entities, all of which are rated AAA or AA by Standard & Poor's
Corporation ("S&P") or Aaa or Aa by Moody's Investors Services, Inc. ("Moody's")
("High Quality Ratings") or, if unrated, determined by AMC to be of equivalent
quality; (iii) corporate debt securities having at least one High Quality Rating
or, if unrated, determined by AMC to be of equivalent quality; (iv) certificates
of deposit and banker's acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500 million
and determined by AMC to be of high quality; (v) Short-Term debt securities,
including commercial paper, rated A(-)1 or A-2 by S&P, Prime(-)1 or Prime-2 by
Moody's, Fitch-1 or Fitch-2 by Fitch Investors Service, Inc., Duff 1 or Duff 2
by Duff & Phelps Inc. or, issued by U.S. or foreign companies having outstanding
debt securities rated AAA, AA, A or A- by S&P, or Aaa, or Aa, A or A- by Moody's
and determined by AMC to be of acceptable quality, and loan participation
interests having a remaining term not exceeding one year in loans extended to
such companies by commercial banks or other lending institutions whose credit
quality is comparable to the ratings described in this section and as determined
by AMC to be of high quality; and (vi) futures contracts, options on futures
contracts, options on foreign currencies, options on portfolio securities, and
forward foreign currency exchange contracts.
Each Fund may invest without limitation in commercial paper which is indexed to
certain specific foreign currency rates. The terms of such commercial paper
provide that its principal amount is adjusted upwards or downwards (but not
below zero) at maturity to reflect changes in the exchange rate between two
currencies while the obligation is outstanding. Each Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables each Fund to hedge (or cross-hedge) against a decline in the U.S. Dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. Each Fund will purchase such commercial
paper for hedging purposes only, not for speculation. The staff of the
Securities and Exchange
Commission is currently considering whether the purchase of this type of
commercial paper would result in the issuance of a "senior security" within the
meaning of the Investment Company Act of 1940 (the "1940 Act"). AMC believes
that such investments do not involve the creation of such a senior security, but
nevertheless has undertaken, pending the resolution of this issue by the staff,
to establish a segregated account
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with respect to the Funds' investments in this type of commercial paper and to
maintain in such account cash or other liquid securities having a value equal to
the aggregate principal amount of outstanding commercial paper of this type held
by the Funds.
Each Fund may invest in debt securities issued by supranational organizations
such as: the World Bank, which was chartered to finance development projects in
developing member countries; the European Community, which is a twelve-nation
organization engaged in cooperative economic activities; the European Coal and
Steel Community, which is an economic union of various European nations' steel
and coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions. The
World Bank, Asian Development Bank and other such supranational organizations
are not considered by the Funds or AMC as "banks" for purposes of computing
investment restrictions regarding non-diversification or concentration policies
and, as a result, the debt securities issued by such supranational organizations
will not be included as banks for determination of compliance with the
percentage limitations of such investment policies.
Each Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of certain currencies of the twelve
member European Community States. The specific amounts of currencies comprising
the ECU may be adjusted by the Council of Ministers of the European Community to
reflect changes in relative values of the underlying currencies. AMC does not
believe that such adjustments will adversely affect holders of ECU-denominated
obligations or the marketability of such securities. European supranationals, in
particular, issue ECU-denominated obligations.
SPECIAL CONSIDERATIONS AND RISKS
Foreign Securities. Investing in securities issued by foreign governments and
corporations involves considerations and possible risks not typically associated
with investing in obligations issued by the U.S. Government and domestic
corporations. The values of foreign investments are affected by changes in
currency rates or exchange control regulations, application of foreign tax laws,
including withholding taxes, changes in governmental administration or economic
or monetary policy (in this country or abroad) or changed circumstances in
dealings between nations. Costs are incurred in connection with conversions
between various currencies. In addition, foreign brokerage commissions are
generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than
in the United States. Investments in foreign countries could be affected by
other factors not present in the United States, including expropriation,
confiscatory taxation, lack of uniform accounting and auditing standards and
potential difficulties in enforcing contractual obligations, and could be
subject to extended settlement periods.
Illiquid Securities. Each Fund will not invest in illiquid securities if
immediately after such investment more than 10% of either Fund's total assets
(taken at market value) would be invested in such securities. For this purpose,
illiquid securities include (a) direct placements or other securities which are
subject to legal or contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is suspended or, in the
case of unlisted securities, market makers do not exist or will not entertain
bids or offers), (b) participation interests in loans that are not subject to
puts, (c) covered call options on portfolio securities written by the Fund
over-the-counter and the cover for such options, and (d) repurchase agreements
not terminable within seven days.
Interest Rate Fluctuations. The net asset value of each Fund's shares will
change as the general levels of interest rates fluctuate. When interest rates
decline, the value of a portfolio primarily invested in debt securities can be
expected to rise. Conversely, when interest rates rise, the value of a portfolio
primarily invested in debt securities can be expected to decline. However, a
shorter average maturity is generally
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associated with a lower level of market value volatility and, accordingly, it is
expected that the net asset value of the Funds' shares normally will fluctuate
less than that of a longer-term bond fund.
Non-diversification. Each Fund is a "non-diversified" investment company, which
means that each Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, each Fund intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), which
will relieve each Fund of any liability for Federal income tax to the extent its
earnings are distributed to shareholders. See "Distributions and Taxes". To so
qualify, among other requirements, each Fund will limit its investments so that,
at the close of each quarter of the taxable year, (i) not more than 25% of the
market value of each Fund's total assets will be invested in the securities of a
single issuer, and (ii) with respect to 50% of the market value of its total
assets, not more than 5% of the market value of its total assets will be
invested in the securities of a single issuer and each Fund will not own more
than 10% of the outstanding voting securities of a single issuer. For purposes
of the Funds' requirements to maintain diversification for tax purposes, the
issuer of a loan participation will be the underlying borrower. In cases where
the Funds do not have recourse directly against the borrower, both the borrower
and each agent bank and co-lender interposed between a Fund and the borrower
will be deemed issuers of the loan participation for tax diversification
purposes. The Funds' investments in U.S. Government Securities are not subject
to these limitations. Because the Funds, as nondiversified investment companies
may invest in a smaller number of individual issuers than a diversified
investment company, an investment in the Funds may, under certain circumstances,
present greater risk to an investor than an investment in a diversified company.
INVESTMENT PRACTICES
Futures Contracts and Options on Futures Contracts. The Funds may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices
including any index of U.S. Government Securities, foreign government securities
or corporate debt securities ("futures contracts") and may purchase and write
put and call options to buy or sell futures contracts ("options on futures
contracts"). A "sale" of a futures contract means the acquisition of a
contractual obligation to deliver the securities or foreign currencies called
for by the contract at a specified price on a specified date. A "purchase" of a
futures contract means the incurring of a contractual obligation to acquire the
securities or foreign currencies called for by the contract at a specified price
on a specified date. The purchaser of a futures contract on an index agrees to
take or make delivery of an amount of cash equal to the difference between a
specified dollar multiple of the value of the index on the expiration date of
the contract ("current contract value") and the price at which the contract was
originally struck. No physical delivery of the fixed-income securities
underlying the index is made. Options on futures contracts to be written or
purchased by the Funds will be traded on U.S. or foreign exchanges or
over-the-counter. These investment techniques will be used only to hedge against
anticipated future changes in interest or exchange rates which otherwise might
either adversely affect the value of the Funds' portfolio securities or
adversely affect the price of securities which a Fund intends to purchase at a
later date. See the Funds' Statement of Additional Information for further
discussion of the use, risks and costs of futures contracts and options on
futures contracts.
Each Fund will not (i) enter into any futures contracts or options on futures
contracts if immediately thereafter the aggregate of margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund, or (ii) enter into any futures contracts or options on
futures contracts if the aggregate of the market value of the outstanding
futures contracts of the Fund and the market value of the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the market value of the total assets of the Fund.
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Options on Foreign Currencies. Each Fund may purchase and write put and call
options on foreign currencies to increase the Funds' gross income and for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of such securities to be acquired. As in the case of other kinds of
options, however, the writing of an option on a foreign currency constitutes
only a partial hedge, up to the amount of the premium received, and the Funds
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates thereby incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations in exchange
rates. Although, in the event of rate movements adverse to the Funds' position,
it may forfeit the entire amount of the premium plus related transaction costs.
Options on foreign currencies to be written or purchased by the Funds are traded
on U.S. and foreign exchanges or over-the-counter. There is no specific
percentage limitation on the Funds' investments in options on foreign
currencies. See the Funds' Statement of Additional Information for further
discussion of the use, risks and costs of options on foreign currencies.
Options on Portfolio Securities. The Funds, in seeking their primary objective
of high current income, may write covered call options on certain of their
portfolio securities at such time and from time to time as AMC shall determine
to be appropriate and consistent with the investment objectives of the Funds. A
covered call option means that a Fund owns the security on which the option is
written. Generally, the Funds expect that options written by them will be
conducted on recognized securities exchanges. In certain instances, however, the
Funds may purchase and sell options in the over-the-counter market ("OTC
Options"). The Funds' ability to close option positions established in the
over-the-counter market may be more limited than in the case of exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Funds. In
addition, the staff of the SEC has taken the position that OTC Options and the
assets used as "cover" should be treated as illiquid securities. There is no
fixed limit on the percentage of the Funds' assets upon which options may be
written.
Each Fund will receive a premium (less any commissions) from the writing of such
contracts, and it is believed that the total return to the Funds can be
increased through such premiums consistent with the Funds' investment
objectives. The writing of option contracts is a highly specialized activity
which involves investment techniques and risks different from those ordinarily
associated with investment companies, although the Funds believe that the
writing of covered call options listed on an exchange or traded in the
over-the-counter market, where the Funds own the underlying security, tends to
reduce such risks. The writer forgoes the opportunity to profit from an increase
in market price of the underlying security above the exercise price so long as
the option remains open. (See the Statement of Additional Information for more
information.)
Forward Foreign Currency Exchange Contracts. Each Fund may purchase or sell
forward foreign currency exchange contracts ("forward contracts") to attempt to
minimize the risk to the Funds from adverse changes in the relationship between
the U.S. Dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers. The Funds may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). Additionally, for example, when the Funds believe that a
foreign currency may suffer a substantial decline against the U.S. Dollar, they
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Funds' portfolio
securities denominated in such foreign currency, or when the Funds believe that
the U.S. Dollar may suffer a substantial decline against foreign currency, it
may enter into a forward purchase contract to buy that foreign currency for a
fixed dollar amount ("position hedge"). In this situation the Funds may, in the
alternative, enter into a forward contract to sell a different foreign currency
for a fixed U.S. Dollar amount where the Funds believe that the U.S. Dollar
value of the currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. Dollar value of the currency in which
portfolio securities of the Funds are denominated ("cross-hedge"). The Funds'
Custodian will place cash not
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available for investment or liquid securities in a separate account of the Fund
having a value equal to the aggregate amount of the Funds' commitments under
forward contracts entered into with respect to position hedges and cross-hedges.
If the value of the securities placed in a separate account declines, additional
cash or liquid securities will be placed in the account on a daily basis so that
the value of the account will equal the amount of the Funds' commitments with
respect to such contracts. As an alternative to maintaining all or part of the
separate account, the Funds may purchase a call option permitting the Funds to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for the Fund than if it had not entered into such contracts.
The successful use of the foregoing investment practices depends on AMC's
ability to forecast interest rate and currency exchange rate movements
correctly. Should interest or exchange rates move in an unexpected manner, the
Funds may not achieve the anticipated benefits of futures contracts, options or
forward contracts or may realize losses and thus be in a worse position than if
such strategies had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price fluctuation limits
with respect to options on currencies and forward contracts, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the prices of such instruments
and movements in the price of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses. The Funds'
ability to dispose of their positions in futures contracts, options and forward
contracts will depend on the availability of liquid markets in such instruments.
Markets in options and futures with respect to a number of fixed-income
securities and currencies are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of futures contracts, options and forward contracts. If a secondary market
does not exist with respect to an option purchased or written by a Fund over
over-the-counter, it might not be possible to effect a closing transaction in
the option (i.e., dispose of the option) with the result that (i) an option
purchased by a Fund would have to be exercised in order for a Fund to realize
any profit and (ii) a Fund may not be able to sell currencies or portfolio
securities covering an option written by a Fund until the option expires or it
delivers the underlying futures contract or currency upon exercise. Therefore no
assurance can be given that the Funds will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the Funds' ability to
engage in options and futures transactions may be limited by tax considerations.
See "Distributions and Taxes."
Repurchase Agreements. Each Fund may enter into repurchase agreements. Under a
repurchase agreement, a Fund acquires a debt instrument for a relatively short
period (usually not more than one week) subject to the obligation of the seller
to repurchase and the Funds to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Funds' money is invested. The Funds' risk is limited to the ability of the
seller to pay the agreed-upon sum upon the delivery date. When a Fund enters
into a repurchase agreement, it obtains collateral having a value at least equal
to the amount of the purchase price. Repurchase agreements can be considered
loans as defined by the 1940 Act, collateralized by the underlying securities.
The return on the collateral may be more or less than that from the repurchase
agreement. The securities underlying a repurchase agreement will be marked to
market every business day so that the value of the collateral is at least equal
to the value of the loan, including the accrued interest earned. In evaluating
whether to enter into a repurchase agreement, AMC will carefully consider the
creditworthiness of the seller. If the financial institution that is the party
to the repurchase agreement petitions for bankruptcy or otherwise becomes
subject to the U.S. Bankruptcy Code, the law regarding the rights of the Funds
is unsettled. As a
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result, under these extreme circumstances, there may be restrictions on the
Funds' ability to sell the collateral and the Funds may suffer a loss.
Lending of Portfolio Securities. In order to generate additional income, a Fund
may lend its portfolio securities in an amount up to 33 1/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities, not affiliated with AMC. The borrower at
all times during the loan must maintain cash or cash equivalent collateral or
provide to the Fund an irrevocable letter of credit equal in value to at least
100% of the value of the securities loaned. During the time portfolio securities
are on loan, the borrower pays the Fund any dividends or interest paid on such
securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or a letter of credit.
Temporary Defensive Positions. From time to time the Adviser may determine that
market or economic conditions are not advantageous to the Funds and may
establish a defensive position to preserve capital by temporarily investing all
or part of its assets in short-term money market instruments, cash or cash
equivalents (including receivables on securities transactions) in U.S. dollars
or foreign currencies.
PORTFOLIO TURNOVER
The portfolio turnover rate may vary from year to year, as well as within a
year. The annual rate of Fund I's portfolio turnover for the fiscal years ended
December 31, 1994, 1995 and 1996 was 337%, 382% and 87%, respectively.
The annual rate of Fund II's portfolio turnover for the fiscal years ended
December 31, 1994, 1995 and 1996 was 301%, 414% and 119%, respectively.
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities, to seek short-term profits
during periods of fluctuating interest rates, or for other reasons. Such trading
will increase the Funds' rate of turnover and the incidence of short-term
capital gain taxable as ordinary income. AMC anticipates that the annual
turnover in each Fund will not be in excess of 500%. An annual turnover rate of
500% occurs, for example, when the dollar equivalent of all of the securities in
the Fund's portfolio are replaced five times in a period of one year. A high
rate of portfolio turnover involves correspondingly greater expenses than a
lower rate, which expenses must be borne by the Funds and their shareholders.
High portfolio turnover rate also may result in the realization of substantial
net short-term capital gains. In order to continue to qualify as a regulated
investment company for Federal tax purposes, less than 30% of the annual gross
income of each Fund must be derived from the sale of securities held by each
Fund for less than three months. See "Distributions and Taxes."
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
To maintain a range of portfolio securities and reduce investment risk, as a
matter of fundamental policy, each Fund may not: (i) invest 25% or more of its
total assets in securities of companies engaged principally in any one industry,
except that this restriction does not apply to U.S. Government Securities; (ii)
borrow money except from banks for temporary or emergency purposes, including
the meeting of redemption requests which might require the untimely disposition
of securities; borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5% of the value of each
Fund's assets (including the amount borrowed) less liabilities (not including
the amount borrowed) at the time the borrowing is made; securities will not be
purchased while borrowings in excess of 5% of the value of the Fund's total
assets are outstanding; or (iii) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings.
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DISTRIBUTIONS AND TAXES
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DIVIDENDS AND CAPITAL GAINS
Each Fund intends to declare and pay dividends on a monthly basis. Net capital
gains, if any, are normally distributed annually.
CHOOSING A DISTRIBUTION OPTION
When you buy shares of a Fund you can choose from three distribution options:
1) The Share Option reinvests your ordinary income dividends and/or capital gain
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 Fund. 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 receive ordinary income dividends and/or capital
gain distributions in cash.
3) If you are also a shareholder in any of the other Astra Group Funds
distributed by AFDC, the Transfer Option permits you to have income dividends
and/or capital gain distributions of the Fund automatically invested in shares
of any Astra Group Funds of which you are a shareholder at the applicable net
asset value. If you select this option, the minimum subsequent 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 Fund or another Astra Fund.
If for any fiscal year of each Fund, the amount of distributions paid or deemed
paid for such year exceeds the Funds' 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 Funds
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 Fund 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.
INVESTMENT RETURN INFORMATION
Advertisements, sales literature and communications with shareholders and others
may cite the Funds' performance calculated on a total return basis as well as
the Funds' current yield over any period of time. Each Fund will compute its
yield by dividing its net investment income per share during a 30-day base
period by the maximum offering price on the last day of the base period. This
30-day yield is then compounded over 6 monthly periods and multiplied by 2 to
provide an annualized yield. Total return will be computed by determining the
average annual compounded rate of return that would equate the initial amount
invested to the ending redeemable value of the investment. Total return will be
calculated for one, five and 10-year periods or, if such periods have not
elapsed, for the life of the Funds.
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The Funds may also publish a distribution rate in investor communications
preceded or accompanied by a copy of the current Prospectus. The current
distribution rate for each Fund will be calculated by dividing the maximum
offering price per share into the annualization of the total distributions made
by each Fund during the same thirty-day period. The current distribution rate
may differ from current yield because the distribution rate may contain items of
capital gain and other items of income, while yield reflects only earned
interest and dividend items of income. In each case, the yield, distribution
rates and total return figures will reflect all recurring charges against Fund
income and will assume the payment of the maximum sales load.
Advertisements and communications may compare each Fund's performance with that
of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time, each
Fund's performance may be compared to various investment indexes including rates
on: certificates of deposit, Treasury bills, money market funds and corporate
bonds, the Consumer Price Index or other economic benchmark indicators, as well
as insurance company products. The Funds may also quote or display interest or
currency rates from foreign countries in its advertising or promotional
materials, including, but not limited to, the Eurocurrency deposit rates,
foreign savings rates, yields on debt securities, prevailing currency rates,
interest rates offered by foreign banks, foreign CD rates, foreign corporate
security rates or LIBOR rates.
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 Funds' yield, total return or distribution rate will
depend on the particular investments in their portfolios, their total operating
expenses and other conditions. For further information, including the formulas
and examples of the yield and total return calculations, see the Statement of
Additional Information.
TAXES
Each Fund intends to qualify as a regulated investment company by satisfying the
requirements under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), including requirements with respect to diversification of assets,
distribution of income and sources of income. It is the Funds' policy to
distribute to shareholders all of their investment income (net of expenses) and
capital gains (net of capital losses) in accordance with timing requirements
imposed by the Code so that each Fund will satisfy the distribution requirement
of Subchapter M and not be subject to federal income taxes, or the 4% excise
tax.
Distributions by each Fund of its net investment income (including foreign
currency gains and losses) and the excess, if any, of its net short-term capital
gain over its net long-term capital loss are taxable to shareholders as ordinary
income. These distributions are treated as dividends for federal income tax
purposes, but will not qualify for the 70% dividends-received deduction for
corporate shareholders. Distributions by each Fund of the excess, if any, of its
net long-term capital gain over its net short-term capital loss are designated
as capital gain distributions and are taxable to shareholders as long-term
capital gains, regardless of the length of time the shareholder has held his
shares. The Funds have capital loss carryforwards which may be used, subject to
various restrictions and limitations, to offset future recognized capital gains.
See the Statement of Additional Information under "Tax Matters" regarding the
availability of the capital loss carryforwards.
Portions of the Funds' investment income may be subject to foreign income taxes
withheld at the source. The Funds may elect to "pass-through" to their
shareholders these foreign taxes, in which event each shareholder will be
required to include his pro rata portion of such foreign taxes in gross income,
but will be able to deduct or (subject to various limitations) claim a foreign
tax credit for such amount.
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Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of one of the Funds. In general, distributions by the Funds are taken into
account by the shareholders in the year in which they are made. However, certain
distributions made during January will be treated as having been paid by the
Funds and received by the shareholders on December 31 of the preceding year. A
statement setting forth the federal income tax status of all distributions made
or deemed made during the year, including any amount of foreign taxes
"passed-through," will be sent to shareholders promptly after the end of each
year.
Each shareholder must furnish to the appropriate fund a certified taxpayer
identification number ("TIN"). Each Fund is required to withhold 31% from
reportable payments including ordinary income dividends, capital gain dividends
and redemptions and exchanges occurring in accounts where the shareholder has
failed to furnish a certified TIN and has not certified that withholding does
not apply.
The Funds reserve the right to close all accounts without a certified TIN by
redeeming all shares in the accounts at their current net asset value.
If a Fund receives notice from the Internal Revenue Service that a previously
certified TIN is incorrect, the Fund will immediately impose back-up withholding
and such account may be involuntarily redeemed as mentioned above.
The Funds also reserve 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.
If a TIN has been applied for and the "Awaiting TIN" box is checked on the
application, the Funds generally will not withhold on dividends and other
reportable payments for the 60-consecutive-day period beginning with the day on
which the Funds receive the awaiting-TIN certificate. However, the Funds will
withhold on any withdrawals made after the close of 7 business days after the
date the awaiting-TIN certification is received and before the earlier of the
date that (i) the Funds receive a certified TIN, (ii) the relevant account is
closed, or (iii) backup withholding starts on all reportable payments made to
the relevant account. If, at the end of the 60-day period, a TIN has not been
received and certified on the IRS Form W-9, the Funds reserve the right to
redeem all shares in the relevant account at their current net asset value.
SHAREHOLDER'S GUIDE
HOW TO BUY SHARES OF THE FUNDS
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Shares of the Funds are made available through selected financial service firms
such as broker-dealer firms and banks ("Firms") who have signed agreements with
AFDC, the Funds' principal underwriter. Shares may also be purchased by check or
wire directly to the Funds' Transfer Agent. The minimum initial investment by a
shareholder in a Fund 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. Fund I'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. Fund II's offering price is the net asset value next
determined after an order is received.
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<PAGE>
The sales charge applicable to shares of Fund I is determined as follows:
Dealer
AS & OF REALLOWANCE
AS % OF NET AS % OF
OFFERING AMOUNT OFFERING
ON PURCHASES OF: PRICE INVESTED PRICE
--------------- -------- -------- ----------
$5,000 but less than $100,000 ........... 3.00% 3.09% 3.00%
$100,000 but less than $500,000 ......... 2.50% 2.56% 2.50%
$500,000 but less than $1,000,000 ....... 2.00% 2.04% 2.00%
$1,000,000 but less than $2,500,000 ..... 1.50% 1.52% 1.50%
$2,500,000 but less than $5,000,000 ..... 1.00% 1.01% 1.00%
$5,000,000 and over ..................... None None *
- ----------
* On purchases of $5,000,000 and over, shares are acquired at net asset value
with no sales charge or dealer concession charged to the investor, however,
AFDC from its own assets will pay the selling firm .40% of the offering
price. The amount of reimbursement that AFDC may be entitled to receive
under the Fund's Distribution Plan remains unchanged.
The sales charge assessed upon the shares of Fund I is not an expense of Fund I
and has no effect on the net asset value of shares of Fund I. AFDC allows the
selling Firms 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. AFDC, at its expense, may also provide additional promotional
incentives to dealers in connection with sales of shares of the Fund and other
funds in the Astra Group.
In connection with sales of shares of Fund II, AFDC compensates the selling
Firms at a rate of 3.0% of purchase payments for shares subject to a contingent
deferred sales charge. AFDC, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the
Funds and other Funds in the Astra Group.
You will receive a confirmation of each new transaction in your account that
will also indicate the total number of Fund shares you own and the number of
shares being held in safekeeping by the Fund'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 FUND WILL NOT BE ISSUED
UNLESS YOU REQUEST THEM IN WRITING.
PURCHASE BY WIRE
For Fund I, purchases by wire transfer should be directed to "Investors
Fiduciary Trust Co. ABA 101003621 for credit to Astra Short-Term Multi-Market
Income Fund I A/C 752-443-9 for further credit to shareholder A/C #____________,
Shareholder Name:______________________________."
For Fund II, purchases by wire transfer should be directed to "Investors
Fiduciary Trust Co. ABA 101003621 for credit to Astra Short-Term Multi-Market
Income Fund II A/C 752-443-9 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 Funds at 800-441-7267 (select option 4). You may then
instruct your bank to wire funds as described above. After
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<PAGE>
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 Fund 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 Fund I or Fund II at
800-441-7267 to obtain a wire reference number prior to transmission. This helps
the Funds to ensure proper credit to your account.
PURCHASE THROUGH DEALERS
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
AFDC 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 Fund's
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 three business days after placing
an order. DEALERS MAKING PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE
MUST REFERENCE THE CONFIRM 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 a Fund may also be purchased by
sending a check payable to the appropriate Fund, 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.
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 Fund
Account is automatically credited with additional full and fractional shares
($250 subsequent minimum investment). For further information on the
pre-authorized investment plan, please contact the Shareholder Servicing Agent.
The minimum investment requirements may be waived by a Fund for purchases made
pursuant to certain programs such as payroll deduction plans and retirement
plans.
LETTER OF INTENT AND RIGHTS OF ACCUMULATION
FUND I. An investor may immediately qualify for a reduced sales charge on a
purchase of shares of any fund in the Astra Group of Funds which imposes an
initial sales charge by completing the Letter of Intent section of
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<PAGE>
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 Fund
I. 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 Group of Funds will be
effective only after notification to AFDC that the investment qualifies for a
discount. The shareholder's holdings in the Astra Group of Funds acquired within
90 days before the Letter of Intent is filed will be counted towards completion
of 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 AFDC 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 AFDC 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 AFDC a security interest in the Escrow Shares and agrees to
irrevocably appoint AFDC 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 AFDC that this Letter is in effect each time a purchase is made.
The value of all shares of Fund I plus shares of the other funds distributed by
AFDC 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
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<PAGE>
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 $5 million.
Shares of Fund I and other funds of the Astra Group, 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 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.
FUND II. For purposes of Rights of Accumulation and the Letter of Intent
privilege, shares held by investors in Astra funds which impose a contingent
deferred sales charge ("CDSC"), may be combined with shares of the Fund I 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 Group Fund which imposes an initial sales
charge and will not affect any CDSC which may be imposed on the redemption of
Fund II shares or the compensation to selling firms on the sale of Fund II
shares. Investors may qualify for the Combined Purchase Privilege by combining
purchases of the Fund II shares with shares of any Astra Group Fund, which
imposes an initial sales charge. Shares of Fund II may also be combined with
shares of such other Astra Group Funds, for purposes of completing a Letter of
Intent.
SPECIAL PURCHASES AT NET ASSET VALUE (FUND I ONLY)
Shares of Fund I may be purchased at net asset value by persons who have, within
the previous 30 days, redeemed their shares of any Fund in the Astra Group 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 Fund I may be purchased at net asset value when the amount invested is
documented to the Fund to be proceeds from the redemption (within 60 days of the
purchase of Fund I shares) of shares of unrelated investment companies and where
a commission or sales charge was paid.
Shares of Fund I 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 Fund I 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
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19
<PAGE>
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 Group of Funds, AFDC may pay such dealer
.25% of the offering price.
Officers, directors and bona fide full-time employees of Fund I and with certain
exceptions most officers, directors, and full-time employees of AMC, AFDC, Fund
I's 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-at-law, and cousins) employees of such broker-dealers
(including their immediate families) and discretionary advisory accounts of AMC,
may purchase shares of the Fund I 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 Fund I.
Relative to certain fee based Registered Investment Advisors, Management may,
under circumstances, allow such Advisors to make investments on behalf of their
clients at net asset value, without any commission or concession.
Additional terms concerning the offering of the Funds' shares are included in
the Statement of Additional Information.
HOW TO REDEEM SHARES OF THE FUNDS
- -----------------
FUND I. Shares of Fund I 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 any Federal income tax required to be
withheld. The shares of Fund I are not subject to a contingent deferred sales
charge.
FUND II. Shares of Fund 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, 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 Fund II shares for more than four years after their
purchase, he will not have to pay any charge when he redeems those shares.
Shares of Fund II 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 in the account which were purchased more than four years
prior to the redemption, (b) all shares of Fund II 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 Fund II 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.
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<PAGE>
Any contingent deferred sales charge which is required to be imposed on
redemptions for shares of Fund II will be made in accordance with the following
schedule:
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
-------------- ------------
First ..................................... 4%
Second .................................... 3%
Third ..................................... 2%
Fourth .................................... 1%
Fifth and following ....................... 0%
The contingent deferred sales charge will be paid to AFDC and may affect the
amount of (i) Uncovered Distribution Charges calculated under Fund II's
Distribution Plan, (ii) the management fee payable to AMC and (iii) the daily
compensation payable to AFDC under Fund II's Distribution Plan (see
"Distribution Plan").
No contingent deferred sales charge will be payable in connection with the
redemption of shares purchased by officers, directors and bona fide full-time
employees of the Fund, its service agents, or with certain exceptions, officers,
directors and full-time employees and sales representatives of AMC or AFDC or
affiliated companies thereof (or any trust, pension, profit-sharing or other
benefit plan for such persons), broker-dealers having sales agreements with
AFDC, 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
purchasers are for their own investment purposes only and the purchaser
represents that the shares will not be resold except to the Fund).
No contingent deferred sales charge will be payable in connection with the
redemption of shares of Fund II 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 Fund II (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 Fund II 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 Fund II 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 Fund II
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 Funds' Transfer Agent either directly or through
AFDC, 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 39, must be provided to the Funds' 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 the
corporation or the
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<PAGE>
association included with a redemption request to be considered in proper form.
A signature guarantee by an eligible guarantor may be required 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 Funds' 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 but neither the Funds nor AFDC impose any such charges other
than the contingent deferred sales charge described above in connection with the
redemption of shares of Fund II.
EXPEDITED 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 Redemption"
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 Fund II) 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 withdrawals, or $1,200, whichever is greater.
There are no separate charges to you under this Plan, however, all shares of
Fund II may be subject to 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
business 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. If you would
like such payments automatically deposited to your bank account, please
additionally complete the Automated Clearance House (ACH) Distribution Form
which follows the Additional Account Privileges Form.
You may change the amount, frequency, and payee, or terminate this plan by
giving written notice to the Funds' Transfer Agent. As shares of a Fund 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 Fund.
GENERAL
Payment to shareholders for shares redeemed or repurchased will be made within
seven days after receipt by the Fund's Transfer Agent. A Fund 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 Funds recommend that all purchases be made by bank wire Federal
funds. A Fund may suspend the
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<PAGE>
right of redemption under certain extraordinary circumstances in accordance with
the Rules of the Securities and Exchange Commission. Due to the relatively high
cost of handling small investments, the Funds reserve 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 $5,000 other than as a result of a
decline in the net asset value per share.
SHAREHOLDER OPTIONS/PRIVILEGES
- -----------------
EXCHANGE PRIVILEGE
FUND I. Shares of Fund I which have been held for a minimum of 30 days may be
exchanged for shares of other Astra Group Funds distributed by AFDC which offer
an exchange privilege at the then current net asset values of the respective
funds at the time of such exchange provided that the value of shares being
exchanged meets the minimum investment requirement of the fund into which they
are being exchanged.
Shares of the other Funds distributed by AFDC which offer an exchange privilege
may be exchanged for shares of Fund I 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.
FUND II. Shares of Fund II which have been held for a minimum of 30 days, may be
exchanged for shares of any other Astra Group Fund which imposes a comparable
contingent deferred sales charge and offers an exchange privilege (Astra
Adjustable U.S. Government Securities Trust I and Astra Adjustable Rate
Securities Trust I), at the then current net asset values of the respective
funds and such exchanged shares will not be reduced by 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 Fund II's
shares.
Shares of Fund II held for at least 4 years may be exchanged into any other
Astra Fund distributed by AFDC which offers an exchange privilege at the then
current net asset value provided that the value of the 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 Astra Adjustable U.S. Government Securities Trust I and Astra
Adjustable Rate Securities Trust I may be exchanged for shares of Fund II 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.
GENERAL
The prospectuses of the other funds should be reviewed before effecting any
exchange. With respect to both Fund I and Fund II, 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 Fund II, 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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<PAGE>
also will be reinvested. Such reinvested shares will retain their original cost
and purchase date only for purposes of the contingent deferred sales charge. A
reinvesting shareholder may realize a gain or loss for Federal income tax
purposes as a result of such reinvestment, but to the extent that any shares are
sold at a loss and the proceeds are reinvested in shares of Fund II (or other
shares of Fund II are purchased through reinvestment of distributions or
otherwise within 30 days before or after the redemption), some or all of the
loss will not be allowed as a deduction depending upon the relationship between
the number of shares sold and the number of shares purchased by the reinvesting
shareholder. In order to exercise this privilege, a written order for the
purchase of shares must be received by Fund II's Transfer Agent, or be
postmarked, within 30 days after the date of redemption. This privilege can be
used only once per calendar year.
RETIREMENT PLANS
The Funds have available prototype qualified retirement plans for both
corporations and self-employed individuals. The Funds have available prototype
Individual Retirement Account ("IRA") plans (for both individuals and employers)
and Simplified Employee Pension ("SEP") plans. Investors Fiduciary Trust Company
acts as the custodian under these 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 AFDC.
EXPEDITED REDEMPTION AND TELEPHONE EXCHANGE INFORMATION
- -----------------
The Funds 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 Funds or their Transfer Agent reasonably believe that such
instructions were genuine. The Funds and their Transfer Agent have established
procedures that the Funds 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 Funds 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 FUNDS VALUE THEIR SHARES
- -----------------
The net asset value and offering price of shares of each Fund are determined
once daily as of the close of trading on the New York Stock Exchange (the "NYSE"
or the "Exchange") during a Fund's business day, which is any day on which the
Exchange is open for business. The net asset value of a Fund serves as the basis
for the purchase and redemption price of Fund 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 the value of a Fund's portfolio securities and other assets,
less its liabilities, divided by the number of its shares outstanding.
Generally, a Fund's investments are valued at market value or, in the absence of
a market value, at fair value as determined by or under the direction of the
Funds Board of Trustees. Portfolio securities that are primarily traded on
foreign exchanges are generally valued at the preceding closing values of the
securities on their respective exchanges, except that when an occurrence
subsequent to the time a value was so established is likely to have changed that
value, then the fair market of those securities will be determined by
consideration of other factors by or under the direction of the Fund's Board of
Trustees or its delegates. A security that is primarily traded on a U.S. or
foreign stock exchange is valued at the last sale price on that exchange or, if
there were no sales during the day, at the current mean between bid and asked
prices.
- -----
24
<PAGE>
Investments in U.S. Government Securities (other than short-term securities) are
valued at the average of the quoted bid and asked prices in the over-the-counter
market. Short-term investments that mature in 60 days or less are valued at
amortized cost when the Board of Trustees has determined that amortized cost is
fair value. An option is generally valued at the last sale price or, in the
absence of the last sale price, the last offer price. The value of a futures
contract equals the unrealized gain or loss on the contract that is determined
by marking the contract to the current settlement price for a like contract on
the valuation date of the futures contract. A settlement price may not be used
if the market makes a limit move with respect to a particular futures contract
or if the securities underlying the futures contract experience significant
price fluctuations after the determination of the settlement price. When a
settlement price cannot be used, futures contracts will be valued at their fair
market value as determined by or under the direction of the Fund's Board of
Trustees. Further information regarding the Fund's valuation policies is
contained in the Statement of Additional Information.
THE ASTRA GROUP
- -----------------
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, CA 90212. It comprises several affiliated companies,
including AMC and AFDC (whose principal business address is 11400 West Olympic
Blvd. Suite 200, Los Angeles, CA 90064), which provide advisory,
distribution and administrative services to the Funds. Atlas Group is a Delaware
corporation of which Palomba Weingarten, Chairman of the Board of Trustees of
the Funds, 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 $98 million.
Astra Fund Distributors Corp. distributes shares for all of Astra Group's mutual
funds. AMC and AFDC are wholly-owned subsidiaries of Atlas Holdings Group, Inc.
These companies are part of the umbrella name "Astra Group."
PORTFOLIO MANAGEMENT
- -----------------
Mr. Robert Womack, Jr. is the Portfolio Manager for Astra Short-Term
Multi-Market Income Fund I and Fund II and has primary responsibility for the
day-to-day management of the Funds on behalf of AMC. Additionally, Mr. Womack
manages the Astra All-Americas Government Income Trust and is a member of the
investment management committee responsible for the management of the Astra U.S.
Government Securities Trust and the Astra Adjustable Rate Securities Trust. Mr.
Womack has been a portfolio manager with the Pilgrim America Group (April 1995
to June 1995) and the Pilgrim Group of Funds (predecessor of "Atlas Group")
(June 1993 to April 1995), responsible for managing the Pilgrim America
Government Securities Income Fund (formerly known as Pilgrim GNMA Fund).
Mr. Womack joined the Pilgrim Group of Funds (predecessor of "Atlas Group") in
June 1993 from World Savings and Loan Association in Oakland, California, where,
from 1989 to 1993, his responsibilities included managing a $2.5 billion
mortgage-backed securities portfolio, a $250 million government and
mortgage-backed securities mutual fund, the institution's futures, options and
interest rate swap portfolios, and World's $1 billion short-term investment
portfolio.Prior to that he worked as a financial analyst for the Federal Home
Loan Bank of San Francisco for 21 @ 2 years. Mr. Womack earned an MBA from
Southern Methodist University in 1986 and a Bachelor's degree in business
administration from Baylor University.
- -----
25
<PAGE>
MANAGEMENT FEES
- -----------------
The Funds have a Board of Trustees, which establishes the Funds' investment
policies and supervises and reviews the operations and management of each Fund.
See "Trustees and Officers" in the Statement of Additional Information for each
Fund for a complete description of the Trustees of the Funds. Management and
administrative services are provided to the Funds by AMC pursuant to an
Investment Management Agreement. For furnishing each Fund with investment advice
and investment management and administrative services with respect to the Funds'
assets, including making specific recommendations as to the purchase and sale of
portfolio securities, furnishing requisite personnel and office space, and in
general supervising and managing the Funds' investments (subject to the ultimate
supervision and direction of the Funds' Board of Trustees), each Fund pays AMC a
monthly fee equal to 0.625% per annum of its average daily net assets on the
first $1 billion of net assets, plus 0.55% on net assets in excess of $1
billion.
AMC will reduce its aggregate fees for any fiscal year, or reimburse each Fund,
to the extent required so that each Fund's expenses do not exceed the expense
limitations applicable to each Fund under the securities laws or regulations of
those states or jurisdictions in which a Funds' shares are registered or
qualified for sale.
ADMINISTRATIVE FEES
- -----------------
Pursuant to the Investment Management Agreement, AMC supervises the overall
administration of the Trust. These administrative services include supervising
the preparation and filing of all documents required for compliance by the Funds
with applicable laws and regulations, supervising the maintenance of books and
records, and other general and administrative responsibilities.
Under a sub-administration agreement between AMC and PFPC Inc. ("PFPC"), PFPC
provides certain administrative services to the Funds, subject to the
supervision of AMC. Such services include regulatory compliance, assistance in
the preparation and filing of post-effective amendments to the Funds'
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,
AMC (not the Funds) has agreed to pay PFPC a monthly fee at the annual rate of
.07% of the average net assets of each Fund subject to certain minimums,
exclusive of out-of-pocket expenses. In addition, the Funds reimburse AMC for
the costs of preparing tax returns and filing of Blue Sky registrations.
DISTRIBUTION PLAN
- -----------------
The Funds finance activities which are primarily intended to result in the sale
of the Funds shares and each Fund has adopted a Distribution Plan pursuant to
Rule 12b-1 under the 1940 Act. Rule 12b-1 permits mutual funds, such as the
Funds, 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.
FUND I. Fund I has adopted a Plan (the "Plan"), pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), whereby it will pay
AFDC up to a maximum of 0.30% (3/10 of 1%) per
- -----
26
<PAGE>
annum of its average daily net assets for expenses incurred in the distribution
and promotion of its shares, including the printing of prospectuses and reports
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 securities dealers and others who have
executed a distribution or service agreement with AFDC. Some payments under the
Plan are used to compensate broker-dealers with trail or maintenance commissions
in an amount not to exceed 0.20%, annualized, of the assets maintained in the
Fund by their customers. For the year ended December 31, 1996, the Fund
reimbursed AFDC $25,221 for such distribution expenses.
The payments which AFDC is entitled to receive annually under the Plan will be
reduced if they exceed AFDC's actual reimbursable distribution expenses in a
given year plus unpaid expenses incurred in the prior three years. At December
31, 1996, AFDC had incurred approximately $367,058 (5.4% of the Fund I's net
assets) of distribution expenses in excess of amounts currently reimbursable by
the Fund.
If the Plan is terminated or not continued in accordance with its terms, Fund
I's obligation to make payments to AFDC pursuant to the Plan will cease and Fund
I will not be required to make any further payments for expenses incurred after
the date on which the Plan terminates.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares. If a
bank were prohibited from providing certain agency or administrative services,
shareholders would be permitted to remain as Fund I shareholders and alternate
means for continuing the servicing of such shareholders would be sought. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
FUND II. The Plan provides daily compensation to Fund II's principal underwriter
for its distribution services and facilities (daily compensation). Pursuant to
the Plan, but subject to the .75% limitation described below, Fund II will pay
the principal underwriter daily compensation in the form of (i) sales
commissions equal to 4% of the amount received by Fund II for each share sold
(excluding reinvestment of dividends and distributions) 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. The principal underwriter currently expects to pay
sales commissions to dealers at the time of sale of 3% of the purchase price of
the shares sold by such dealer. See How to Buy Shares of the Funds. The
principal underwriter will use it own funds (which may be borrowed from banks)
to pay such sales commissions.
Because the payment of the 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 by it to dealers from the daily compensation payments
received by it from Fund II pursuant to the Plan. Such daily compensation will
be accrued daily (at the rate of 1/365 of .75% of Fund II'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. Uncovered
Distribution Charges are calculated daily and, briefly, are equivalent on any
given day to all unpaid 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 Atlas Holdings
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 Atlas Holdings organization in
distributing shares of Fund II. Total expenses for this purpose will include an
allocable portion of the overhead costs of such organization.
- -----
27
<PAGE>
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 Fund II and
will accordingly reduce Fund II's net assets upon such accrual. However, in
accordance with generally accepted accounting principles, Fund II does not
accrue future daily compensation as a liability of Fund II or reduce Fund II'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 Fund II's net
assets on such day. The level of Fund II's net assets changes each day and
depends upon the amount of sales and redemptions of Fund II shares, the changes
in the value of Fund II's portfolio investments, the expenses of Fund II accrued
on such day, income on portfolio investments accrued on such day, and dividends
and distributions declared by Fund II.
The Plan provides that Fund II 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. During the year ended December
31, 1996, the principal underwriter earned $16,885 in daily compensation.
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 Fund II and a majority of the Trustees of Fund II who are not
interested persons of Fund II 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).
Periods with a high level of sales of Fund II shares accompanied by a low level
of redemptions of Fund II 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 Fund II shares accompanied by a high level
of early redemptions of Fund II 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 Fund II
shares during the first few years of Fund II's operations would cause a large
portion of the daily compensation attributable to a sale of Fund II shares to be
accrued and paid by Fund II to the principal underwriter in fiscal years
subsequent to the years in which such shares were sold. The spreading of sales
commissions payments under the Plan over an extended period would result in the
incurrence and payment of increased interest fees under the Plan. At December
31, 1996, Uncovered Distribution Charges (cumulative sales commissions and
interest fees reduced by cumulative daily compensation and contingent deferred
sales charges paid to the principal underwriter) amounted to $736,725.
The Plan authorizes payments which may be equivalent, on an aggregate basis
during any fiscal year of Fund II, of up to .75% of Fund II's average daily net
assets for such year. It is anticipated that the Astra organization will benefit
by reason of the operation of the Plan through increases in Fund II's assets
(thereby increasing the advisory fees paid to AMC) resulting from sale of Fund
II shares and through daily compensation and contingent deferred sales charges
paid to the principal underwriter. It is anticipated that Fund II 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.
Fund 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, Fund II's management intends to consider all relevant factors,
including, without limitation, the size of Fund II, the investment climate and
market conditions, the
- -----
28
<PAGE>
volume of sales and redemptions of Fund II 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 Fund II shares. However, Fund II
is not contractually obligated to continue the Plan for any particular period of
time. Suspension of the offering of Fund II shares would not, of course, affect
a shareholder's ability to redeem his shares.
The National Association of Securities Dealers has reviewed Article III, Section
26 of its Rules of Fair Practice governing sales charges and its members have
approved a proposed revision of such rules. The NASD rule proposal will cover
Rule 12b-1 distribution fees and can be expected to affect a number of plans
adopted by the mutual fund industry under Rule 12b-1. If the SEC approves the
proposed amendment to the NASD rules, the Trustees will consider what, if any,
modification of Fund II's Plan or distribution practices may be appropriate.
See the Statement of Additional Information for a further description of the
Distribution Plans.
SHAREHOLDER MAINTENANCE AGREEMENT
Fund II has entered into a shareholder maintenance agreement with AFDC pursuant
to which AFDC may pay certain broker-dealers or financial service firms a trail
commission or maintenance fee. AFDC will receive an annual fee equal to 0.25% of
the Fund's average daily net assets and may compensate such firms periodically,
determined by a formula based upon the net assets represented by accounts
serviced by such firm during the period for which payment is being made, the
level of activity in accounts serviced during such period, and the expenses
incurred, provided that such fees will not exceed, on an annualized basis for
Fund II's then-current fiscal year, 0.25% of its average daily net assets
represented by shares owned during the period for which payment is being made.
During the year ended December 31, 1996, AFDC earned maintenance fees of
$5,628.
GENERAL INFORMATION
- -----------------
AGIS was organized as a Massachusetts business trust on November 21, 1985 under
the name Pilgrim Preferred Fund. All shares, when issued, are fully paid and
nonassessable. There are no preemptive, conversion or exchange rights. AGIS'
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.
AGIS currently issues shares of beneficial interest, without par value, in two
series. The investment objectives and policies and investment restrictions are
the same for both series. Shares of Astra Short-Term Multi-Market Income Fund I
may be purchased at a price equal to the next determined net asset value per
share plus a varying front-end sales charge. Shares of Astra Short-Term
Multi-Market Income Fund II are sold at the net asset value per share next
determined, but may be subject to a contingent deferred sales charge. Each of
the Funds' shares of beneficial interest has one vote and shares equally in
dividends and distributions and in the respective Fund's net assets upon
liquidation. Additional series may be added in the future by the Board of
Trustees.
The Board of Trustees may classify or reclassify any unissued shares of a Fund
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.
- -----
29
<PAGE>
The overall management of the business of each Fund is vested with the Board of
Trustees. The Board of Trustees approves all significant agreements between each
Fund and persons or companies furnishing services to a Fund.
Day-to-day operations of the Funds are delegated to its elected officers,
subject to the investment objective and policies of the Funds, the general
supervision of the Board of Trustees and applicable state law.
Generally, there will not be annual meetings of shareholders. A Trustee of the
Funds may, in accordance with certain rules of the Securities and Exchange
Commission, be removed from office when the holders of record of not less than
two-thirds of the outstanding shares either present a written declaration to the
Funds' Custodian or vote in person or by proxy at a meeting called for this
purpose. In addition, the Trustees will promptly call a meeting of shareholders
to remove a Trustee(s) when requested to do so in writing by record holders of
not less than 10% of the outstanding shares. Finally, the Trustees shall, in
certain circumstances, give such shareholders access to a list of the names and
addresses of all other shareholders or inform them of the number of shareholders
and the cost of mailing their request.
Under Massachusetts law, shareholders could, under certain circumstances, be
held liable for the obligations of the Funds. However, the Declaration of Trust
disclaims shareholder liability for acts of obligations of the Funds and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Funds or the Trustees to all
parties, and each party thereto must expressly waive all rights of action
directly against shareholders. The Declaration of Trust provides for
indemnification out of the property of for all loss and expense of any
shareholder of the Funds 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 the Funds would be
unable to meet their obligations wherein the complaining party was held not 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 the Funds
of the Trustees and officers of the Funds 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 the Funds. Such person
may not be indemnified against any liability to the Funds or the Funds
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.
OTHER INFORMATION
As used in this Prospectus, the term "majority vote" means the affirmative vote
of (a) more than 50% of the outstanding shares of a Fund or (b) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of a
Fund are represented at the meeting in person or by proxy, whichever is less.
Investors in each Fund will be informed of its progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
This Prospectus is not an offering of the securities herein described in any
state in which the 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.
- -----
30
<PAGE>
[ASTRA ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I AND II
LOGO] 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 mext to the Fund in which you are investing. If no
selection is made, your investment may be delayed.
[ ] (81) Astra Short-Term Multi-Market Income Fund I
[ ] (29) Astra Short-Term Multi-Market Income Fund II*
[ ] Establish the account specified below with the enclosed check for $ ________
payable to the Fund selected above. Minimum initial investment is $5,000
[ ] 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 1978)
[ ] I am a Non-Resident Alien (Please complete a W-8)
Indicate what country a tax resident of ______________________.
Special Note: If Joint Registration each Non-Resident Alien must fill out a
W-8.
- --------------------------------------------------------------------------------
*SHARES MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
**THE FUND 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.
- -----
31
<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION
INSTRUCTIONS
If you wish your cash
distributions to be
electronically credited
to your bank account,
please attach a voided
check.
If no box is checked, all distributions will be reinvested in additional shares
of the Fund.
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
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. If you would like to have
your distribution payments automatically deposited to your bank account,
please complete the Automated Clearing House (ACH) Distribution Form which
follows the Additional Account Privileges Form herein.:
______________________________________________________________________________
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 exchange is
open.
I (we) authorized the Fund's Transfer Agent to act upon telephone or wire
instructions from any person to have amounts redeemed from my (our) account in
the Fund 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 Fund
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.
_______________________________________________________________________________
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32
<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 [ ] $500,000 [ ] $1,000,000
[ ] $2,500,000 [ ] $5,000,000 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 Fund has been received and read and that the authorizations
hereon shall continue until the Fund 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 Fund's Prospectus, as amended from time
to time, and the terms herein set forth, and subject to acceptance by the Fund
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 IS EXEMPT FROM
BACKUP WITHHOLDING, OR (B) 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 (C) THE I.R.S. HAS PROVIDED NOTIFICATION THAT THE ACCOUNT OWNER IS
NO LONGER SUBJECT TO BACKUP WITHHOLDING.
Corporations, trusts, and partnerships hereby certify that each of the
persons listed below have been duly elected, and are now legally holding the
offices set forth opposite his/her name and have the authority to make this
authorization. Please print titles with signatures if signing on behalf of a
business or trust to establish this account.
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 Fund, 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 Fund.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
Authorized Signature Title
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Authorized Signature Title
______________________________________________________________________________
Date
________________________________
Telephone Number:
Home: (___)_______________
Other: (___)_______________
______________________________________________________________________________
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33
<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. ___________
_______________________________________________________________________________
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<PAGE>
[LOGO] ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I 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 Fund'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)
(If payments are to be made to a bank account, please complete the Automated
Clearing House (ACH) Distribution Form which follows):
______________________________________________________________________________
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 Fund's Transfer Agent, to draw checks or 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
Fund:
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 SHORT-TERM MULTI MARKET INCOME FUND I 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 or debit instructions drawn on my (our) account by DST
Systems, Inc., the Fund's Agent and payable to the order of the Fund 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 or
debit instructions 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 or debit instructions.
I (we) further agree that if any such check or debit instructions 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
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<PAGE>
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<PAGE>
THE ASTRA GROUP OF FUNDS AUTOMATED CLEARING HOUSE ("ACH") DISTRIBUTION FORM
- --------------------------------------------------------------------------------
Please accept this form as instructions to have future (check those that apply)
[ ] Income Dividends [ ] Capital Gains Distributions [ ] Systematic
Withdrawal Plan Payments deposited directly into my bank account as indicated
below:
- --------------------------------------------------------------------------------
BANK ACCOUNT INFORMATION
( )
--------------------------------------------------------------------
Bank Name Bank Telephone Number
--------------------------------------------------------------------
Address of Bank
--------------------------------------------------------------------
Name of Depositor Bank Account Number*
--------------------------------------------------------------------
Name of Joint Depositor (if any)
- --------------------------------------------------------------------------------
ASTRA ACCOUNT INFORMATION
/
--------------------------------------------------------------------
Fund Name Account Number
/
--------------------------------------------------------------------
Fund Name Account Number
/
--------------------------------------------------------------------
Fund Name Account Number
/
--------------------------------------------------------------------
Fund Name Account Number
- --------------------------------------------------------------------------------
AUTHORIZATION
As a convenience to me (us), The Astra Group of Funds is hereby directed to
initiate credit and, if necessary, debit entries, and adjustments for any credit
or debit entries made in error, to my (our) bank account. This authority is to
remain in effect until receipt of revocation, in writing, from me (us). I (we)
agree that The Astra Group of Funds, Atlas Holdings Group, Inc., and its
affiliates ("Companies") shall be fully indemnified and protected in honoring
any such transactions. If any such credit is dishonored, whether with or without
cause and whether intentional or inadvertently caused, I (we) also agree that
Companies shall be under no liability whatsoever beyond the payment of the
Income Dividend, Capital Gains Distribution or Systematic Withdrawal Plan
Payment addressed herein.
_____________________________________ _____________________________________
Signature of Shareholder** Signature of Co-Owner**
(if applicable)
( ) _____________ ( ) _____________ ( ) _____________ ( ) _____________
Home Telephone Bus. Telephone Home Telephone Bus. Telephone
*A voided check or deposit slip for this account must be attached.
**Must be signed exactly as account is registered.
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<PAGE>
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<PAGE>
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND II
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 20-21 of the
prospectus, you must complete this Contingent Deferred Sales Charge Waiver Form
and send it to the Fund'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. For IRA or other qualified retirement
plan accounts where IFTC acts as custodian, please contact the Fund for a
Distribution Request Form which must accompany this Contingent Deferred
Sales Charge Waiver Form.
Briefly explain the basis on which the undersigned believes he is eligible
to rely on the item above.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Signature _________________________________________________________________
(Exactly as on Account Registration)
DATE ________________________________________________________________, 19
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 determined 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
31% 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) 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.
(3) 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.
================================================================================
<TABLE>
<CAPTION>
<S> <C>
GUIDELINES FOR DETERMINING GIVE THE
PROPER NUMBER SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds any one of
the individuals(superior1)
3. Husband and wife (joint account) The actual owner of the account or,
if joint funds, either person(superior1)
4. Custodian account to a minor The minor(superior2)
(Uniform Gift to Minors Act)
5. Adult and minor The adult or if the minor is the only
contributor, the minor(superior1)
6. Account in the name of guardian or The ward, minor, or incompetent
committee for a designated ward, person(superior3)
minor or incompetent person
7. a. The usual revocable savings trust The grantor-trustee(superior5)
account (grantor is also trustee)
b. So-called trust account that is The actual owner(superior1)
not a legal or valid trust under
state law
8. Sole proprietorship account The owner(superior4)
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
9. A valid trust, estate or pension Legal entity (Do not furnish the
trust identifying number of the personal
representative or trustee unless the
legal entity itself is not designated in
the account title.)(superior5)
10. Corporate account The corporation
educational organization account
11. Religious, charitable, or The organization
12. Partnership account held in the The partnership
name of the business
13. Association, club or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a State or
local government, school district,
or prison) that receives
agricultural program payments
</TABLE>
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41
<PAGE>
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<PAGE>
ASTRA LOGO
=================================== ===================================
11400 West Olympic Blvd. ASTRA
Suite 200 SHORT-TERM
Los Angeles, CA 90064 MULTI-MARKET
INCOME FUNDS
- ----------------------------------- -----------------------------------
ASTRA SHORT-TERM MULTI-MARKET PROSPECTUS
INCOME FUNDS
APRIL 25, 1997
INVESTMENT MANAGER
Astra Management Corporation
11400 West Olympic Blvd.
Suite 200
Los Angeles, CA 90064
(310) 445-8850
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp.
11400 West Olympic Blvd.
Suite 200
Los Angeles, CA 90064
(310) 445-8850
SHAREHOLDER SERVICING AGENT
DST Systems, Inc.
P.O. Box 419174
Kansas City, Missouri 64141
(800) 441-7267
TRANSFER AGENT
Investor 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
Kramer, Levin, Naftalis & Frankel
919 Third Ave.
New York, New York 10022
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza
Philadelphia, Pennsylvania 19102
ASTMM 497 2 AST703184
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 25, 1997
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I
11400 WEST OLYMPIC BOULEVARD
SUITE 200
LOS ANGELES, CA 90064
(800) 219-1080
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND I (the "Fund") a non-diversified,
open-end management investment company, is a series of Astra Global Investment
Series (the "Trust"), which was organized as a business trust under the laws of
The Commonwealth of Massachusetts under the name "Pilgrim Preferred Fund." The
Fund, renamed on April 7, 1995, was formerly known as "Pilgrim Short-Term
Multi-Market Income Fund". The Trust, also renamed on April 7, 1995, was
formerly known as "Pilgrim Global Investment Series." The Trust is currently
organized into two series. This Statement of Additional Information relates
primarily to the Astra Short-Term Multi-Market Income Fund I series of the
Trust. The Fund's primary investment objective is to provide investors with a
high current income with capital appreciation as a secondary objective.
This document is not the prospectus of the Fund and should be read in
conjunction with that prospectus dated April 25, 1997, which may be obtained
without charge upon written request to the Fund at the address above, or by
calling (800) 219-1080.
<PAGE>
TABLE OF CONTENTS
PAGE
----
The Fund .................................................................. 3
Investment Objectives and Policies......................................... 3
Investment Restrictions.................................................... 12
Trustees and Officers...................................................... 13
Investment Management...................................................... 14
Sub-Administration Agreement............................................... 15
Execution of Portfolio Transactions........................................ 15
Principal Underwriter...................................................... 17
Distribution Plan.......................................................... 17
Additional Purchase and Redemption Information............................. 18
The Price of the Shares is Determined Daily................................ 19
Tax Matters................................................................ 20
Investment Return Information.............................................. 26
General Information........................................................ 28
Accountants................................................................ 29
Financial Statements....................................................... 29
- 2 -
<PAGE>
THE FUND
On June 29, 1990, the shareholders of the Fund approved a proposal to
change the investment objectives and policies of the Fund, including a change of
the Fund's name to "Pilgrim Short-Term Multi-Market Income Fund" from "Pilgrim
Preferred Fund." On February 13, 1991, the Trustees approved a change in the
name of the Trust to "Pilgrim Global Investment Series." On April 7, 1995, the
name of the Trust was changed to "Astra Global Investment Series" and the name
of the Fund was changed to "Astra Short-Term Multi-Market Income Fund I."
INVESTMENT OBJECTIVES AND POLICIES
As described in the Fund's prospectus, the Fund is a non-diversified,
open-end management investment company. The Fund's primary investment objective
is to provide investors with high current income with preservation of capital as
a secondary objective. These investment objectives are fundamental policies and
may not be changed except by a majority vote of shareholders.
To achieve its objectives, the Fund will invest in a non-diversified
portfolio of high quality debt instruments having remaining maturities of not
more than 3 years denominated in the U.S. Dollar and a range of foreign
currencies and will write call options on the currencies and securities in which
the Fund is invested. The Fund also may invest in repurchase agreements, cash or
cash equivalents or other such high quality debt instruments as is consistent
with its objectives. In addition, the Fund will attempt to hedge its currency
exposure through the use of forward selling and options.
The Fund seeks to provide the highest level of current income, consistent
with what the Fund's investment manager, Astra Management Corporation ("AMC"),
considers to be prudent investment risk, that is available from a portfolio of
high-quality debt securities having remaining maturities of not more than three
years. The Fund seeks high current yields by investing in a portfolio of debt
securities denominated in the U.S. Dollar and a range of foreign currencies.
Accordingly, the Fund will seek investment opportunities in foreign, as well as
domestic, securities markets. While the Fund normally will maintain a
substantial portion of its assets in debt securities denominated in foreign
currencies, the Fund also will invest in U.S. Dollar denominated securities. The
Fund currently does not intend to invest in securities issued by governments or
entities of, or denominated in currencies of, Eastern European countries. The
Fund is designed for the investor who seeks a higher yield than a money market
fund and less fluctuation in net asset value than a longer-term bond fund.
The Fund invests in debt securities denominated in the currencies of
countries whose governments AMC considers stable. In addition to the U.S.
Dollar, such currencies include, among others, the Australian Dollar, Austrian
Schilling, British Pound Sterling, Canadian Dollar, Dutch Guilder, European
Currency Unit ("ECU"), French Franc, Japanese Yen, New Zealand Dollar, Spanish
Peseta, Swedish Krona, Swiss Franc and German Mark. An issuer of debt securities
purchased by the Fund may be domiciled in a country other than the country in
whose currency the instrument is denominated.
The Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Fund's
portfolio consists only of: (i) debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities ("U.S. Government Securities");
(ii) obligations issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, or instrumentalities, or by
supranational entities, all of which are rated AAA or AA by Standard & Poor's
Corporation ("S&P") or Aaa or Aa by Moody's Investors Services, Inc. ("Moody's")
("High Quality Ratings") or, if unrated, determined by AMC to be of equivalent
quality;
- 3 -
<PAGE>
(iii) corporate debt securities having at least one High Quality Rating or, if
unrated, determined by AMC to be of equivalent quality; (iv) certificates of
deposit and banker's acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500 million
and determined by AMC to be of high quality; and (v) commercial paper rated A-1
or A-2 by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch
Investors Service, Inc., Duff 1 or Duff 2 by Duff & Phelps Inc. or, if not
rated, issued by U.S. or foreign companies having outstanding debt securities
rated AAA or AA or A by S&P, or Aaa, Aa or A by Moody's and determined by AMC to
be of high quality, and loan participation interests having a remaining term not
exceeding one year in loans extended to such companies by commercial banks or
other commercial lending institutions whose long-term debt and commercial paper
are of a High Quality Rating; and (vi) future contracts, options on future
contracts, options on foreign currencies, options on portfolio securities, and
forward foreign currency exchange contracts to such companies.
The Fund may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions. The World Bank, Asian Development Bank and other such
supranational organizations are not considered by the Fund or AMC as "banks" for
purposes of computing investment restrictions regarding non-diversification or
concentration policies and, as a result, the debt securities issued by such
supranational organizations will not be included as those of banks for
determination of compliance with the percentage limitations of such investment
policies.
The Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. AMC does not believe that such adjustments will adversely affect
holders of ECU-denominated obligations or the marketability of such securities.
European supranationals, in particular, issue ECU-denominated obligations.
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), which will relieve
the Fund of any liability for Federal income tax to the extent its earnings are
distributed to shareholders. See "Distributions and Taxes." To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. For diversification purposes,
the issuer of a loan participation will be the underlying borrower. In cases
where the Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the Fund and the
borrower will be deemed issuers of the loan participation. The Fund's
investments in U.S. Government Securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company, may invest in a
smaller number of individual
- 4 -
<PAGE>
issuers than a diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor than an
investment in a diversified company.
FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies which otherwise meet
the Fund's investment policies, to the extent permitted by the Commodity Futures
Trading Commission (the "CFTC"). U.S. futures contracts have been designed by
exchanges which have been designated "contract markets" by the CFTC, and must be
executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The Fund will enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. The
Fund may also enter into futures contracts which are based on non-U.S.
Government bonds.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a certain amount of a specific interest
rate-sensitive financial instrument (debt security) at a specified price, date,
time and place. A foreign currency futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specified foreign currency at a specified price, date, time and place.
The Fund may not enter into futures transactions if the sum of the amount
of initial margin deposits on its existing futures contracts and premiums paid
for unexpired options would exceed 5% of the fair market value of the Fund's
total assets, after taking into account unrealized profits and unrealized losses
on commodity contracts it has entered into. The Fund will not use leverage when
it enters into long futures or options contracts and for each such long position
the Fund will deposit cash or cash equivalents, such as U.S. Government
Securities or high grade debt obligations, having a value equal to the
underlying commodity value of the contract as collateral with its custodian in a
segregated account.
The purpose of entering into a futures contract is to protect the Fund from
fluctuations in value of its portfolio securities without its necessarily buying
or selling the securities. Of course, because the value of portfolio securities
will far exceed the value of the futures contracts sold by the Fund, an increase
in the value of the futures contracts could only mitigate but not totally offset
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon entering into a futures contract. Upon entering into a
futures contract, the Fund will be required to deposit in a segregated account
with its custodian an amount of cash or cash equivalents, such as U.S.
Government Securities or high grade debt obligations, equal to approximately 1
to 10% of the contract amount (this amount is subject to change by the exchange
on which the contract is traded and brokers may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. The broker will have access to amounts in the margin account if
the Fund fails to meet its contractual obligations. Subsequent payments, known
as "variation margin," to and from the broker, will be made daily as the price
of the currency or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
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There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts is subject to the ability
of the Fund's investment adviser to predict correctly movements in the price of
the securities or currencies underlying the particular hedge. These predictions
and, thus, the use of futures contracts involve skills and techniques that are
different from those involved in the management of the portfolio securities
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying securities or
currencies and movements in the price of the securities which are the subject of
the hedge. A decision concerning whether, when and how to hedge involves the
exercise of skill and judgment and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or trends in
interest rates or currency values.
Positions in future contracts and options on futures contracts may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist for
the contracts at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting the Fund to substantial losses. In such event, and in the event
of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
If the Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does not
occur, the Fund will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. Losses incurred in hedging transactions and the costs of
these transactions will affect the Fund's performance. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell securities
to meet daily variation margin requirements at a time when it would be
disadvantageous to do so. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or currency values, as the case may be.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write put and call options on interest rate and
foreign currency contracts that are traded on a U.S. exchange or board of trade
or a foreign exchange, to the extent permitted by the CFTC, as a hedge against
changes in interest rates and market conditions, and may enter into closing
transactions with respect to such options to terminate existing positions. There
is no guarantee that such closing transactions can be effected.
An option on an interest rate or foreign currency contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate or foreign
currency contract at a specified exercise price at any time prior to the
expiration date of the option. Options on interest rate futures contracts
currently available include those with respect to U.S. Treasury Bonds, U.S.
Treasury Notes, U.S. Treasury Bills and Eurodollars. Options on foreign currency
futures currently available include those with respect to British Pounds, Swiss
Francs, Japanese Yen, Canadian Dollars and Australian Dollars. Upon exercise of
an option, the
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delivery of the futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account, which represents the amount by which the market
price of the futures contracts exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures contract.
The potential loss related to the purchase of an option on futures contracts is
limited to the premium paid for the option (plus transaction costs). Because the
value of the option is fixed at the point of sale, there are no daily cash
payments to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net asset value of the Fund.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated trends in interest
rates and securities markets and in currency values by AMC, which could prove to
be incorrect. Even if AMC's expectations are correct, there may be an imperfect
correlation between the change in the value of the options and of the portfolio
securities hedged.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase options on foreign currencies to increase its gross
income and for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Fund may
purchase put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund deriving from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same purposes. For
example, where the Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if the currency moves
in the manner projected, will expire unexercised and allow the fund to hedge
such increased cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and
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<PAGE>
the Fund would be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits which might otherwise have been obtained from favorable
movements in exchange rates.
The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian, or by a designated sub-custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option is also covered
if the Fund has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price or the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or other liquid securities in a segregated account with its
Custodian or with a designated sub-custodian.
The Fund also intends to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline due to an adverse change in the exchange rate in the
U.S. dollar value of a security which the Fund owns or has the right to acquire
and which is denominated in the currency underlying the option. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its Custodian or with a designated sub-custodian, cash or other
liquid securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
FORWARD CURRENCY CONTRACTS
The Fund may engage in currency exchange transactions to hedge against
uncertainty in the level of future exchange rates. The Fund will conduct its
currency exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or through entering into forward
contracts to purchase or sell currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. The Fund's dealings in
forward currency contracts will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward currency with respect to specific receivables or payables of the Fund
generally accruing in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward currency with respect to
portfolio security positions denominated or quoted in the currency. The Fund may
not position hedge with respect to a particular currency to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currently
convertible into that particular currency. The Fund may, however, enter into a
position hedging transaction with respect to a currency other than that held in
the Fund's portfolio, if such a transaction is deemed a hedge by AMC. If the
Fund enters into a position hedging transaction, cash or liquid securities will
be placed in a segregated account in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the value
of the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to the contract. Hedging
transactions may be made from any foreign currency into U.S. dollars or into
other appropriate currencies.
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<PAGE>
At or before the maturity of a forward currency contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in forward
currency contract prices. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale of a currency
and the date it enters into an offsetting contract for the purchase of the
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, at the same time, they limit any potential gain that might result
should the value of the currency increase.
If a devaluation is generally anticipated, the Fund may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates. The Fund will not enter into a currency transaction if, as a
result, it will fail to qualify as a regulated investment company under the Code
for a given year.
OPTIONS ON PORTFOLIO SECURITIES
The Fund may write only covered call option contracts. Currently, the
principal exchanges on which such options may be written are the Chicago Board
Option Exchange and the American, Philadelphia, and Pacific Stock Exchanges. In
addition, and in certain instances, the Fund may purchase and sell options in
the over-the-counter market ("OTC Options"). A call option gives the purchaser
of the option the right to buy the underlying security from the writer at the
exercise price at any time prior to the expiration of the contract, regardless
of the market price of the security during the option period. The premium paid
to the writer is the consideration for undertaking the obligations under the
option contract. The writer forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price so long
as the option remains open and covered, except insofar as the premium represents
such a profit.
The Fund may purchase options only to close out a position. In order to
close out a position, the Fund will make a "closing purchase transaction"--the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which it has previously written on any
particular security. The Fund will effect a closing purchase transaction so as
to close out any existing call option on a security which it intends to sell.
The Fund will realize a profit or loss from a closing purchase transaction if
the amount paid to execute a closing purchase transaction is less or more than
the amount received from the sale thereof. In determining the term of any option
written, the Fund will consider the Code's limitations on the sale or
disposition of securities held for less than three months in order to maintain
its status as a regulated investment company for federal income tax purposes.
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<PAGE>
The staff of the SEC has taken the position that purchased over-the-counter
options and the assets used as cover for written over-the-counter options are
illiquid securities. The Fund will write OTC Options only with primary U.S.
Government Securities dealers recognized by the Board of Governors of the
Federal Reserve System or member banks of the Federal Reserve System ("primary
dealers"). The fund may also write, to the extent available, OTC Options with
non-primary dealers, such as foreign dealers; however, unlike OTC Options
written with primary dealers, any OTC Options written with such non-primary
dealers and the assets used as cover for such options will be treated as
illiquid securities. In connection with these special arrangements, the Fund
intends to establish standards for the creditworthiness of the primary and
non-primary dealers with which it may enter into OTC Option contracts and those
standards, as modified from time to time, will be implemented and monitored by
AMC. Under these special arrangements, the Fund will enter into contracts with
primary and non-primary dealers which provide that the Fund has the absolute
right to repurchase an option it writes at any time at a repurchase price which
represents the fair market value, as determined in good faith through
negotiation between the parties, but which in no event will exceed a price
determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary and non-primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money".
Under such circumstances, and with respect to OTC Options written with primary
dealers only, the Fund will treat as illiquid that amount of the "cover" assets
equal to the amount by which the formula price for the repurchase of the option
is greater than the amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula) the formula price will not
necessarily reflect the market value of the option written, therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.
In determining the Fund's net asset value, the current market value of any
option written by the Fund is subtracted from net asset value. If the current
market value of the option exceeds the premium received by the Fund, the excess
represents an unrealized loss, and, conversely, if the premium exceeds the
current market value of the option, such excess would be unrealized gain.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND
OPTIONS ON FOREIGN CURRENCIES
Unlike transactions entered into by the Fund in certain futures contracts,
certain other futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC and forward
currency contracts are not regulated by the SEC. Instead, forward currency
contracts are traded through financial institutions acting as market-makers.
Foreign currency options are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. In the forward currency market, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Moreover, a trader of forward
contracts could lose amounts substantially in excess of its initial investments,
due to the collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections
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provided to traders on organized exchanges will be available with respect to
such transactions. In particular, all foreign currency option positions entered
into on a national securities exchange are cleared and guaranteed by the Options
Clearing Corporation (the "OCC"), thereby reducing the risk of counterparty
default. Further, a liquid secondary market in options traded on a national
securities exchange may exist, potentially permitting the Fund to liquidate open
positions at a profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options, however,
are subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, future contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of such positions also could be adversely affected by
(a) other complex foreign political and economic factors, (b) lesser
availability than in the United States of data on which to make trading
decisions, (c) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States and
the United Kingdom, (d) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (e)
lesser trading volume.
The Fund may enter into repurchase agreements. Under a repurchase
agreement, the Fund acquires a debt instrument for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Fund's money is invested. The Fund's risk is limited to the ability of the
seller to pay the agreed-upon sum upon the delivery date. When the Fund enters
into a repurchase agreement, it obtains collateral having a value at least equal
to the amount of the purchase price. Repurchase agreements can be considered
loans as defined by the Investment Company Act of 1940, as amended (the "1940
Act"), collateralized by the underlying securities. The return on the collateral
may be more or less than that from the repurchase agreement. The securities
underlying a repurchase agreement will be marked to market every business day so
that the value of the collateral is at least equal to the value of the loan,
including the accrued interest earned. In evaluating whether to enter into a
repurchase agreement, AMC will carefully consider the creditworthiness of the
seller. If the financial institution that is the party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under these extreme circumstances, there may be restrictions on the
Fund's ability to sell the collateral and the Fund may suffer a loss.
Lending of Portfolio Securities--In order to generate additional income,
the Fund may lend its portfolio securities in an amount up to 33-1/3% of total
Fund assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made to any companies
affiliated with AMC. The borrower at all times during the loan must maintain
with the Fund
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cash or cash equivalent collateral or provide to the Fund an irrevocable letter
of credit equal in value at all times to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and
the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. Loans are subject to
termination at the option of the Fund or the borrower at any time. The Fund may
pay reasonable administrative 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies which cannot be changed without approval by the holders of a majority
of its outstanding shares, which means the lesser of (1) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the Fund's outstanding shares. The Fund may not:
1. Issue senior securities.
2. Purchase securities for which there are legal or contractual
restrictions on resale or otherwise not readily marketable (including repurchase
agreements maturing in more than 7 days), if as a result of such purchase more
than 10% of the Fund's total assets would be invested in such securities.
3. Underwrite securities of other issuers except to the extent that it may
be deemed to act as an underwriter in certain cases when disposing of restricted
securities.
4. Make loans to persons except by the loan of its portfolio securities as
described in "Lending of Portfolio Securities" in the Prospectus and in this
Statement.
5. Borrow money. (Does not preclude the Fund from obtaining such short-term
credit as may be necessary for the clearance of purchases and sales of its
portfolio securities.)
6. Invest in the securities of any company which, including its
predecessors, has not been in business for at least three years.
7. Invest more than 25% of the value of its total assets in any one
industry except that this limitation is not applicable to the Fund's investments
in U.S. Government Securities.
8. Invest in securities of any one issuer for the purpose of exercising
control or management.
9. Purchase securities on margin, sell securities short or participate on a
joint or joint and several basis in any securities trading account.
10. Buy or sell interests in oil, gas or mineral exploration or development
programs, or purchase or sell commodities, commodity contracts or real estate.
11. Purchase or hold securities of any issuer, if, at the time of purchase
or thereafter, any of the officers and trustees of the Fund or the officers and
directors of AMC own beneficially more than
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<PAGE>
1/2 of 1%, and such officers, trustees and directors holding more than 1/2 of 1%
together own beneficially more than 5%, of the issuer's securities.
12. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
TRUSTEES AND OFFICERS
Responsibility for management of the Fund is vested in the Board of
Trustees. The Trustees, in turn, elect the officers of the Fund to supervise
actively the day-to-day operations of the Fund. The shareholders of the Fund may
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose. Each Trustee serves during the continued lifetime of the Fund 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 of the Trustees and principal officers during the past
five years are set forth below.
PALOMBA WEINGARTEN, CHAIRMAN OF THE BOARD AND TRUSTEE* (54)
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 Corporation ("AMC"), the Fund's distributor and investment
manager, respectively. Chairman of the Board and Trustee of Astra
Strategic Investment Series and Astra Institutional Securities Trust;
Chairman of the Board and Trustee of Astra Institutional Trust.
AL BURTON, TRUSTEE (69)
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. Board Member of the Astra Group of Funds and Board Member of the
Pilgrim America Group of Funds.
GARRY D. PEARSON, TRUSTEE (48)
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.
ROBERT R. WOMACK, JR., PRESIDENT* (33)
11400 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.
President of AMC, Astra Fund Distributors Corp., Astra Institutional
Securities Trust, Astra Institutional Trust and Astra Strategic
Investment Series. From July 1995 to the present, Portfolio Manager
with the Astra Funds. From April to June 1995, Portfolio Manager for
Pilgim America Group. From June 1993 to April 1995, Portfolio Manager
for Pilgrim Management Corp. From March 1989 to June 1993, Portfolio
Manager for World Savings and Loan Association in Oakland, California.
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<PAGE>
JOHN R. ELERDING, CHIEF FINANCIAL OFFICER, SENIOR VICE PRESIDENT, TREASURER AND
SECRETARY* (45)
11400 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.
Senior Vice President, Secretary, Treasurer and Chief Financial Officer
of Astra Management Corporation and Astra Fund Distributors Corp.
Senior Vice President, Secretary, Treasurer and Chief Financial Officer
of Astra Institutional Trust, Astra Institutional Securities Trust and
Astra Strategic Investment Series. 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.
The officers and Trustees of the Fund, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Fund as of December
31, 1996.
The Trustees of the Fund who are not affiliated with or interested persons
of the Fund's investment adviser received an aggregate of approximately $2,765
during the year ended December 31, 1996 for fees and expenses for meetings
attended by the Board of Trustees. The officers of the Fund receive no
compensation directly from it for performing the duties of their offices.
However, those officers and Trustees of the Fund who are officers and Directors
of AMC may receive remuneration indirectly because AMC will receive management
fees from the Fund.
- --------------
* "Interested person" of the Fund as defined in the 1940 Act.
INVESTMENT MANAGEMENT
Investment management and administrative services are provided to the Fund
by AMC, pursuant to an Investment Management Agreement (the "Agreement") dated
November 13, 1992. (See the Prospectus - "Investment Manager".) As compensation
for its services, AMC is paid monthly an annual fee at the rate of .625% of the
average daily net asset value of the Fund on the first $1 billion and .55% on
the net assets above $1 billion.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the
Fund, to the extent required so that the Fund's expenses do not exceed the
expense limitations applicable to the Fund under the securities laws or
regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. For the years ended December 31, 1994, 1995
and 1996, the Fund paid management fees to AMC of approximately $126,174,
$78,861 and $52,544, respectively. For the years ended December 31, 1994, 1995
and 1996, management fees of approximately $0, $0 and $30,107, respectively,
were waived by AMC. For such periods, the Fund reimbursed AMC approximately
$4,239, $0 and $0, respectively, for the costs of personnel involved with
recordkeeping and daily net asset value calculations, portfolio trading,
shareholder servicing, and state securities registration and compliance.
The Fund pays its own operating expenses which are not assumed by AMC,
including the fees of its custodian, transfer and shareholder servicing agent;
cost 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 Fund's Trustees and shareholders, except those called to
accommodate AMC; fees and expenses of Trustees who are not affiliated with or
interested persons of AMC; salaries of personnel
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<PAGE>
involved in placing orders for the execution of the Fund's portfolio
transactions, in maintaining registration of its shares under state securities
laws or in providing shareholder and dealer services; insurance premiums on
property or personnel of the Fund which inure to its benefit; costs of preparing
and printing reports, proxy statements and prospectuses of the Fund for
distribution to its shareholders; legal, auditing and accounting fees; fees and
expenses of registering and maintaining registration of its shares for sale
under Federal and applicable state securities laws; and all other expenses in
connection with the issuance, registration and transfer of its shares. Under the
Agreement, the Fund is required to pay for the salaries of any officers employed
directly by the Fund. However, no such officers have ever been employed by the
Fund nor is it the current intention of the Fund to employ any such officers.
The Agreement was most recently approved by the Board of Trustees of the
Fund on August 28, 1996, and will remain in effect from year to year as long as
its continuation is approved at least annually by (1) the Board of Trustees or
the vote of a majority of the outstanding voting securities of the Fund, and (2)
a majority of the Trustees of the Fund who are not interested persons of any
party to the Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement may be terminated at any time, without
penalty, by either the Fund or AMC upon sixty days' written notice, and is
automatically terminated in the event of its assignment as defined in the 1940
Act.
AMC is a wholly-owned subsidiary of Atlas Holdings Group, Inc. ("AHGI").
AMC also acts as the investment manager to Astra Institutional Adjustable U.S.
Government Securities Portfolio, Astra Institutional Adjustable Rate Securities
Portfolio, Astra All Americas Government Income Trust and Astra Short-Term
Multi-Market Income Fund II, open-end investment companies. As of March 31,
1997, total assets under management in the Astra Group were approximately $98
million. AHGI is a Delaware corporation of which Mrs. Weingarten is the sole
stockholder.
SUB-ADMINISTRATION AGREEMENT
Under a sub-administration agreement between AMC and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Fund, subject to the
supervision of the Fund's Board of Trustees. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to the Fund's 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, AMC (not the Fund) has agreed to pay PFPC a
monthly fee at the annual rate of .07% of the average net assets of the Fund
subject to certain minimums, exclusive of out-of-pocket expenses.
EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreement, AMC determines,
subject to the instructions of and review by the Board of Trustees of the Fund,
which securities are to be purchased and sold by the Fund and which brokers are
to be eligible to execute portfolio transactions of the Fund. 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.
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<PAGE>
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 operational
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 the
Fund and/or AMC, and provide other services in addition to execution services.
AMC considers such information to be useful in varying degrees, but of
indeterminable value. The placement of portfolio brokerage with broker-dealers
who have sold shares of the Fund is subject to rules adopted by the National
Association of Securities Dealers, Inc. Provided the Fund's officers are
satisfied that the Fund is receiving the most favorable price and execution
available, the Fund may also consider the sale of the Fund's shares as a factor
in the selection of broker-dealers to execute its portfolio transactions.
While it will continue to be the Fund'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 Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or AMC, even if the specific services were not imputed just to the Fund and were
useful to AMC in advising other clients. In negotiating commissions with a
broker, the Fund 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 the Fund
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 Fund or assist AMC in carrying out its responsibilities to the Fund. The
standard of reasonableness is to be measured in light of AMC's overall
responsibilities to the Fund.
For the years ended December 31, 1994, 1995 and 1996, no brokerage
commissions were paid by the Fund. The Fund 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 advisory fee a part of any tender fees which legally may be received by such
affiliated broker-dealer. The Fund reimbursed AMC $0 for the costs of personnel
involved in placing orders for the execution of portfolio transaction,
shareholder servicing and maintaining registration of the Fund's shares under
state securities laws.
Investment decisions for the Fund are made independently from those of the
other funds in the Astra Group, although 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 either 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 the Fund is concerned.
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<PAGE>
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp. ("AFDC") is the Fund's principal underwriter
and distributor. The Fund has entered into an Underwriting Agreement between the
Fund and AFDC which will continue in effect from year to year if approved at
least annually (i) by the Board of Trustees of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund and (ii) by a majority
of the Trustees of the Fund who are not parties to the Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement may be terminated without penalty by
either party on sixty days' written notice and shall automatically terminate in
the event of its assignment as defined in the 1940 Act.
DISTRIBUTION PLAN
The Fund has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the
"Plan"), whereby it will pay up to a maximum of 0.30% per annum of its average
daily net assets for expenses incurred in the distribution of the Fund's shares.
The Plan provides that AFDC may include as a distribution expense a portion of
its overhead expenses directly attributable to the distribution of the Fund's
shares. These overhead expenses include communications, salaries, training,
supplies, photocopying and any other category of AFDC's expenses attributable to
the distribution of the Fund's shares.
The Plan also permits AFDC to carry forward for a maximum of three years
(without carrying charge) distribution expenses from prior years covered by the
Plan for which AFDC has not yet received reimbursement. Under this type of
arrangement, it is likely that the actual reimbursable expenses incurred and
paid by AFDC during the early years of the Plan will exceed the amounts for
which it is entitled to be reimbursed and will be carried forward as provided in
the Plan.
In addition to providing for the reimbursement to AFDC for actual
reimbursable distribution expenses as discussed above, the Plan also recognizes
that AMC may use its management fee or other resources to pay expenses
associated with activities primarily intended to result in the promotion and
distribution of the Fund's shares and that some of the Fund's normal operating
expenses, such as the management fee, and other payments made in the ordinary
course of its business are appropriately used in this manner.
The Board of Trustees determined that a continuous cash flow resulting from
the sale of new shares will be necessary and appropriate to meet redemptions and
to take advantage of buying opportunities without having to make unwarranted
liquidations of portfolio securities. Since AFDC retains a portion of the sales
charge, the Board felt it would benefit the Fund to have monies available for
the direct distribution and service activities of AFDC in promoting the
continuous sale of the Fund'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 Fund and its shareholders.
The Plan, which was most recently approved by the Board of Trustees of the
Fund on August 28, 1996, including all of the Trustees who are "non-interested"
persons as defined in the 1940 Act, and by a majority of the Fund's outstanding
shareholders, is currently in effect until August 28, 1997. The Plan must be
renewed annually by the Fund's Board of Trustees, including a majority of the
Trustees who are "non-interested" persons of the Fund 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
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<PAGE>
distribution or service agreement may be terminated at any time, without any
penalty, by such trustees on 60 days' written notice, by any act that terminates
the Agreement with AMC or the Underwriting Agreement with AFDC, or by vote of a
majority of the Fund's outstanding shares. AFDC or any dealer or institution 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 or service expenses
without approval by a majority of the Fund's outstanding shares, and all other
material amendments to the Plan or any distribution or service agreement also
shall be approved by the non-interested Trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
AFDC is required to report in writing to the Board of Trustees of the Fund
at least quarterly on the amounts and purpose of any payments made under the
Plan and any distribution or service agreement, as well as to furnish the Board
with such other information as may reasonably be requested in order to enable
the Board to make an informed determination of whether the Plan should be
continued.
For the year ended December 31, 1996, the Fund reimbursed AFDC
approximately $25,221 pursuant to the Plan for distribution of the Fund's
shares, including expenses for advertising; salaries and commissions; printing,
postage and handling; brokers' servicing fees and miscellaneous and other
promotional activities. Of the amount incurred by AFDC during the last year,
approximately $2,863 was for the costs of personnel of AFDC and its affiliates
involved in the promotion and distribution of the Fund's shares.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Rights of Accumulation--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 3.00% of the offering
price (3.09% of the net amount invested).
Reinstatement Privilege--Shares of the Fund may be sold at net asset value,
without sales charge, to persons who have redeemed their shares of the Fund
within the previous 30 days. The amount which may be so reinvested in the Fund
is limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). 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 Fund's Transfer Agent, or be postmarked, within 30 days after
the date of redemption. The previously redeemed shares will be reinvested at the
Fund's current net asset value upon receipt of the redemption proceeds from the
shareholder. This reinstatement privilege may only be used once a year. 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, although such disallowance is added to the tax basis of the shares
acquired upon the reinstatement. See "Tax Matters -- Sale or Redemption of
Shares."
Letter of Intent--As stated in the Prospectus, a shareholder may establish
a Letter of Intent to invest in a certain dollar amount of the Fund's shares
during a 13-month period. Purchases by more than one person may not be grouped
to 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
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<PAGE>
time of each purchase the shareholder or the dealer must inform AFDC that the
Letter of Intent is in effect, in order to insure that the reduced sales price
will be received. Shares of the Fund 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 Group Fund
offering the Letter of Intent Option may be included for purposes of determining
whether the Letter of Intent is met.
Redemptions--Payment to shareholders for shares redeemed or repurchased
will be made within seven days after receipt by the Fund's Transfer Agent of the
written request in proper form, except that the Fund 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 Securities and
Exchange Commission ("Commission") or such Exchange is closed for other than
weekends and holidays; (b) an emergency exists as determined by the Commission
making disposal of portfolio securities or valuation of net assets of the Fund
not reasonably practicable; or (c) for such other periods as the Commission may
permit for the protection of the Fund's shareholders. At various times the Fund
may be requested to redeem its shares for which it has not yet received good
payment. Accordingly, the Fund 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 Fund recommends that all
purchases be made by certified or cashier's check, or by bank wire of Federal
funds.
Due to the relatively high costs of handling small investments, the Fund
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account has a value of less than $5,000. Before the Fund redeems such
shares and sends the proceeds to the shareholder, the shareholder will be given
notice that the value of the shares in the account is less than the minimum
amount and will be allowed 30 days to make an additional investment in an amount
which will increase the value of the account to at least $5,000. The Fund also
reserves the right to redeem shares if share ownership is or may become so
concentrated that, in the opinion of management, it may cause the Fund to fail
to qualify for the special Federal tax treatment available to investment
companies.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, the Fund may make payment wholly
or partly in securities at their then market value equal to the redemption
price. In such cases an investor may incur brokerage costs in converting such
securities to cash. The Fund has elected to be governed by the provisions of
Rule 18f-1 under the 1940 Act, which contains a formula for determining the
minimum amount of cash to be paid as part of any redemption in kind.
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.
THE PRICE OF THE SHARES IS DETERMINED DAILY
As noted in the Prospectus, the net asset value and offering price of the
Fund's shares will be determined once daily as of the close of trading on the
New York Stock Exchange on each Fund "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.
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<PAGE>
The Fund may invest in foreign securities, and as a result, the calculation
of the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. Portfolio securities of the Fund which are traded both on an
exchange and in the over-the-counter market, will be valued according to the
broadest and most representative market. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the mean between the bid and offered quotations of the currencies against
U.S. dollars as last quoted by any recognized dealer. When portfolio securities
are traded, the valuation will be the last reported sale price on the day of
valuation. If there is no such reported sale or the valuation is based on the
over-the-counter market, the securities will be valued at the last available bid
price or at the mean between the bid and asked prices, as determined by the
Board of Trustees. As of the date of this Statement of Additional Information,
such securities will be valued by the latter method. Securities for which
reliable quotations are not readily available and all other assets will be
valued at their respective fair market value as determined in good faith by, or
under procedures established by, the Board of Trustees of the Fund.
Money market instruments with less than sixty days remaining to maturity
when acquired by the Fund will be valued on an amortized cost basis by the Fund,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Fund acquires a
money market instrument with more than sixty days remaining to its maturity, it
will be valued at current market value 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 Board determines during such 60-day period that this amortized cost
value does not represent fair market value.
All liabilities incurred or accrued are deducted from the Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
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 AFDC prior to 4:00
P.M. (Pacific time) on that day. It is the responsibility of the dealer to
insure that all orders are transmitted timely to the Fund. Orders received by
dealers after the close of trading on such Exchange will be confirmed at the
next computed offering price.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund 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 Fund 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 Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (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
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<PAGE>
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will therefore satisfy the Distribution Requirement.
If the Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short term capital loss which can be used to offset
capital gains in such years. As of December 31, 1996 the Fund has capital loss
carryforwards of approximately $65,830,618, which expire through December 31,
2003. Under Section 382 of the Code, if the Fund has an ownership change, the
Fund's use of its capital loss carryforwards in any year following the ownership
change will be limited to an amount equal to the net asset value of the Fund
immediately prior to the ownership change multiplied by the highest adjusted
long-term tax-exempt rate (which is published monthly by the Internal Revenue
Service (the "IRS")) in effect for any month in the three-calendar-month period
ending with the calendar month of the ownership change (the highest rate for the
three-month period ending in April 1997 is 5.50%). The Fund will use its best
efforts to avoid having an ownership change. However, because of circumstances
which may be beyond the control or knowledge of the Fund, there can be no
assurance that the Fund will not have, or has not already had, an ownership
change. If the Fund has or has had an ownership change, any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Fund Distributions"
below.
In addition to satisfying the Distribution Requirement, a regulated
investment company 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 directly related to the regulated
investment company'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 in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund 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 such sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized
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<PAGE>
on the disposition of a debt obligation denominated in a foreign currency or an
option with respect thereto (but only to the extent attributable to changes in
foreign currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, except for regulated
futures contracts or non-equity options subject to Code Section 1256, will
generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund 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 Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option 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. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Certain transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year,
regardless of whether a taxpayer's obligations (or rights) under such contracts
have not terminated (by delivery, exercise, entering into a closing transaction
or otherwise) as of such date. Any gain or loss recognized as a consequence of
the year-end deemed disposition of Section 1256 contracts is taken into account
for the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund may elect
not to have this special tax treatment apply to Section 1256 contracts that are
part of a "mixed straddle" with other investments of the Fund that are not
Section 1256 contracts. Under Treasury regulations, deemed gains arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain Test
as being derived from securities held for not less than three months.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
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<PAGE>
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of its taxable
year, at least 50% of the value of the Fund'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 Fund has not
invested more than 5% of the value of the Fund's total assets in securities of
such issuer and as to which the Fund 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 Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security, not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.
If for any taxable year the Fund 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 Fund's current and accumulated earnings
and profits. 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 a regulated investment company
that fails 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 (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). 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.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) 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 Fund 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 Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund 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 will not qualify for the 70% dividends-received deduction for
corporations.
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<PAGE>
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by the Fund 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 reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from a sale of the shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). 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. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed
income or gain, or unrealized appreciation in the value of assets held by the
Fund, a subsequent distribution of such amounts will be taxable to the
shareholder in the manner described above, although it economically constitutes
a return of capital.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which they are made. However, dividends 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 Fund) on December 31 of such calendar year if such
dividends are actually paid 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) to them during the year.
The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of ordinary income and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder who (1) has provided
either an incorrect tax identification number or no number at all, (2) is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest
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<PAGE>
or dividend income properly, or (3) has failed to certify to the Fund that it is
not subject to backup withholding or that it is a corporation or other "exempt
recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Long-term capital gains of noncorporate taxpayers are currently taxed at
a maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of noncorporate taxpayers, $3,000 of ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the same or another Fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
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 Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business of a foreign shareholder, ordinary income dividends paid to the
shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) and on the gross amount of the dividend. Furthermore,
such a foreign shareholder may be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) on the gross income resulting from the Fund's
election to treat any foreign taxes paid by it as paid by its shareholders, but
may not be allowed a deduction against this gross income or a credit against
this U.S. withholding tax for the foreign shareholder's pro rata share of such
foreign taxes which it is treated as having paid. Such a foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Fund and capital gain dividends.
If the income from the Fund is effectively connected with a U.S. trade or
business of a foreign shareholder, ordinary income and capital gain dividends
received in respect of, and any gains realized on the sale of, shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
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<PAGE>
In the case of a foreign noncorporate shareholder, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
the shareholder furnishes the Fund with proper notification of its 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 Fund,
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 Treasury Regulations issued thereunder as in effect on the
date of this Statement. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, perhaps
with retroactive effect.
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 to them of federal, state and
local tax rules with respect to an investment in the Fund.
INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of the Fund 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 Securities and Exchange Commission ("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
one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's Registration Statement. In calculating the ending
redeemable value, the maximum sales load is deducted from the initial $1,000
payment and all dividends and distributions by the Fund 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
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<PAGE>
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. Any recurring account charges that might in the
future be imposed by the Fund would be included at that time. All of the
percentage figures listed below are reflective of the maximum 3.0% sales load in
effect through December 31, 1996.
The Fund's average annual compounded rate of return for the one and five
year periods ended December 31, 1996 and the period from January 21, 1986 (the
effective date of the Fund's initial registration under the Securities Act of
1933, as amended) through December 31, 1996 was 1.78%, -0.90% and -2.41%,
respectively.
The Fund 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 Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Fund 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 Fund does not, for these purposes, deduct from the initial
value invested any amount representing sales charges. The Fund will, however,
disclose the maximum sales charge and will also disclose that the performance
data do not reflect sales charges and that inclusion of 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 Fund may
advertise its yield based on a 30-day (or one month) period, 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)(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 the Fund 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
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<PAGE>
(including actual accrued interest as referred to above) to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the Fund'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 Fund's portfolio. For purposes of "b" above, Rule 12b-1 Plan
expenses are included among the expenses accrued for the period. Any amounts
representing sales charges will not be included among these expenses; however,
the Fund 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 Fund's 30-day yield for the 30 days ended December 31, 1996 was 2.62%.
Any quotation of performance stated in terms of yield 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.
GENERAL INFORMATION
The Fund was organized under the name "Pilgrim Preferred Fund" as a
Massachusetts business trust and as an open-end, diversified management
investment company. The Declaration of Trust dated November 21, 1985, amended on
June 26, 1990 and February 22, 1991, copies of which are on file in the office
of the Secretary of The Commonwealth of Massachusetts, authorize the issuance of
shares of beneficial interest in the Fund without par value. On June 29, 1990,
the shareholders of the Fund voted for the approval of a change in the Fund's
investment objectives and policies and certain investment restrictions. The name
of the Trust was changed to "Astra Global Investment Series" by a vote of the
Trustees on February 13, 1991. On April 7, 1995, the Trust changed its name to
"Astra Global Investment Series" and the Fund changed its name to "Astra
Short-Term Multi-Market Income Fund I." Each share of the Fund has one vote and
shares equally in dividends and distributions when and if declared by the Fund
and in the Fund's net assets upon liquidation. All shares, when issued, are
fully paid and non-assessable. There are no preemptive, conversion or exchange
rights. Fund 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. As used in this
Prospectus, the term "majority vote" means the affirmative vote of (a) more than
50% of the outstanding shares of the Fund or (b) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares of the Fund 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 the
Fund 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 the Fund is vested with the Board
of Trustees. The Board of Trustees approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund. The
day-to-day operations of the Fund are delegated to the Fund's
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<PAGE>
officers subject to the investment objective and policies of the Fund, the
general supervision of the Fund's Board 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 the Fund. However, the Declaration of
Trust disclaims shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the Trustees to all
parties, and each party thereto must expressly waive all rights of action
directly against shareholders. The Declaration of Trust provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder of the Fund 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 the Fund 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 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 wilful 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 the Fund of
the Trustees and officers of the Fund 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 the Fund. Such person
may not be indemnified against any liability to the Fund or the Funds
shareholders to which he would otherwise be subject by reason of wilful
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.
OTHER INFORMATION
As of April 25, 1997, there were no shareholders known to the Fund to have
been the beneficial owner of 5% or more of the Fund's outstanding shares.
ACCOUNTANTS
Tait, Weller & Baker, Two Penn Center, Philadelphia, Pennsylvania
19102-1707, acts as independent certified public accountants for the Fund.
CUSTODIAN
The cash and securities owned by the Fund are held by PNC Bank, N.A.,
Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania 19113, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.
FINANCIAL STATEMENTS
The Financial Statements for the year ended December 31, 1996 are
incorporated herein by reference from the 1996 Annual Report to Shareholders.
The Fund's Annual Report will be provided at no additional cost to all
shareholders requesting a copy of this Statement of Additional Information.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 25, 1997
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND II
11400 WEST OLYMPIC BOULEVARD
SUITE 200
LOS ANGELES, CA 90064
(800) 219-1080
ASTRA SHORT-TERM MULTI-MARKET INCOME FUND II (the "Fund") a
non-diversified, open-end management investment company, is a series of Astra
Global Investment Series (the "Trust"), which was organized as a business trust
under the laws of The Commonwealth of Massachusetts under the name "Pilgrim
Preferred Fund." The Fund, renamed on April 7, 1995, was formerly known as
"Pilgrim Short-Term Multi-Market Income Fund II". The Trust, also renamed on
April 7, 1995, was formerly known as "Pilgrim Global Investment Series." The
Trust is currently organized into two series. This Statement of Additional
Information relates primarily to the Astra Short-Term Multi-Market Income Fund
II series of the Trust. The Fund's primary investment objective is to provide
investors with a high current income with capital appreciation as a secondary
objective.
This document is not the prospectus of the Fund and should be read in
conjunction with that prospectus dated April 25, 1997, which may be obtained
without charge upon written request to the Fund at the address above, or by
calling (800) 219-1080.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Investment Objectives and Policies......................................... 3
Investment Restrictions.................................................... 12
Trustees and Officers...................................................... 13
Investment Management...................................................... 14
Sub-Administration Agreement............................................... 15
Execution of Portfolio Transactions........................................ 16
Principal Underwriter...................................................... 17
Distribution Plan.......................................................... 17
Additional Purchase and Redemption Information............................. 19
The Price of the Shares is Determined Daily................................ 21
Tax Matters................................................................ 22
Investment Return Information.............................................. 27
General Information........................................................ 29
Shareholder Maintenance Agreement.......................................... 31
Other Information.......................................................... 31
Accountants................................................................ 31
Custodian.................................................................. 31
Financial Statements....................................................... 32
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
As described in the Fund's prospectus, the Fund is a non-diversified,
open-end management investment company. The Fund's primary investment objective
is to provide investors with high current income with preservation of capital as
a secondary objective. These investment objectives are fundamental policies and
may not be changed except by a majority vote of shareholders.
To achieve its objectives, the Fund will invest in a non-diversified
portfolio of high quality debt instruments having remaining maturities of not
more than 3 years denominated in the U.S. Dollar and a range of foreign
currencies and will write call options on the currencies and securities in which
the Fund is invested. The Fund also may invest in repurchase agreements, cash or
cash equivalents or other such high quality debt instruments as is consistent
with its objectives. In addition, the Fund will attempt to hedge its currency
exposure through the use of forward selling and options.
The Fund seeks to provide the highest level of current income, consistent
with what the Fund's investment manager, Astra Management Corporation ("AMC"),
considers to be prudent investment risk, that is available from a portfolio of
high-quality debt securities having remaining maturities of not more than three
years. The Fund seeks high current yields by investing in a portfolio of debt
securities denominated in the U.S. Dollar and a range of foreign currencies.
Accordingly, the Fund will seek investment opportunities in foreign, as well as
domestic, securities markets. While the Fund normally will maintain a
substantial portion of its assets in debt securities denominated in foreign
currencies, the Fund also will invest in U.S. Dollar denominated securities. The
Fund currently does not intend to invest in securities issued by governments or
entities of or denominated in currencies of Eastern European countries. The Fund
is designed for the investor who seeks a higher yield than a money market fund
and less fluctuation in net asset value than a longer-term bond fund.
The Fund invests in debt securities denominated in the currencies of
countries whose governments AMC considers stable. In addition to the U.S.
Dollar, such currencies include, among others, the Australian Dollar, Austrian
Schilling, British Pound Sterling, Canadian Dollar, Dutch Guilder, European
Currency Unit ("ECU"), French Franc, Japanese Yen, New Zealand Dollar, Spanish
Peseta, Swedish Krona, Swiss Franc and German Mark. An issuer of debt securities
purchased by the Fund may be domiciled in a country other than the country in
whose currency the instrument is denominated.
The Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Fund's
portfolio consists only of: (i) debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities ("U.S. Government Securities");
(ii) obligations issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, or instrumentalities, or by
supranational entities, all of which are rated AAA or AA by Standard & Poor's
Corporation ("S&P") or Aaa or Aa by Moody's Investors Services, Inc. ("Moody's")
("High Quality Ratings") or, if unrated, determined by AMC to be equivalent
quality; (iii) corporate debt securities having at least one High Quality Rating
or, if unrated, determined by AMC to be of equivalent quality; (iv) certificates
of deposit and banker's acceptances issued or guaranteed by, or time deposits
maintained at, banks (including foreign branches of U.S. banks or U.S. or
foreign branches of foreign banks) having total assets of more than $500 million
and determined by AMC to be of high quality; and (v) commercial paper rated A-1
or A-2 by S&P, Prime-1 or Prime-2 by Moody's, Fitch-1 or Fitch-2 by Fitch
Investors Service, Inc., Duff 1 or Duff 2 by Duff & Phelps Inc. or, if not
rated, issued by U.S. or foreign companies having outstanding debt securities
rated AAA or AA or A by S&P, or Aaa, Aa or A by Moody's and determined by AMC to
be of high quality, and loan participation interests having a remaining term not
exceeding one year in loans extended to such companies by commercial banks or
other commercial lending institutions whose long-term debt and commercial paper
- 3 -
<PAGE>
are of a High Quality Rating; and (vi) future contracts, options on future
contracts, options on foreign currencies, options on portfolio securities, and
forward foreign currency exchange contracts to such companies.
The Fund may invest in debt securities issued by supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; and the Asian Development
Bank, which is an international development bank established to lend funds,
promote investment and provide technical assistance to member nations in the
Asian and Pacific regions. The World Bank, Asian Development Bank and other such
supranational organizations are not considered by the Fund or AMC as "banks" for
purposes of computing investment restrictions regarding non-diversification or
concentration policies and, as a result, the debt securities issued by such
supranational organizations will not be included as those of banks for
determination of compliance with the percentage limitations of such investment
policies.
The Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. AMC does not believe that such adjustments will adversely affect
holders of ECU-denominated obligations or the marketability of such securities.
European supranationals, in particular, issue ECU-denominated obligations.
The Fund is a "non-diversified" investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Fund intends to conduct its
operations so as to qualify as a "regulated investment company" for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), which will relieve
the Fund of any liability for Federal income tax to the extent its earnings are
distributed to shareholders. See "Distributions and Taxes." To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the market value of
the Fund's total assets will be invested in the securities of a single issuer,
and (ii) with respect to 50% of the market value of its total assets, not more
than 5% of the market value of its total assets will be invested in the
securities of a single issuer and the Fund will not own more than 10% of the
outstanding voting securities of a single issuer. For diversification purposes,
the issuer of a loan participation will be the underlying borrower. In cases
where the Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the Fund and the
borrower will be deemed issuers of the loan participation. The Fund's
investments in U.S. Government Securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company, may invest in a
smaller number of individual issuers than a diversified investment company, an
investment in the Fund may, under certain circumstances, present greater risk to
an investor than an investment in a diversified company.
FUTURES CONTRACTS
The Fund may enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign currencies which otherwise meet
the Fund's investment policies, to the extent permitted by the Commodity Futures
Trading Commission (the "CFTC"). U.S. futures contracts have been designed by
exchanges which have been designated "contract markets" by the CFTC, and must
- 4 -
<PAGE>
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange. The Fund will enter into futures contracts which are based on debt
securities that are backed by the full faith and credit of the U.S. Government,
such as Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S. Treasury Bills. The
Fund may also enter into futures contracts which are based on non-U.S.
Government bonds.
An interest rate futures contract provides for the future sale by one party
and the purchase by the other party of a certain amount of a specific interest
rate-sensitive financial instrument (debt security) at a specified price, date,
time and place. A foreign currency futures contract provides for the future sale
by one party and the purchase by the other party of a certain amount of a
specified foreign currency at a specified price, date, time and place.
The Fund may not enter into futures transactions if the sum of the amount
of initial margin deposits on its existing futures contracts and premiums paid
for unexpired options would exceed 5% of the fair market value of the Fund's
total assets, after taking into account unrealized profits and unrealized losses
on commodity contracts it has entered into. The Fund will not use leverage when
it enters into long futures or options contracts and for each such long position
the Fund will deposit cash or cash equivalents, such as U.S. Government
Securities or high grade debt obligations, having a value equal to the
underlying commodity value of the contract as collateral with its custodian in a
segregated account.
The purpose of entering into a futures contract is to protect the Fund from
fluctuations in value of its portfolio securities without its necessarily buying
or selling the securities. Of course, because the value of portfolio securities
will far exceed the value of the futures contracts sold by the Fund, an increase
in the value of the futures contracts could only mitigate but not totally offset
the decline in the value of the Fund's assets. No consideration is paid or
received by the Fund upon entering into a futures contract. Upon entering into a
futures contract, the Fund will be required to deposit in a segregated account
with its custodian an amount of cash or cash equivalents, such as U.S.
Government Securities or high grade debt obligations, equal to approximately 1
to 10% of the contract amount (this amount is subject to change by the exchange
on which the contract is traded and brokers may charge a higher amount). This
amount is known as "initial margin" and is in the nature of a performance bond
or good faith deposit on the contract which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. The broker will have access to amounts in the margin account if
the Fund fails to meet its contractual obligations. Subsequent payments, known
as "variation margin," to and from the broker, will be made daily as the price
of the currency or securities underlying the futures contract fluctuates, making
the long and short positions in the futures contract more or less valuable, a
process known as "marking-to-market." At any time prior to the expiration of a
futures contract, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate the Fund's existing position in the
contract.
There are several risks in connection with the use of futures contracts as
a hedging device. Successful use of futures contracts is subject to the ability
of the Fund's investment adviser to predict correctly movements in the price of
the securities or currencies underlying the particular hedge. These predictions
and, thus, the use of futures contracts involve skills and techniques that are
different from those involved in the management of the portfolio securities
being hedged. In addition, there can be no assurance that there will be a
correlation between movements in the price of the underlying securities or
currencies and movements in the price of the securities which are the subject of
the hedge. A decision
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concerning whether, when and how to hedge involves the exercise of skill and
judgment and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or trends in interest rates or currency
values.
Positions in future contracts and options on futures contracts may be
closed out only on the exchange on which they were entered into (or through a
linked exchange). No secondary market for such contracts exists. Although the
Fund intends to enter into futures contracts only if there is an active market
for such contracts, there is no assurance that an active market will exist for
the contracts at any particular time. Most futures exchanges limit the amount of
fluctuation permitted in futures contract prices during a single trading day.
Once the daily limit has been reached in a particular contract, no trades may be
made that day at a price beyond that limit. It is possible that futures contract
prices could move to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting the Fund to substantial losses. In such event, and in the event
of adverse price movements, the Fund would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the Fund's securities being hedged, if any, may partially or
completely offset losses on the futures contract. However, as described above,
there is no guarantee that the price of the securities being hedged will, in
fact, correlate with the price movements in a futures contract and thus provide
an offset to losses on the futures contract.
If the Fund has hedged against the possibility of an event adversely
affecting the value of securities held in its portfolio and that event does not
occur, the Fund will lose part or all of the benefit of the increased value of
securities which it has hedged because it will have offsetting losses in its
futures positions. Losses incurred in hedging transactions and the costs of
these transactions will affect the Fund's performance. In addition, in such
situations, if the Fund had insufficient cash, it might have to sell securities
to meet daily variation margin requirements at a time when it would be
disadvantageous to do so. These sales of securities could, but will not
necessarily, be at increased prices which reflect the change in interest rates
or currency values, as the case may be.
OPTIONS ON FUTURES CONTRACTS
The Fund may purchase and write put and call options on interest rate and
foreign currency contracts that are traded on a U.S. exchange or board of trade
or a foreign exchange, to the extent permitted by the CFTC, as a hedge against
changes in interest rates and market conditions, and may enter into closing
transactions with respect to such options to terminate existing positions. There
is no guarantee that such closing transactions can be effected.
An option on an interest rate or foreign currency contract, as contrasted
with the direct investment in such a contract, gives the purchaser the right, in
return for the premium paid, to assume a position in an interest rate or foreign
currency contract at a specified exercise price at any time prior to the
expiration date of the option. Options on interest rate futures contracts
currently available include those with respect to U.S. Treasury Bonds, U.S.
Treasury Notes, U.S. Treasury Bills and Eurodollars. Options on foreign currency
futures currently available include those with respect to British Pounds, Swiss
Francs, Japanese Yen, Canadian Dollars and Australian Dollars. Upon exercise of
an option, the delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the accumulated
balance in the writer's futures margin account, which represents the amount by
which the market price of the futures contracts exceeds, in the case of a call,
or is less than, in the case of a put, the exercise price of the option on the
futures contract. The potential loss related to the purchase of an option on
futures contracts is limited to the premium paid for the option (plus
transaction costs). Because the value of the option is fixed at the point of
sale, there are no daily cash
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payments to reflect changes in the value of the underlying contract; however,
the value of the option does change daily and that change would be reflected in
the net asset value of the Fund.
There are several risks relating to options on futures contracts. The
ability to establish and close out positions on such options will be subject to
the existence of a liquid market. In addition, the purchase of put or call
options will be based upon predictions as to anticipated trends in interest
rates and securities markets and in currency values by AMC, which could prove to
be incorrect. Even if AMC's expectations are correct, there may be an imperfect
correlation between the change in the value of the options and of the portfolio
securities hedged.
OPTIONS ON FOREIGN CURRENCIES
The Fund may purchase options on foreign currencies to increase its gross
income and for hedging purposes in a manner similar to that in which futures
contracts on foreign currencies, or forward contracts, will be utilized. For
example, a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Fund may
purchase put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected thereby increasing the
cost of such securities, the Fund may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Fund derived from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, where currency exchange rates do not move in the direction
or to the extent anticipated, the Fund could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.
The Fund may write options on foreign currencies for the same purposes. For
example, where the Fund anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in exchange rates it
could, instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the Fund
could write a put option on the relevant currency which, if the currency moves
in the manner projected, will expire unexercised and allow the fund to hedge
such increased cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Fund would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Fund also may be required to
forego all or a portion of the benefits which might otherwise have been obtained
from favorable movements in exchange rates.
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The Fund intends to write covered call options on foreign currencies. A
call option written on a foreign currency by the Fund is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute and
immediate right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a segregated account
by its Custodian, or by a designated sub-custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option is also covered
if the Fund has a call on the same foreign currency and in the same principal
amount as the call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is maintained by
the Fund in cash or other liquid securities in a segregated account with its
Custodian or with a designated sub-custodian.
The Fund also intends to write call options on foreign currencies that are
not covered for cross-hedging purposes. A call option on a foreign currency is
for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline due to an adverse change in the exchange rate in the
U.S. dollar value of a security which the Fund owns or has the right to acquire
and which is denominated in the currency underlying the option. In such
circumstances, the Fund collateralizes the option by maintaining in a segregated
account with its Custodian or with a designated sub-custodian, cash or other
liquid securities in an amount not less than the value of the underlying foreign
currency in U.S. dollars marked-to-market daily.
FORWARD CURRENCY CONTRACTS
The Fund may engage in currency exchange transactions to hedge against
uncertainty in the level of future exchange rates. The Fund will conduct its
currency exchange transactions either on a spot (i.e., cash) basis at the rate
prevailing in the currency exchange market, or through entering into forward
contracts to purchase or sell currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. The Fund's dealings in
forward currency contracts will be limited to hedging involving either specific
transactions or portfolio positions. Transaction hedging is the purchase or sale
of forward currency with respect to specific receivables or payables of the Fund
generally accruing in connection with the purchase or sale of its portfolio
securities. Position hedging is the sale of forward currency with respect to
portfolio security positions denominated or quoted in the currency. The Fund may
not position hedge with respect to a particular currency to an extent greater
than the aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in or currently
convertible into that particular currency. The Fund may, however, enter into a
position hedging transaction with respect to a currency other than that held in
the Fund's portfolio, if such a transaction is deemed a hedge by AMC. If the
Fund enters into a position hedging transaction, cash or liquid securities will
be placed in a segregated account in an amount equal to the value of the Fund's
total assets committed to the consummation of the forward contract. If the value
of the securities placed in the segregated account declines, additional cash or
securities will be placed in the account so that the value of the account will
equal the amount of the Fund's commitment with respect to the contract. Hedging
transactions may be made from any foreign currency into U.S. dollars or into
other appropriate currencies.
At or before the maturity of a forward currency contract, the Fund may
either sell a portfolio security and make delivery of the currency, or retain
the security and offset its contractual obligation to deliver the currency by
purchasing a second contract pursuant to which the Fund will obtain, on the same
maturity date, the same amount of the currency which it is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund, at the time of execution of the offsetting transaction,
will incur a gain or a loss to the extent that movement has occurred in
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forward currency contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the purchase of
the currency, the Fund will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
The cost to the Fund of engaging in currency transactions varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because transactions in currency exchange are
usually conducted on a principal basis, no fees or commissions are involved. The
use of forward currency contracts does not eliminate fluctuations in the
underlying prices of the securities, but it does establish a rate of exchange
that can be achieved in the future. In addition, although forward currency
contracts limit the risk of loss due to a decline in the value of the hedged
currency, at the same time, they limit any potential gain that might result
should the value of the currency increase.
If a devaluation is generally anticipated, the Fund may not be able to
contract to sell the currency at a price above the devaluation level it
anticipates. The Fund will not enter into a currency transaction if, as a
result, it will fail to qualify as a regulated investment company under the Code
for a given year.
OPTIONS ON PORTFOLIO SECURITIES
The Fund may write only covered call option contracts. Currently, the
principal exchanges on which such options may be written are the Chicago Board
Option Exchange and the American, Philadelphia, and Pacific Stock Exchanges. In
addition, and in certain instances, the Fund may purchase and sell options in
the over-the-counter market ("OTC Options"). A call option gives the purchaser
of the option the right to buy the underlying security from the writer at the
exercise price at any time prior to the expiration of the contract, regardless
of the market price of the security during the option period. The premium paid
to the writer is the consideration for undertaking the obligations under the
option contract. The writer forgoes the opportunity to profit from an increase
in the market price of the underlying security above the exercise price so long
as the option remains open and covered, except insofar as the premium represents
such a profit.
The Fund may purchase options only to close out a position. In order to
close out a position, the Fund will make a "closing purchase transaction"--the
purchase of a call option on the same security with the same exercise price and
expiration date as the call option which it has previously written on any
particular security. The Fund will effect a closing purchase transaction so as
to close out any existing call option on a security which it intends to sell.
The Fund will realize a profit or loss from a closing purchase transaction if
the amount paid to execute a closing purchase transaction is less or more than
the amount received from the sale thereof. In determining the term of any option
written, the Fund will consider the Code's limitations on the sale or
disposition of securities held for less than three months in order to maintain
its status as a regulated investment company for federal income tax purposes.
The staff of the SEC has taken the position that purchased OTC Options and
the assets used as cover for written OTC Options are illiquid securities. The
Fund will generally write OTC Options with primary U.S. Government Securities
dealers recognized by the Board of Governors of the Federal Reserve System or
member banks of the Federal Reserve System ("primary dealers"). The Fund may
also write, to the extent available, OTC Options with non-primary dealers, such
as foreign dealers; however, unlike OTC Options written with primary dealers,
any OTC Options written with such
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non-primary dealers and the assets used as cover for such options will be
treated as illiquid securities. In connection with these special arrangements,
the Fund intends to establish standards for the creditworthiness of the primary
and non-primary dealers with which it may enter into OTC Option contracts and
those standards, as modified from time to time, will be implemented and
monitored by AMC. Under these special arrangements, the Fund will enter into
contracts with primary and non-primary dealers which provide that the Fund has
the absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but which in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary and non-primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money".
Under such circumstances, and with respect to OTC Options written with primary
dealers only, the Fund will treat as illiquid that amount of the "cover" assets
equal to the amount by which the formula price for the repurchase of the option
is greater than the amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula) the formula price will not
necessarily reflect the market value of the option written, therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.
In determining the Fund's net asset value, the current market value of any
option written by the Fund is subtracted from net asset value. If the current
market value of the option exceeds the premium received by the Fund, the excess
represents an unrealized loss, and, conversely, if the premium exceeds the
current market value of the option, such excess would be unrealized gain.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS, FORWARD CONTRACTS AND OPTIONS
ON FOREIGN CURRENCIES
Unlike transactions entered into by the Fund in certain futures contracts,
certain other futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC and forward
currency contracts are not regulated by the SEC. Instead, forward currency
contracts are traded through financial institutions acting as market-makers.
Foreign currency options are traded on certain national securities exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange,
subject to SEC regulation. In the forward currency market, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Moreover, a trader of forward
contracts could lose amounts substantially in excess of its initial investments,
due to the collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
"OCC"), thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities exchange may exist,
potentially permitting the Fund to liquidate open positions at a profit prior to
exercise or expiration, or to limit losses in the event of adverse market
movements.
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The purchase and sale of exchange-traded foreign currency options, however,
are subject to the risks of the availability of a liquid secondary market as
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.
In addition, future contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges,
to the extent permitted by the CFTC. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of foreign currencies
or securities. The value of such positions also could be adversely affected by
(a) other complex foreign political and economic factors, (b) lesser
availability than in the United States of data on which to make trading
decisions, (c) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States and
the United Kingdom, (d) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, and (e)
lesser trading volume.
The Fund may enter into repurchase agreements. Under a repurchase
agreement, the Fund acquires a debt instrument for a relatively short period
(usually not more than one week) subject to the obligation of the seller to
repurchase and the Fund to resell such debt instrument at a fixed price. The
resale price is in excess of the purchase price in that it reflects an
agreed-upon market interest rate effective for the period of time during which
the Fund's money is invested. The Fund's risk is limited to the ability of the
seller to pay the agreed-upon sum upon the delivery date. When the Fund enters
into a repurchase agreement, it obtains collateral having a value at least equal
to the amount of the purchase price. Repurchase agreements can be considered
loans as defined by the Investment Company Act of 1940, as amended (the "1940
Act"), collateralized by the underlying securities. The return on the collateral
may be more or less than that from the repurchase agreement. The securities
underlying a repurchase agreement will be marked to market every business day so
that the value of the collateral is at least equal to the value of the loan,
including the accrued interest earned. In evaluating whether to enter into a
repurchase agreement, AMC will carefully consider the creditworthiness of the
seller. If the financial institution that is the party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Fund is unsettled. As a
result, under these extreme circumstances, there may be restrictions on the
Fund's ability to sell the collateral and the Fund may suffer a loss.
Lending of Portfolio Securities--In order to generate additional income,
the Fund may lend its portfolio securities in an amount up to 33-1/3% of total
Fund assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made to any companies
affiliated with AMC. The borrower at all times during the loan must maintain
with the Fund cash or cash equivalent collateral or provide to the Fund an
irrevocable letter of credit equal in value at all times to at least 100% of the
value of the securities loaned. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities, and the Fund may invest the cash collateral and earn additional
income, or it may receive an agreed-upon amount of interest income from the
borrower who has delivered equivalent collateral or a letter of credit. Loans
are subject to termination at the option of the Fund or the borrower at any
time. The Fund may
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pay reasonable administrative 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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies which cannot be changed without approval by the holders of a majority
of its outstanding shares, which means the lesser of (1) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the Fund's outstanding shares. The Fund may not:
1. Issue senior securities.
2. Purchase securities for which there are legal or contractual
restrictions on resale or otherwise not readily marketable (including repurchase
agreements maturing in more than 7 days), if as a result of such purchase more
than 10% of the Fund's total assets would be invested in such securities.
3. Underwrite securities of other issuers except to the extent that it may
be deemed to act as an underwriter in certain cases when disposing of restricted
securities.
4. Make loans to persons except by the loan of its portfolio securities as
described in "Lending of Portfolio Securities" in the Prospectus and in this
Statement.
5. Borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might otherwise require the
untimely disposition of securities; such borrowing may not exceed in the
aggregate 15%, and borrowing for purposes other than meeting redemptions may not
exceed 5% of the value of the Fund's assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding.
6. Invest in the securities of any company which, including its
predecessors, has not been in business for at least three years.
7. Invest more than 25% of the value of its total assets in any one
industry except that this limitation is not applicable to the Fund's investments
in U.S. Government Securities.
8. Invest in securities of any one issuer for the purpose of exercising
control or management.
9. Purchase securities on margin, sell securities short or participate on a
joint or joint and several basis in any securities trading account.
10. Buy or sell interests in oil, gas or mineral exploration or development
programs, or purchase or sell commodities, commodity contracts or real estate.
11. Purchase or hold securities of any issuer, if, at the time of purchase
or thereafter, any of the officers and trustees of the Fund or the officers and
directors of AMC own beneficially more
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than 1/2 of 1%, and such officers, trustees and directors holding more than 1/2
of 1% together own beneficially more than 5%, of the issuer's securities.
12. Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of assets.
TRUSTEES AND OFFICERS
Responsibility for management of the Fund is vested in the Board of
Trustees. The Trustees, in turn, elect the officers of the Fund to supervise
actively the day-to-day operations of the Fund. The shareholders of the Fund may
elect Trustees at any meeting of shareholders called by the Trustees for that
purpose. Each Trustee serves during the continued lifetime of the Fund 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 of the Trustees and principal officers during the past
five years are set forth below.
PALOMBA WEINGARTEN, CHAIRMAN OF THE BOARD AND TRUSTEE* (54)
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 Corporation ("AMC"), the Fund's distributor and investment
manager, respectively. Chairman of the Board and Trustee of Astra
Strategic Investment Series and Astra Institutional Securities Trust;
Chairman of the Board and Trustee of Astra Institutional Trust.
AL BURTON, TRUSTEE (69)
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. Board Member of the Astra Group of Funds and Board Member of the
Pilgrim America Group of Funds.
GARRY D. PEARSON, TRUSTEE (48)
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.
ROBERT R. WOMACK, JR., PRESIDENT* (33)
11400 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.
President of AMC, Astra Fund Distributors Corp., Astra Institutional
Securities Trust, Astra Institutional Trust and Astra Strategic
Investment Series. From July 1995 to the present, Portfolio Manager
with the Astra Funds. From April to June 1995, Portfolio Manager for
Pilgim America Group. From June 1993 to April 1995, Portfolio Manager
for Pilgrim Management Corp. From March 1989 to June 1993, Portfolio
Manager for World Savings and Loan Association in Oakland, California.
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JOHN R. ELERDING, CHIEF FINANCIAL OFFICER, SENIOR VICE PRESIDENT, TREASURER AND
SECRETARY* (45)
11400 West Olympic Boulevard, Suite 200, Los Angeles, California 90064.
Senior Vice President, Secretary, Treasurer and Chief Financial Officer
of Astra Management Corporation and Astra Fund Distributors Corp.
Senior Vice President, Secretary, Treasurer and Chief Financial Officer
of Astra Institutional Trust, Astra Institutional Securities Trust and
Astra Strategic Investment Series. 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.
The officers and Trustees of the Fund, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Fund as of December
31, 1996.
The Trustees of the Fund who are not affiliated with or interested persons
of the Fund's investment adviser received an aggregate of approximately $800
during the year ended December 31, 1996 for fees and expenses for meetings
attended by the Board of Trustees. The officers of the Fund receive no
compensation directly from it for performing the duties of their offices.
However, those officers and Trustees of the Fund who are officers and Directors
of AMC may receive remuneration indirectly because AMC will receive management
fees from the Fund.
INVESTMENT MANAGEMENT
Investment management and administrative services are provided to the Fund
by AMC, pursuant to an Investment Management Agreement (the "Agreement") dated
November 13, 1992. (See the Prospectus - "Investment Manager.") As compensation
for its services, AMC is paid monthly an annual fee at the rate of .625% of the
average daily net asset value of the Fund on the first $1 billion and .55% on
the net assets above $1 billion.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the
Fund, to the extent required so that the Fund's expenses do not exceed the
expense limitations applicable to the Fund under the securities laws or
regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. For the years ended December 31, 1994, 1995
and 1996, the Fund paid management fees to AMC of approximately $38,405, $29,248
and $14,071, respectively. For the years ended December 31, 1994, 1995 and 1996,
management fees of approximately $0, $13,415 and $14,071, respectively, were
waived by AMC. For the same period, the Fund reimbursed AMC approximately $0, $0
and $0, respectively, for the costs of personnel involved with recordkeeping and
daily net asset value calculations, portfolio trading, shareholder servicing,
and state securities registration and compliance.
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* "Interested person" of the Fund as defined in the 1940 Act.
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The Fund pays its own operating expenses which are not assumed by AMC,
including the fees of its custodian, transfer and shareholder servicing agent;
cost 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 Fund's Trustees and shareholders, except those called to
accommodate AMC; fees and expenses of Trustees who are not affiliated with or
interested persons of AMC; salaries of personnel involved in placing orders for
the execution of the Fund's portfolio transactions, in maintaining registration
of its shares under state securities laws or in providing shareholder and dealer
services; insurance premiums on property or personnel of the Fund which inure to
its benefit; costs of preparing and printing reports, proxy statements and
prospectuses of the Fund for distribution to its shareholders; legal, auditing
and accounting fees; fees and expenses of registering and maintaining
registration of its shares for sale under Federal and applicable state
securities laws; and all other expenses in connection with the issuance,
registration and transfer of its shares. Under the Agreement, the Fund is
required to pay for the salaries of any officers employed directly by the Fund.
However, no such officers have ever been employed by the Fund nor is it the
current intention of the Fund to employ any such officers.
The Agreement was most recently approved by the Board of Trustees of the
Fund on August 28, 1996 and shall continue in effect from year to year
thereafter so long as such continuation is approved at least annually by (1) the
Board of Trustees or the vote of a majority of the outstanding voting securities
of the Fund, and (2) a majority of the Trustees of the Fund who are not
interested persons of any party to the Agreement, cast in person at a meeting
called for the purpose of voting on such approval. The Agreement may be
terminated at any time, without penalty, by either the Fund or AMC upon sixty
days' written notice, and is automatically terminated in the event of its
assignment as defined in the 1940 Act.
AMC is a wholly-owned subsidiary of Atlas Holdings Group, Inc. ("AHGI").
AMC also acts as the investment manager to Astra Institutional Adjustable U.S.
Government Securities Portfolio, Astra Institutional Adjustable Rate Securities
Portfolio, Astra All-Americas Government Income Trust and Astra Short-Term
Multi-Market Income Fund I, open-end investment companies. As of March 31, 1997,
total assets under management in the Astra Group were approximately $98 million.
AHGI is a Delaware corporation of which Mrs. Weingarten is the sole stockholder.
SUB-ADMINISTRATION AGREEMENT
Under a sub-administration agreement between AMC and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Fund, subject to the
supervision of the Fund's Board of Trustees. Such services include regulatory
compliance, assistance in the preparation and filing of post-effective
amendments to the Fund's 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, AMC (not the Fund) has agreed to pay PFPC a
monthly fee at the annual rate of .07% of the average net assets of the Fund
subject to certain minimums, exclusive of out-of-pocket expenses.
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EXECUTION OF PORTFOLIO TRANSACTIONS
In all purchases and sales of securities for the portfolio of the Fund, the
primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreement, AMC determines,
subject to the instructions of and review by the Board of Trustees of the Fund,
which securities are to be purchased and sold by the Fund and which brokers are
to be eligible to execute portfolio transactions of the Fund. 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 operational
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 the
Fund and/or AMC, and provide other services in addition to execution services.
AMC considers such information to be useful in varying degrees, but of
indeterminable value. The placement of portfolio brokerage with broker-dealers
who have sold shares of the Fund is subject to rules adopted by the National
Association of Securities Dealers, Inc. Provided the Fund's officers are
satisfied that the Fund is receiving the most favorable price and execution
available, the Fund may also consider the sale of the Fund's shares as a factor
in the selection of broker-dealers to execute its portfolio transactions.
While it will continue to be the Fund'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 Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or AMC, even if the specific services were not imputed just to the Fund and were
useful to AMC in advising other clients. In negotiating commissions with a
broker, the Fund 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 the Fund
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 Fund or assist AMC in carrying out its responsibilities to the Fund. The
standard of reasonableness is to be measured in light of AMC's overall
responsibilities to the Fund.
For the years ended December 31, 1994, 1995 and 1996, no brokerage
commissions were paid by the Fund. The Fund 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. The Fund reimbursed AMC $0 for the costs of
personnel involved in placing orders for the execution of portfolio transaction,
shareholder servicing and maintaining registration of the Fund's shares under
state securities laws.
Investment decisions for the Fund are made independently from those of the
other funds in the Astra Group, although 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
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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 either 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
the Fund is concerned.
PRINCIPAL UNDERWRITER
Astra Fund Distributors Corp. ("AFDC") is the Fund's principal underwriter
and distributor. The Fund has entered into an Underwriting Agreement between the
Fund and AFDC which will continue in effect from year to year if approved at
least annually (i) by the Board of Trustees of the Fund or by the vote of a
majority of the outstanding voting securities of the Fund and (ii) by a majority
of the Trustees of the Fund who are not parties to the Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Agreement may be terminated without penalty by
either party on sixty days' written notice and shall automatically terminate in
the event of its assignment as defined in the 1940 Act.
DISTRIBUTION PLAN
The Fund's Distribution Plan (the "Plan") 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 Fund to finance distribution activities and
bear expenses associated with the distribution of its shares. The Plan provides
for 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 Fund will pay the principal underwriter (i) sales
commissions equal to 4% of the amount received by the Fund for each share sold
(excluding reinvestment of dividends and distributions) 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 expects to pay sales commission to a dealer at
the time of the sale of 3% of the purchase price of the shares sold by such
dealer. The principal underwriter will use its own funds (which may be borrowed)
to pay such amounts. Because the payment of the 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 by it to dealers from the daily
compensation payments received by it from the Fund pursuant to the Plan.
Payment of the sales commissions and interest fees will be spread over a
period of time, and the Plan requires that the aggregate amount of all such
payments during any fiscal year shall not exceed 0.75% of the Fund's average
daily net assets for such year. Accordingly, the Fund will pay the principal
underwriter daily compensation payable monthly at the rate of .75% per annum of
the Fund'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 sales
commissions and interest fees which the
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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
Fund 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 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 Fund. It is anticipated that the
Atlas Holdings organization will profit by reason of the operation of the Plan
through an increase in the Fund's assets (thereby increasing the advisory fee
payable to AMC) resulting from sale of Fund shares and through daily
compensation and contingent deferred sales charges paid to the principal
underwriter. The Atlas Holdings 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 the Fund. 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 Pilgrim organization in a manner deemed
equitable to the Fund.
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 Fund and
will accordingly reduce the Fund's net assets upon such accrual. However, in
accordance with generally accepted accounting principles, the Fund does not
accrue future daily compensation as a liability of the Fund or reduce the
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 Fund's net
assets on such day. The level of the Fund's net assets changes each day and
depends upon the amount of sales and redemptions of Fund shares, the changes in
the value of the Fund's portfolio investments, the expenses of the Fund accrued
on such day, income on portfolio investments accrued on such day, and dividends
and distributions declared by the Fund.
The amount of Uncovered Distribution Charges of the principal underwriter
is computed daily to determine whether daily compensation is accrued on such
day. 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 Fund shares, the level and timing of redemptions of
Fund shares upon which a contingent deferred sales charge will be imposed, the
level and timing of redemptions of Fund shares upon which no contingent deferred
sales charge will be imposed, changes in the level of the net assets of the
Fund, 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 Fund shares accompanied by a low
level of redemption of Fund 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 Fund shares accompanied by a high level of
early redemption of Fund shares resulting in the imposition of contingent
deferred sales charges will
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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 Fund
shares during the first few years of the Fund's operations will cause a large
portion of the sales commissions attributable to a sale of Fund shares to be
accrued and paid by the Fund to the principal underwriter in fiscal years
subsequent to the year in which such shares were sold. This spreading of sales
commissions payments under the Plan over an extended period will result in the
incurrence and payment of increased interest fees under the Plan. During the
years ended December 31, 1994, 1995 and 1996, AFDC earned $46,086, $35,098 and
$16,885 in daily compensation, respectively. At December 31, 1996, Uncovered
Distribution Charges (cumulative sales commissions and interest fees reduced by
cumulative daily compensation and contingent deferred sales charges paid to the
principal underwriter) amounted to $736,725.
The Plan also recognizes that AMC may use its management fee or other
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and that some of
the Fund's normal operating expenses, such as the management fee, and other
payments made in the ordinary course of its business are appropriately used in
this manner.
The Plan, which was most recently approved by the Fund's Board of Trustees
on August 28, 1996, including all of the Trustees who are "non-interested"
persons as defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to the Plan, is
currently in effect until August 28, 1997. The Plan must be renewed annually by
the Fund's Board of Trustees, including a majority of the Trustees who are
"non-interested" persons of the Fund 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 related thereto may be terminated at any time,
without any penalty, by such trustees on 60 days' written notice, by any act
that terminates the Agreement with AMC or the Underwriting Agreement with AFDC,
or by vote of a majority of the Fund's outstanding shares. AFDC or any dealer or
institution 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 or service expenses
without approval by a majority of the Fund's outstanding shares, and all other
material amendments to the Plan or any distribution or service agreement also
shall be approved by the non-interested Trustees, cast in person at a meeting
called for the purpose of voting on any such amendment.
AFDC is required to report in writing to the Board of Trustees of the Fund
at least quarterly on the amounts and purpose of any payments made under the
Plan and any distribution or service agreement, as well as to furnish the Board
with such other information as may reasonably be requested in order to enable
the Board to make an informed determination of whether the Plan should be
continued.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
REINSTATEMENT PRIVILEGE
Any shareholder who redeems his shares from the Fund and pays the
contingent deferred sales charge on such redemption may receive a return of such
contingent deferred sales charge by reinvesting the net proceeds of such prior
redemption in the Fund within 30 days of such redemption. In order to exercise
this privilege, a written order for the purchase of shares must be received by
the
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Fund's Transfer Agent, or be postmarked, within 30 days after the date of
redemption. In such event, the shareholder will receive a number of shares of
the Fund equal to the net proceeds of the prior redemption plus the amount of
contingent deferred sales charge imposed at the time of such prior redemption
divided by the Fund's current net asset value. For federal income tax purposes,
(i) the amount of the contingent deferred sales charge imposed on the prior
redemption and returned to the shareholder will be taken into account in
determining the shareholder's gain or loss in the prior redemption, (ii) any
loss on the prior redemption will be disallowed and (iii) the shareholder's tax
basis in the shares purchased under this reinvestment privilege will be equal to
their net asset value at the time of reinvestment plus the amount of any
disallowed loss on the prior redemption.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge will be imposed on any redemption or
repurchase of shares of the Fund which reduces the current value of the
investor's shares of the Fund to an amount which is lower than the dollar amount
of all payments by the investor for the purchase of the Fund'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 Fund'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 their shares above the amount
of their purchase payments made 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 AFDC. (See
"Contingent Deferred Sales Charge" in the Prospectus for a more detailed
discussion on the calculation of such charge.)
No contingent deferred sales charge will be payable upon an exchange of
shares of the Fund for shares of another Fund in the Astra Group sold with a
contingent deferred sales charge.
OTHER INFORMATION
Payment to shareholders for shares redeemed or repurchased will be made
within seven days after receipt by the Fund's Transfer Agent of the written
request in proper form, except that the Fund 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 Securities and Exchange
Commission ("Commission") or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists as determined by the Commission making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable; or (c) for such other periods as the Commission may
permit for the protection of the Fund's shareholders. At various times the Fund
may be requested to redeem its shares for which it has not yet received good
payment. Accordingly, the Fund 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 Fund recommends that all
purchases be made by certified or cashier's check, or by bank wire of Federal
funds.
Due to the relatively high costs of handling small investments, the Fund
reserves the right to redeem, at net asset value, the shares of any shareholder
whose account has a value of less than $5,000. Before the Fund redeems such
shares and sends the proceeds to the shareholder, the shareholder will be given
notice that the value of the shares in the account is less than the minimum
amount and will be allowed 30 days to make an additional investment in an amount
which will increase the value of the
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account to at least $5,000. The Fund also reserves the right to redeem shares if
share ownership is or may become so concentrated that, in the opinion of
management, it may cause the Fund to fail to qualify for the special Federal tax
treatment available to investment companies.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions which make payment in cash unwise, the Fund may make payment wholly
or partly in securities at their then market value equal to the redemption
price. In such cases an investor may incur brokerage costs in converting such
securities to cash. The Fund has elected to be governed by the provisions of
Rule 18f-1 under the 1940 Act, which contains a formula for determining the
minimum amount of cash to be paid as part of any redemption in kind.
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.
THE PRICE OF THE SHARES IS DETERMINED DAILY
As noted in the Prospectus, the net asset value and offering price of the
Fund's shares will be determined once daily as of the close of trading on the
New York Stock Exchange on each Fund "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.
The Fund may invest in foreign securities, and as a result, the calculation
of the Fund's net asset value may not take place contemporaneously with the
determination of the prices of certain of the portfolio securities used in the
calculation. Portfolio securities of the Fund which are traded both on an
exchange and in the over-the-counter market, will be valued according to the
broadest and most representative market. All assets and liabilities initially
expressed in foreign currency values will be converted into U.S. dollar values
at the mean between the bid and offered quotations of the currencies against
U.S. dollars as last quoted by any recognized dealer. When portfolio securities
are traded, the valuation will be the last reported sale price on the day of
valuation. If there is no such reported sale or the valuation is based on the
over-the-counter market, the securities will be valued at the last available bid
price or at the mean between the bid and asked prices, as determined by the
Board of Trustees. As of the date of this Statement of Additional Information,
such securities will be valued by the latter method. Securities for which
reliable quotations are not readily available and all other assets will be
valued at their respective fair market value as determined in good faith by, or
under procedures established by, the Board of Trustees of the Fund.
Money market instruments with less than sixty days remaining to maturity
when acquired by the Fund will be valued on an amortized cost basis by the Fund,
excluding unrealized gains or losses thereon from the valuation. This is
accomplished by valuing the security at cost and then assuming a constant
amortization to maturity of any premium or discount. If the Fund acquires a
money market instrument with more than sixty days remaining to its maturity, it
will be valued at current market value 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 Board determines during such 60-day period that this amortized cost
value does not represent fair market value.
All liabilities incurred or accrued are deducted from the Fund's total
assets. The resulting net assets are divided by the number of shares of the Fund
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
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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 AFDC prior to 4:00
P.M. (Pacific time) on that day. It is the responsibility of the dealer to
insure that all orders are transmitted in a timely manner to the Fund. Orders
received by dealers after the close of trading on such Exchange will be
confirmed at the next computed offering price.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund 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 Fund 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 Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (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)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by the
Fund made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and will therefore satisfy
the Distribution Requirement.
If the Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of December 31, 1996, the Fund has a capital
loss carryforward of approximately $1,472,991 which expires through December 31,
2002. Under Code Section 382, if the Fund has an "ownership change," the Fund's
use of its capital loss carryforwards in any year following the ownership change
will be limited to an amount equal to the net asset value of the Fund
immediately prior to the ownership change multiplied by the highest adjusted
long-term tax-exempt rate (which is published monthly by the Internal Revenue
Service (the "IRS")) in effect for any month in the three-calendar-month period
ending with the calendar month of the ownership change (the highest rate for the
three-month period ending in April 1997 is 5.50%). The Fund will use its best
efforts to avoid having an ownership change. However, because of uncertainty
regarding the application of certain portions of the temporary and proposed
Treasury Regulations promulgated under Code Sections 382 and 383 to open-end
regulated investment companies such as the Fund, and because of circumstances
which may be beyond the control or knowledge of the Fund, there can be no
assurance that the Fund will not have, or has not already had, an ownership
change. If the Fund has or has had an ownership change, any capital gain net
income for any year following the ownership change in excess of the annual
limitation on the capital loss carryforwards will have to be distributed by the
Fund and will be taxable to shareholders as described under "Fund Distributions"
below.
In addition to satisfying the Distribution Requirement, a regulated
investment company 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
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<PAGE>
the extent such currency gains are directly related to the regulated investment
company'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 in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund 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 such sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256, will generally be
treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund 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 Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the Fund
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option 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. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
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<PAGE>
Certain transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
the taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts (including any capital gain or loss arising as a consequence of the
year-end deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund may elect
not to have this special tax treatment apply to Section 1256 contracts that are
part of a "mixed straddle" with other investments of the Fund that are not
Section 1256 contracts. Under Treasury regulations, deemed gains arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain Test
as being derived from securities held for not less than three months.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of its taxable
year, at least 50% of the value of the Fund'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 Fund has not
invested more than 5% of the value of the Fund's total assets in securities of
such issuer and as to which the Fund 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 Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.
If for any taxable year the Fund 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 Fund's current and accumulated earnings
and profits. 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 a regulated investment company
that fails 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 (or, at the
election of a regulated investment company having a taxable year ending November
30
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<PAGE>
or December 31, for its taxable year (a "taxable year election")). 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.
For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) 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 Fund 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 Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
FUND DISTRIBUTIONS
The Fund 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 will not qualify for the 70% dividends-received deduction for
corporations.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
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<PAGE>
Distributions by the Fund 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 reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from a sale of the shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). 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. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed
income or gain, or unrealized appreciation in the value of assets held by the
Fund, a subsequent distribution of such amounts will be taxable to the
shareholder in the manner described above, although it economically constitutes
a return of capital.
Ordinarily, shareholders are required to take distributions by the Fund
into account in the year in which they are made. However, dividends 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 Fund) on December 31 of such calendar year if such
dividends are actually paid 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) to them during the year.
The Fund will be required in certain cases to withhold and remit to the U.
S. Treasury 31% of ordinary income and capital gain dividends, and the proceeds
of redemption of shares, paid to any shareholder who (1) has provided either an
incorrect tax identification number or no number at all, (2) is subject to
backup withholding by the Internal Revenue Service for failure to report the
receipt of interest or dividend income properly, or (3) has failed to certify to
the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption (without reduction for any contingent deferred sales
charge paid therefrom) and the shareholder's adjusted tax basis in the shares
(including any contingent deferred sales charge paid upon the sale or
redemption). All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after
the sale or redemption. In general, any gain or loss arising from (or treated as
arising from) the sale or redemption of shares of the Fund will be considered
capital gain or loss and will be long-term capital gain or loss if the shares
were held for longer than one year. However, any capital loss arising from the
sale or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain dividends
received on such shares. For this purpose, the special holding period rules of
Code Section 246(c)(3) and (4) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of noncorporate taxpayers, $3,000 of ordinary
income.
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
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<PAGE>
whether the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business of a foreign shareholder, ordinary income dividends paid to the
shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross amount of the dividend. Furthermore, such a
foreign shareholder may be subject to U.S. withholding tax at the rate of 30%
(or lower treaty rate) on the gross income resulting from the Fund's election to
treat any foreign taxes paid by it as paid by its shareholders, but may not be
allowed a deduction against this gross income or a credit against this U.S.
withholding tax for the foreign shareholder's pro rata share of such foreign
taxes which it is treated as having paid. Such a foreign shareholder would
generally be exempt from U.S. federal income tax on gains realized on the sale
of shares of the Fund and capital gain dividends.
If the income from the Fund is effectively connected with a U.S. trade or
business of a foreign shareholder, ordinary income and capital gain dividends
received in respect of, and any gains realized on the sale of, shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of a foreign noncorporate shareholder, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or taxable at a reduced treaty rate), unless
such shareholder furnishes the Fund with proper notification of its 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 Fund,
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 Treasury Regulations issued thereunder as in effect on the
date of this Statement. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, perhaps
with retroactive effect.
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 to them of federal, state and
local tax rules with respect to an investment in the Fund.
INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of the Fund 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 Securities and Exchange Commission ("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
one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's Registration Statement. In calculating the ending
redeemable value, the maximum contingent deferred sales charge is deducted from
the ending redeemable value and all dividends and distributions by the Fund 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. Any
recurring account charges that might in the future be imposed by the Fund would
be included at that time.
The Fund's average annual compounded rate of return for the one and five
year periods ended December 31, 1996 and for the period from October 1, 1991 to
December 31, 1996 was -2.16%, -0.46% and -0.86%, respectively.
The Fund 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 Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Fund 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 Fund does not, for these purposes, deduct from the ending
redeemable value any amount representing contingent deferred sales charges. The
Fund will, however, disclose the maximum contingent deferred sales charge and
will also disclose that the performance data do 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 Fund 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 the Fund's 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 the Fund 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 for each day of the subsequent month that the obligation is in the
Fund'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 Fund's portfolio. For
purposes of "b" above, Rule 12b-1 Plan expenses are included among the expenses
accrued for the period. Any amounts representing sales charges will not be
included among these expenses; however, the Fund 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 Fund's 30-day yield for the 30 days ended December 31, 1996 was 1.05%.
This yield calculation reflects expenses waived and reimbursed by the Manager.
Any quotation of performance stated in terms of yield 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.
GENERAL INFORMATION
Pilgrim Global Investment Series (the "Trust"), was organized under the
name "Pilgrim Preferred Fund," as a Massachusetts business trust, and as an
open-end, diversified management investment company under the 1940 Act. The
Trust currently consists of two series. Pilgrim Short-Term Multi-Market Income
Fund may be purchased at a price equal to the next determined net asset value
per share, plus a varying front-end sales charge. The investment objective and
policies and investment restrictions are the same for both series. The
Declaration of Trust dated November 21, 1985, amended on June 26, 1990 and
February 22, 1991, copies of which are on file in the office of the Secretary of
The
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<PAGE>
Commonwealth of Massachusetts, authorize the issuance of shares of beneficial
interest in each Fund without par value. The name of the Trust was changed to
"Pilgrim Global Investment Series" by vote of the Board of Trustees on February
13, 1991. On April 7, 1995, the Trust changed its name to "Astra Global
Investment Series" and the Fund changed its name to "Astra Short-Term
Multi-Market Income Fund II." On June 29, 1990, the shareholders of the Trust
voted for the approval of a change in the Trust's investment objectives and
policies and certain investment restrictions. Each share of a Fund has one vote
and shares equally in dividends and distributions when and if declared by the
Fund and in the Fund's net assets upon liquidation. All shares, when issued, are
fully paid and non-assessable. There are no preemptive, conversion or exchange
rights. Each share of the Trust has one vote. Trust 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. 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 (b) 67% or more of the shares present at a
meeting if more than 50% of the outstanding shares of the Trust 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 the
Trust 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 the Fund is vested with the Board
of Trustees. The Board of Trustees approves all significant agreements between
the Trust and persons or companies furnishing services to the Fund. The
day-to-day operations of the Fund are delegated to the Fund's officers subject
to the investment objective and policies of the Fund, the general supervision of
the Trust's Board 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 the Trust. However, the Declaration of
Trust disclaims shareholder liability for acts or obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the Trustees to all
parties, and each party thereto must expressly waive all rights of action
directly against shareholders. The Declaration of Trust provides for
indemnification out of the Fund's property for all loss and expense of any
shareholder of the Fund 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 the Fund 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 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 wilful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his or her office. The Declaration of Trust provides for indemnification by the
Fund of the Trustees and officers of the Trust except with respect to any matter
as to which any such person did not act in good faith in the reasonable belief
that his or her action was in, or not opposed to, the best interests of the
Fund. Such person may not be indemnified against any liability to the Fund or
the Fund's shareholders to which he or she would
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<PAGE>
otherwise be subject by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
SHAREHOLDER MAINTENANCE AGREEMENT
The Fund has entered into a shareholder maintenance agreement with AFDC,
pursuant to which AFDC may pay certain broker-dealers or financial services
firms a trail commission or maintenance fee. Such firms may provide certain
services to their clients, including the following: answer customer inquiries
regarding account status and history, the manner in which purchases and
redemptions of shares may be effected for the Fund and certain other matters
pertaining to the Fund; assist shareholders in designating and changing dividend
options, account designations and addresses; provided necessary personnel and
facilities to establish and maintain shareholder accounts and records; assist in
processing purchase and redemption transactions; arrange for the wiring of
funds; transmit and receive funds in connection with customer orders to purchase
or redeem shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish (either separately or on an integrated basis with other reports sent to
a shareholder) monthly and year-end statements and confirmations of purchases
and redemptions; transmit, on behalf of the Fund, proxy statements, annual
reports, updated prospectuses and other communications to shareholders; receive,
tabulate and transmit to the Fund proxies executed by shareholders with respect
to meetings of shareholders of the Fund; and provide such other related services
as the Fund or a shareholder may request. For these services, AFDC receives an
annual fee equal to 0.25% of the Fund's average daily net assets and may
compensate such firms periodically, determined by a formula based upon the net
assets represented by accounts serviced by such firm during the period for which
payment is being made, the level of activity in accounts serviced during such
period, and the expenses incurred, provided that such fees will not exceed, on
an annualized basis for the Fund's then-current fiscal year, 0.25% of its
average daily net assets represented by shares owned during the period for which
payment is being made. During the period ended December 31, 1996 AFDC received
$5,628 for such services.
OTHER INFORMATION
As of April 25, 1997, there were no shareholders known by the Fund to have
been the beneficial owners of 5% or more of the Fund's outstanding shares.
ACCOUNTANTS
Tait, Weller & Baker, Two Penn Center, Philadelphia, Pennsylvania
19102-1707, acts as independent certified public accountants for the Fund.
CUSTODIAN
The cash and securities owned by the Fund are held by PNC Bank, N.A.,
Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania 19113, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.
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<PAGE>
FINANCIAL STATEMENTS
The Financial Statements of the Fund for the year ended December 31, 1996
are incorporated herein by reference from the Fund's 1996 Annual Report to
Shareholders. The Fund's Annual Report will be provided at no additional cost to
all shareholders requesting a copy of this Statement of Additional Information.
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<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: Per Share Data Ratios.
In Part B: Audited Financial Statements and Report of Independent
Certified Public Accountants for Astra Short-Term
Multi-Market Income Funds I and II for the period ended
December 31, 1996 are incorporated herein by reference to
Registrant's Annual Report to Shareholders dated December
31, 1996 which was filed with, and accepted by, the U.S.
Securities and Exchange Commission via EDGAR on Form
Type N-30D (with accession number: 0000950115-97-000305)
on March 5, 1997.
In Part C: None.
(b) Exhibits
--------
1(a) - Declaration of Trust. (1)
1(b) - Amendment to Declaration of Trust dated June 26, 1990. (6)
1(c) - Amendment to Declaration of Trust dated February 22, 1991. (9)
2(a) - By-Laws. (1)
2(b) - Name Change Amendment to By-Laws.(12)
3 - Not applicable.
4(a) - Specimen share certificate for Astra Short-Term Multi-Market Income
Fund. (11)
4(b) - Form of specimen share certificate for Astra Short-Term Multi-Market
Income Fund II.(11)
4(c) - Form of specimen share certificate for Pilgrim Global Cash Fund. (7)
5(a) - Investment Management Agreement for Pilgrim Short-Term Multi-Market
Income Fund (now Astra Short-Term Multi-Market Income Fund). (4)
5(b) - Investment Management Agreement for Pilgrim Short-Term Multi-Market
Income Fund II (now Astra Short-Term Multi-Market Income Fund
II). (4)
5(c) - Form of Investment Management Agreement for Pilgrim Global Cash
Fund. (7)
5(d) - Investment Advisory Agreement for Pilgrim Short-Term Multi-Market
Income Fund (now Astra Short-Term Multi-Market Income Fund). (4)
5(e) - Investment Advisory Agreement for Pilgrim Short-Term Multi-Market
Income Fund II (now Astra Short-Term Multi-Market Income Fund
II). (4)
5(f) - Form of Name Change Amendment to Investment Management Agreement.
(12)
6(a) - Underwriting Agreement for Pilgrim Short-Term Multi-Market Income
Fund (now Astra Short-Term Multi-Market Income Fund). (2)
6(b) - Form of Underwriting Agreement for Pilgrim Short-Term Multi-Market
Income Fund II (now Astra Short-Term Multi-Market Income Fund II).
(2)
6(c) - Form of Underwriting Agreement for Pilgrim Global Cash Fund. (7)
6(d) - Form of Name Change Amendment to Underwriting Agreement for Astra
Short-Term Multi-Market Income Fund I.(12)
6(e) - Form of Name Change Amendment to Underwriting Agreement for Astra
Short-Term Multi-Market Income Fund II.(12)
7 - Not applicable.
8(a) - Custody Agreement.(12)
8(b) - Sub-Custody Agreement.(12)
9(a) - Transfer Agency Agreement. (2)
C-1
<PAGE>
9(b) - Form of Shareholder Servicing Agreement for Pilgrim Short-Term
Multi-Market Income Fund II (now Astra Short-Term Multi-Market
Income Fund II). (4)
9(c) - Form of Shareholder Servicing Agreement for Pilgrim Global Cash
Fund. (7)
9(d) - Form of Name Change Amendment to Shareholder Servicing Agreement
for Astra Short-Term Multi-Market Income Fund II.(12)
9(e) - Accounting Services Agreement.(12)
9(f) - Sub-Administration Agreement.(12)
10 - Consent of Kramer, Levin, Naftalis & Frankel.*
11 - Consent of Tait, Weller and Baker, independent accountants for
Registrant.*
12 - Annual Reports to Shareholders dated December 31, 1996, including
the Reports of Independent Certified Public Accountants.*
13 - Agreement with initial shareholder. (2)
14(a) - Pilgrim (Astra) Section 403 (b) (7) Tax Sheltered Retirement
Plan. (8)
14(b) - Pilgrim (Astra) Individual Retirement Account. (8)
14(c) - Form of Pilgrim (Astra) Retirement Plan and Trust Agreement
including Money Purchase Pension Plan and Profit Sharing Plan. (8)
15(a) - Distribution Plan for Pilgrim (Astra) Short-Term Multi-Market
Income Fund.(5)
15(b) - Form of Distribution Plan for Pilgrim (Astra) Short-Term
Multi-Market Income Fund. (6)
15(c) - Form of Distribution Plan for Pilgrim Global Cash Fund. (7)
15(d) - Form of Name Change Amendment to Distribution Plan for Astra
Short-Term Multi-Market Income Fund I.(12)
15(e) - Form of Name Change Amendment to Distribution Plan for Astra
Short-Term Multi-Market
Income Fund II.(12)
16 - Schedule of Performance Quotations. (3)
17 - Financial Data Schedule. *
18 - Not Applicable.
- -----------------
(1) Previously filed on November 15, 1985, in the Registrant's Registratio
n Statement.
(2) Previously filed on January 6, 1986, in Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement.
(3) Previously filed on March 1, 1989, in Post-Effective Amendment No. 5 to
the Registrant's Registration Statement.
(4) Previously filed on October 15, 1990, in Post-Effective Amendment No. 8
to the Registrant's Registration Statement.
(5) Filed as part of Exhibit No. 6 to the Pre-Effective Amendment No. 1.
(6) Previously filed on December 11, 1990, in Post-Effective Amendment No. 10
to the Registrant's Registration Statement.
(7) Previously filed on December 24, 1990, in Post-Effective Amendment No. 11
to Registrant's Registration Statement.
(8) Previously filed on September 30,1991, in Post-Effective Amendment No. 12
to the Registrant's Registration Statement.
(9) Previously filed on April 29, 1992, in Post-Effective Amendment No. 13
to the Registrant's Registration Statement.
(10) Previously filed on April 30, 1993, in Post-Effective Amendment No. 14
to the Registrant's Registration Statement.
(11) Previously filed on April 28, 1995, in Post-Effective Amendment No. 16
to the Registrant's Registration Statement.
(12) Previously filed on April 29, 1996, in Post-Effective Amendment No. 17
to the Registrant's Registration Statement.
* Filed herewith.
C-2
<PAGE>
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 March 31, 1997
- -------------- --------------------
Astra Short-Term
Multi-Market Income
Fund I 794
Astra Short-Term
Multi-Market Income
Fund II 209
Shares of Beneficial
Interest (no par value)
ITEM 27. Indemnification
---------------
Incorporated by reference to Post-Effective Amendment No. 16 to this
Registration Statement filed April 28, 1995.
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
investment companies in the Astra Group 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
Strategic Investment Series and Astra Institutional Securities
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, Chief Financial Officer, Senior
Secretary and Chief Financial Officer Vice President, Treasurer and
Secretary
Robert R. Womack, Jr. President President
- --------------
* The principal business address for all of the above is 11400 West Olympic
Blvd., Suite 200, Los Angeles, CA 90064.
</TABLE>
C-3
<PAGE>
(c) Not Applicable. The Registrant's principal underwriter is an
affiliated person of 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.
(See Parts A and B).
ITEM 31. Management Services
-------------------
There are no management-related service contracts not discussed in
Parts A and B.
ITEM 32. Undertakings
------------
(1) Registrant undertakes to furnish to each person to whom a
prospectus relating to the Fund is delivered, a copy of the
Fund's latest Annual Report to shareholders, upon request and
without charge.
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 25th day of April, 1997.
ASTRA GLOBAL 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.
Signatures Title Date
- ---------- ----- ----
/s/ PALOMBA WEINGARTEN Chairman of the Board April 25, 1997
- ----------------------------- and Trustee
Palomba Weingarten
/s/ ROBERT R. WOMACK, JR.
- ----------------------------- President April 25, 1997
Robert R. Womack, Jr.
/s/ JOHN R. ELERDING
- ----------------------------- Senior Vice President, April 25, 1997
John R. Elerding Treasurer, Secretary and
Chief Financial Officer
/s/ AL BURTON
- ----------------------------- Trustee April 25, 1997
Al Burton
/s/ GARRY D. PEARSON Trustee April 25, 1997
- -----------------------------
Garry D. Pearson
C-5
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10. Consent of Kramer, Levin, Naftalis & Frankel.
11. Consent of Tait, Weller and Baker, independent accountants for Registrant.
17. Financial Data Schedule.
C-6
EXHIBIT 10
Kramer, Levin, Naftalis & Frankel
0919 Third Avenue
New York, NY 10022-3852
(212) 715-9100
April 24, 1997
Astra Global Investment Series
11400 West Olympic Boulevard
Suite 200
Los Angeles, California 90064
Re: Astra Global Investment Series
Gentlemen:
We hereby consent to the reference to our firm as counsel in Post-Effective
Amendment No. 18 to Registration Statement No. 33-1474.
Very truly yours,
/s/ KRAMER, LEVIN, NAFTALIS & FRANKEL
C-7
EXHIBIT 11
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 17, 1997 accompanying the financial
statements of Astra Global Investment Series (comprising, respectively, Astra
Short-Term Multi-Market Income Funds I and II) which are incorporated by
reference in Part B of the Post-Effective Amendment to this Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
this Registration Statement and Prospectus.
/s/ TAIT, WELLER & BAKER
------------------------------
Tait, Weller & Baker
Philadelphia, Pennsylvania
April 22, 1997
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