AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1996
REGISTRATION NO. 811-6408
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
ASTRA INSTITUTIONAL SECURITIES TRUST
(FORMERLY PILGRIM INSTITUTIONAL SECURITIES TRUST)
(Exact Name of Registrant as Specified in Charter)
750 B STREET, SAN DIEGO, CA 92101
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 219-1080
PALOMBA WEINGARTEN
ATLAS HOLDINGS GROUP, INC.
9595 WILSHIRE BOULEVARD
SUITE 1001
BEVERLY HILLS, CA 90212
(Name and Address of Agent for Service of Process)
COPIES TO:
JAMES F. JORDEN, ESQUIRE
JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400 EAST
WASHINGTON, D.C. 20007
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EXPLANATORY NOTE
THIS REGISTRATION STATEMENT HAS BEEN FILED BY THE REGISTRANT PURSUANT TO
SECTION 8(B) OF THE INVESTMENT COMPANY ACT OF 1940. HOWEVER, BENEFICIAL
INTERESTS IN THE REGISTRANT ARE NOT BEING REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "1933 ACT") BECAUSE SUCH INTERESTS WILL BE ISSUED SOLELY IN PRIVATE
PLACEMENT TRANSACTIONS THAT DO NOT INVOLVE ANY "PUBLIC OFFERING" WITHIN THE
MEANING OF SECTION 4(2) OF THE 1933 ACT. INVESTMENTS IN THE REGISTRANT MAY ONLY
BE MADE BY INVESTMENT COMPANIES, INSURANCE COMPANY SEPARATE ACCOUNTS, COMMON OR
COMMINGLED TRUST FUNDS OR SIMILAR ORGANIZATIONS OR ENTITIES THAT ARE "ACCREDITED
INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE 1933 ACT. THIS
REGISTRATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION
OF AN OFFER TO BUY, ANY BENEFICIAL INTERESTS IN THE REGISTRANT.
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PART A
ITEMS 1-3. RESPONSES TO ITEMS 1 THROUGH 3 HAVE BEEN OMITTED PURSUANT TO
PARAGRAPH 4 OF INSTRUCTION F TO THE GENERAL INSTRUCTIONS TO
FORM N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
Astra Institutional Securities Trust ("AIST" or the "Trust") is an open-end
management investment company (mutual fund) which was organized as Pilgrim
Institutional Securities Trust ("PIST") pursuant to the laws of the State of
Massachusetts on September 4, 1991. On March 17, 1995, the Board of Trustees of
PIST approved an amendment to PIST's Declaration of Trust changing the name of
PIST to Astra Institutional Securities Trust in consideration of an acquisition
of the assets of several Pilgrim entities, not including PIST. The amendment to
the Declaration of Trust was filed with the Commonwealth of Massachusetts and
became effective on April 10, 1995.
AIST consists of two series: Astra Institutional Adjustable U.S. Government
Securities Portfolio (the "Government Securities Portfolio") and Astra
Institutional Adjustable Rate Securities Portfolio (the "Adjustable Rate
Portfolio") (individually, the "Portfolio" or collectively, the "Portfolios").
Beneficial interests in the Portfolios are issued solely in private placement
transactions that do not involve any "public offering" within the meaning of
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act").
Investments in the Portfolios may only be made by investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This registration statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any "security" within
the meaning of the 1933 Act.
The investment objective of the Government Securities Portfolio is to
provide investors with high current income consistent with low volatility of
principal. The Government Securities Portfolio seeks to achieve its investment
objective by investing at least 65% of its assets in adjustable rate mortgage
securities ("ARMS") representing an interest in mortgages which are issued or
guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities"). The Government Securities Portfolio invests
the remainder of its assets generally in mortgage securities, issued or
sponsored by commercial banks, savings and loan associations, mortgage bankers
or other financial institutions, that have no government guarantee and that are
senior or subordinated to other mortgage securities arising out of the same pool
of mortgages ("Multi-Class Residential Mortgage Securities"). The investment
objective of the Adjustable Rate Portfolio is to seek high current income with
lower volatility of principal than is characteristic of mutual funds that invest
in fixed rate securities. The Adjustable Rate Portfolio seeks to achieve its
objective by investing its assets in Multi-Class Residential Mortgage
Securities. At least 65% of the Adjustable Rate Portfolio's total assets will be
invested in ARMS. A majority of the Adjustable Rate Portfolio's assets will be
invested generally in subordinated Multi-Class Residential Mortgage Securities
("Subordinated Residential Mortgage Securities"). The Adjustable Rate Portfolio
will invest the remainder of its assets in mortgage securities which are issued
or guaranteed by the U.S. Government, its agencies or instrumentalities ("U.S.
Government Mortgage Securities") or which are collateralized by U.S. Government
Mortgage Securities, and certain other mortgage securities. The Adjustable Rate
Portfolio may, from time to time, invest less than a majority of its assets in
Subordinated Residential Mortgage Securities in response to economic conditions.
The investment objectives of the Portfolios are fundamental and may not be
changed without the approval of the respective shareholders of each Portfolio.
Moreover, Astra Management Corp. ("AMC"), the Portfolio's investment
manager, has been managing the Adjustable Rate Portfolio to provide adequate
cash reserve to satisfy the redemption requests of certain investment companies
which invest all of its investable assets in the Adjustable Rate Portfolio,
resulting in decreased ability to achieve the Portfolio's investment objective.
While over the long term, AMC believes that the market will value such portfolio
securities based primarily upon fundamental considerations of credit quality,
prepayment rates and other such factors, with less emphasis on market
conditions, there can be no
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assurance that such will be the case. Further fluctuation in the Adjustable
Rate Portfolio's net asset value may occur as a result of such factors as
deteriorating or improving market conditions and liquidity and experience of
portfolio securities.
The Portfolios are registered as "non-diversified" investment companies.
Nevertheless, in accordance with requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended, each Portfolio may not purchase the securities
of any one issuer if, as a result of such purchase, more than 5% of such
Portfolio's total assets would be invested in the securities of such issuer at
the end of any fiscal quarter, except that with respect to 50% of the
Portfolio's total assets, the Portfolio may invest up to 25% of its total assets
in the securities of any one issuer. Securities of the U.S. Government and
securities of other regulated investment companies are not subject to any
investment limitations. Since each Portfolio may invest a relatively high
percentage of its assets in the obligations of a limited number of issuers, the
value of each Portfolio's investments will be more affected by any single
adverse economic, political or regulatory occurrence than will a diversified
investment company.
Each Portfolio intends to concentrate its investments in the asset-backed
securities industry. This means that at least 25% of a Portfolio's investments
will be in companies which issue asset-backed securities, such as Multi-Class
Residential Mortgage Securities and residential mortgage loan pools. However,
due to adverse economic conditions or for defensive purposes, a Portfolio may
temporarily have less than 25% of the total value of its assets in that
industry. Each Portfolio will follow this policy at all times because it is
fundamental and may not be changed without a Majority Vote of such Portfolio's
shares.
THE PORTFOLIOS INVEST IN THE FOLLOWING TYPES OF SECURITIES:
(1) U.S. Government Mortgage Securities: The largest issuers or guarantors
of mortgage securities today are the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"). GNMA creates mortgage securities from
pools of Government-guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks, and
savings and loan associations. FNMA and FHLMC issue mortgage securities from
pools of conventional and federally-insured and/or guaranteed residential
mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions, and mortgage
bankers.
The mortgage securities either issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro rata share
of both regular interest and principal payments (less GNMA, FHLMC, or FNMA fees
and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool are passed through monthly to the
holder of the Certificate (i.e., the Portfolios). The principal and interest on
GNMA securities are guaranteed by GNMA and backed by the full faith and credit
of the U.S. Government. FNMA guarantees full and timely payment of all interest
and principal, while FHLMC guarantees timely payment of interest and ultimate
collection of principal. Mortgage securities from FNMA and FHLMC are not backed
by the full faith and credit of the United States; however, their close
relationship with the U.S. Government makes them high quality securities with
minimal credit risks. The yields provided by these mortgage securities have
historically exceeded the yields on other types of U.S. Government Mortgage
Securities with comparable maturities.
(2) Multi-Class Residential Mortgage Securities: Multi-Class Residential
Mortgage Securities are securities representing interests in pools of mortgage
loans to residential home buyers made by lenders such as commercial banks,
savings and loan associations and mortgage bankers. The underlying mortgage
loans are secured by property consisting of single family and multi-family
residential property. The Portfolios only invest in those mortgage securities
with underlying mortgages representing first liens on the properties securing
such mortgages. Unlike U.S. Government Mortgage Securities, such as those issued
by GNMA, the payment of principal and interest on Multi-Class Residential
Mortgage Securities is not guaranteed by the
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U.S. or any of its agencies or instrumentalities. The yields on Multi-Class
Residential Mortgage Securities, however, have been historically higher than the
yields on U.S. Government Mortgage Securities. The Multi-Class Residential
Mortgage Securities in which the Portfolio invests may be mortgage securities
which have interest rates that reset at periodic intervals.
Multi-Class Residential Mortgage Securities are issued with one or more
classes subordinate in a specified manner as to the payment of principal thereof
and interest thereon. As a result, losses on the underlying mortgage loans are
borne by the holders of the Subordinated Residential Mortgage Securities before
the holders of more senior mortgage securities. Accordingly, the stated yield of
Subordinated Residential Mortgage Securities is greater than that of more senior
Multi-Class Residential Mortgage Securities arising out of the same pool. The
return on Subordinated Residential Mortgage Securities is, in turn, decreased by
any realized losses incurred pursuant to the terms of the Subordinated
Residential Mortgage Security. While the Portfolios invest in both senior
Multi-Class Residential Mortgage Securities and Subordinated Residential
Mortgage Securities, each Portfolio expects that a substantial portion of its
investment in Multi-Class Mortgage Securities will be composed of Subordinated
Residential Mortgage Securities. The senior Multi-Class Residential Mortgage
Securities in which the Portfolios invest are rated at least A by Standard &
Poor's Corporation or Moody's Investors Service. The Subordinated Residential
Mortgage Securities in which the Portfolio invests are generally unrated and the
Manager is not in the business of determining credit ratings. However, the
Manager believes that the Subordinated Residential Mortgage Securities in which
the Portfolio invests generally present credit risks similar to that of
corporate debt securities rated BBB or Baa by Standard and Poor's Corporation
and Moody's Investors Service, respectively, although it notes that certain
recently rated BBB mortgage securities have a first loss protection somewhat
greater and a yield somewhat lower than the Subordinated Residential Mortgage
Securities in which the Portfolio typically invests.
Multi-Class Residential Mortgage Securities represent a beneficial interest
in a pool of mortgage loans or a pool of mortgage pass through securities often
referred to as "mortgage assets." The mortgage assets are typically held by a
trust. The beneficial interests are evidenced by certificates issued pursuant to
a pooling and servicing agreement. The certificates are usually issued in
multiple classes with the specific rights of each class set forth in the pooling
and servicing agreement and the offering documents for the security. The pooling
and servicing agreement is entered into by a trustee and a party who is
responsible for pooling and conveying the mortgage assets to the trust,
sometimes referred to as the depositor. It is the trustee's responsibility to
act on behalf of and in the best interests of certificate holders by enforcing
the provisions of the pooling and servicing agreement. Various administrative
services related to the underlying mortgage loans, such as collection and
remittance of principal and interest payments, administration of mortgage escrow
accounts and collection of insurance claims are provided by servicers. A master
servicer, who may be the depositor or an affiliate of the depositor, is
generally responsible for supervising and enforcing the performance by the
servicers of their duties and maintaining the insurance coverages required by
the terms of the certificates. In some cases, the master servicer acts as a
servicer of all or a portion of the mortgage loans.
A type of Subordinated Residential Mortgage Security is sometimes called a
"Special Hazard Certificate." Special hazard certificates are typically offered
in conjunction with other classes of mortgage pass through certificates and
constitute a subordinated class. With these securities, a holder bears some or
all losses resulting from special hazard losses to the property securing the
mortgages underlying the other class or classes of Multi-Class Residential
Mortgage Securities arising out of the same pool of mortgages. To the extent
that losses incurred on the underlying mortgage loans constitute special hazard
losses, the rights of the special hazard certificate holders to receive
distributions of principal and interest are subordinated to those of the
certificate holders of the more senior classes of the series. A special hazard
loss is a loss relating to a defaulting mortgage loan as to which all
recoverable liquidation and insurance proceeds have been received. Depending on
the particular terms of the certificates, special hazard losses are allocated
first to the special hazard certificates holders and then to other certificate
holders. Special hazard risks may
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include damage to mortgage properties caused by earthquakes, landslides,
vandalism, or other risk not covered by other requisite insurance policies.
Each Portfolio seeks to limit the risks presented by Subordinated
Residential Mortgage Securities by reviewing and analyzing the characteristics
of the mortgage loans underlying the Subordinated Residential Mortgage
Securities that it acquires. Each Portfolio invests in Subordinated Residential
Mortgage Securities when, in the judgment of AMC, the difference in stated yield
on Subordinated Residential Mortgage Securities over that of the Senior Mortgage
Securities exceeds the marginal risk assumed by the holders of the Subordinated
Residential Mortgage Securities.
The Portfolios seek to purchase Multi-Class Residential Mortgage Securities
with underlying mortgage loans secured by property located in geographic regions
that present favorable economic conditions. In this regard, the Manager
considers and analyzes residential housing trends, employment information,
demographic data and other information it deems relevant in evaluating a
geographic region.
The Portfolio may invest in Multi-Class Residential Mortgage Securities
that represent an interest in mortgage pass-through securities.
THE ADJUSTABLE RATE PORTFOLIO MAY ALSO INVEST IN THE FOLLOWING TYPES OF
SECURITIES:
(1) Collateralized Mortgage Obligations. The Portfolios may invest in
collateralized mortgage obligations ("CMOs"). Collateralized mortgage
obligations are debt obligations collateralized either by mortgage loans or
mortgage pass-through securities (such collateral collectively being called
"Mortgage Assets." Payments of principal and interest on the Mortgage Assets and
any reinvestment income thereon provide the funds to pay debt service on the
CMOs. CMOs may be issued by the U.S. Government, its agencies or
instrumentalities or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of such entities. Typically,
CMOs are collateralized by GNMA certificates or other government mortgage-backed
securities, but they may also be collateralized by whole loans or private
mortgage pass-through securities. CMOs purchased by a Portfolio will be, at the
time of purchase, rated at least A by either Standard & Poor's Corporation or
Moody's Investors Service, or, if unrated, such instruments will be, in the
opinion of the Manager, of comparable quality to A rated securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
dates. Interest is paid or accrues on all classes of the CMOs (other than any
"principal-only" class) on a monthly, quarterly or semi-annual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a CMO in many ways. In a common structure, payments of principal
(including any prepayments) on the Mortgage Assets are applied to the classes of
the series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full.
(2) Stripped Mortgage-Backed Securities. The Portfolios may invest in
stripped mortgage-backed securities ("SMBS"). Stripped mortgage-backed
securities are derivative multi-class mortgage securities and may be issued by
agencies or instrumentalities of the U.S. Government or by private originators
of or investors in mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, investment bankers and special purpose
subsidiaries of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and/or principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have one class receiving
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some of the interest and most of the principal from the Mortgage Assets, while
the other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "I0" class), while the other class will receive all of the
principal (the principal-only or "PO" class). The yields to maturity on both PO
and IO classes are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying Mortgage Assets. If the
underlying Mortgage Assets of an IO class of SMBS experience greater than
anticipated prepayments of principal, an investor may fail to recoup fully its
initial investment in these securities even if the securities are rated in the
highest rating category. SMBS purchased by the Portfolio will be, at the time of
purchase, rated at least A by either Standard & Poor's Corporation or Moody's
Investors Service, or, if unrated, such instruments will be, in the opinion of
the Manager, of comparable quality to A rated securities. The Staff of the
Securities and Exchange Commission (the "Staff") takes the position that SMBS
issued by the U.S. Government or its agencies or instrumentalities which are
backed by fixed rate mortgages may be considered liquid securities as determined
under guidelines and standards established by the Board of Trustees. The Staff
considers SMBS not issued by the U.S. Government or its agencies or
instrumentalities and SMBS not backed by fixed rate mortgages as illiquid
securities. The Portfolio will treat these instruments as illiquid when testing
its portfolio for compliance with the 15% limitation on illiquid investments.
Although SMBS are purchased and sold by institutional investors through
several investment bankers acting as brokers or dealers, these securities were
developed only recently. As a result, established trading markets have not yet
developed and, accordingly, these securities are still somewhat illiquid. In
addition, these securities will experience greater volatility than mortgage
securities in general.
RISKS OF MORTGAGE SECURITIES GENERALLY
The yield characteristics of the mortgage securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally permit prepayment at any time.
Evaluating the risks associated with prepayment and determining the rate at
which prepayments may occur depends on a number of factors. The rate of
prepayment is influenced by a variety of economic, geographic, demographic,
social and other factors including interest rate levels, changes in housing
needs, net equity built by mortgagors in the mortgaged properties, job
transfers, and unemployment rates. If a Portfolio purchases these securities at
a premium, a prepayment rate that is faster than expected will reduce yield to
maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if a Portfolio
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Amounts available for reinvestment are likely to be greater during a period of
declining interest rates and, as a result, are likely to be reinvested at lower
interest rates than during a period of rising interest rates. Accelerated
prepayments on securities purchased by a Portfolio at a premium also impose a
risk of loss of principal because the premium may not have been fully amortized
at the time the principal is repaid in full.
The rate of principal payments on the certificates, the aggregate amount of
each interest payment and the yield to maturity on the certificates are related
to the rate of principal payments on the underlying mortgage loans. Such
principal payments may be in the form of scheduled principal payments,
prepayments by mortgagors, liquidations due to default, casualty, condemnation
and certain events usually set forth in the related pooling and servicing
agreement. The rate of prepayment may be influenced by a variety of economic,
geographic, social and other factors. In general, however, if interest rates on
comparable obligations were to fall below the mortgage rates on the underlying
mortgage loans, which may be different from prevailing interest rates, the rate
of prepayment would be expected to increase. Conversely, if prevailing rates on
comparable obligations were to rise above the mortgage rates on the underlying
mortgage loans, the mortgage loans would be expected to prepay at lower rates
than if prevailing rates on comparable obligations were to remain at or below
the mortgage rates on the underlying mortgage loans.
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The mortgage securities in which the Portfolios invest differ from
conventional bonds in that principal is paid back over the life of the mortgage
securities rather than at maturity. As a result, the holder of the mortgage
securities (i.e., the Portfolios) receives monthly scheduled payments of
principal and interest and may receive unscheduled principal payments
representing prepayments on the underlying mortgages. When the holder reinvests
the payments and any unscheduled prepayments of principal it receives, it may
receive a rate of interest which is lower than the rate on the existing mortgage
securities. For this reason, mortgage securities are less effective than other
types of U.S. Government securities as a means of "locking in" long-term
interest rates.
CMO classes may be structured in a manner that provides any of a wide
variety of investment characteristics, such as yield, effective maturity and
interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market interest
rates, the attractiveness of the CMO classes and the ability of the structure to
provide the anticipated investment characteristics may be significantly reduced.
Such changes in volatility in the market value, and in some instances reduced
liquidity of the CMO classes.
RISKS OF SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES
Subordinated Residential Mortgage Securities generally are likely to be
more sensitive to changes in prepayment and interest rates and the market for
such securities may be less liquid than is the case for traditional debt
securities and mortgage securities. In addition, while Subordinated Residential
Mortgage Securities have a higher stated yield than traditional mortgage
securities, holders of Subordinated Residential Mortgage Securities bear a
greater risk of loss than do holders of senior or more traditional mortgage
obligations. Such holders bear all or a portion of losses arising out of the
underlying mortgage pool prior to senior holders bearing any such losses. The
primary credit risk arising from a holder's subordination are the potential
losses caused by liquidation due to defaults on the part of borrowers of the
mortgages securing the instrument. This risk is usually greater during a period
of declining or stagnant real estate values. There may be certain costs and
delays associated with foreclosure. There is no assurance that the subsequent
sale of the property will produce an amount equal to the sum of the unpaid
principal balance of the loan as of the date the borrower went into default, the
interest that was not paid during the foreclosure period and all foreclosure
expenses, in which case the Portfolio may, depending on the nature of its
subordination, suffer a loss equal to the difference between this amount and the
liquidation proceeds. A Portfolio would generally realize such a loss in
connection with a Subordinated Residential Mortgage Security only if the
subsequent foreclosure sale of the property securing a mortgage loan does not
produce an amount at least equal to the sum of the unpaid principal balance of
the loan as of the date the borrower went into default, the interest that was
not paid during the foreclosure period and all foreclosure expenses. A
Subordinated Residential Mortgage Security may provide that a holder bears a
portion or all of the risk of such losses resulting from (i) the decrease in
value of the property caused by special hazard risks and/or (ii) all other
losses resulting from the default by a borrower. Accordingly, distributions on
Subordinated Residential Mortgage Securities may be reduced by realized losses.
While losses on all mortgage loans in a pool are borne by the holders of
Subordinated Residential Mortgage Securities before the holders of more senior
mortgage securities arising out of the same pool of mortgages, each Portfolio
seeks to limit the risks presented by such instruments by reviewing and
analyzing the characteristics of the mortgage loans underlying the Subordinated
Residential Mortgage Securities that it acquires and evaluating the likelihood
of losses occurring. AMC has developed a set of guidelines to assist in the
analysis of the mortgage loans underlying Subordinated Residential Mortgage
Securities. Each pool purchase is reviewed against the guidelines. Each
Portfolio seeks opportunities to acquire Subordinated Residential Mortgage
Securities where in the view of AMC, the potential for a higher marginal yield
on such instruments outweighs the additional risk presented by such instrument.
In addition, the Manager seeks to increase yield to shareholders by taking
advantage of perceived inefficiencies in the market for Subordinated Residential
Mortgage Securities.
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CHARACTERISTICS OF ADJUSTABLE RATE MORTGAGE SECURITIES
General. ARMS are pass-through mortgage securities which are collateralized
by mortgages with adjustable rather than fixed interest rates. ARMS have become
an increasingly important form of residential financing. Generally, ARMS are
mortgages that have a specified maturity date and which amortize principal much
in the fashion of a fixed rate mortgage. In periods of declining interest rates
there is a reasonable likelihood that ARMS will behave like fixed rate mortgages
in that current levels of prepayments of principal on the underlying mortgages
could accelerate. Unlike fixed-rate mortgages which generally decline in value
during periods of rising interest rates, adjustable rate mortgage securities
allow the Portfolio to participate in increases in interest rates through
periodic adjustments in the coupons of the underlying mortgages, resulting in
both higher current yields and lower price fluctuations. Furthermore, during
periods of declining interest rates, income to the Portfolios derived from ARMs
will decrease in contrast to the income on fixed rate mortgages which will
remain constant. In addition, ARMs also have less potential for appreciation in
value when interest rates decline than do fixed rate investments which tend to
increase in value as interest rates decline. However, one difference between
ARMS and fixed rate mortgages is that for certain types of ARMS, the rate of
amortization of principal, as well as interest payments, can and does change in
accordance with movements in a particular, prespecified, published interest rate
index. The amount of interest due to an ARM security holder is calculated by
adding a specified additional amount, the "margin," to the index, subject to
limitations or "caps" on the maximum and minimum interest rate that is charged
to the mortgagor during the life of the mortgage or to maximum and minimum
changes to that interest rate during a given period. It is these special
characteristics which are unique to adjustable rate mortgages that the Manager
believes make them attractive investments in seeking to accomplish each
Portfolio's objective.
The market value of ARMS, like other U.S. Government securities, will
generally vary inversely with changes in market interest rates, declining when
interest rates rise and rising when interest rates decline. However, ARMS, while
having less risk of a decline during periods of rapidly rising rates, may also
have less potential for capital appreciation than other investments of
comparable maturities due to the likelihood of increased prepayments of
mortgages as interest rates decline. In addition, to the extent ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
prepayments may result in some loss of the holders' principal investment to the
extent of the premium paid. On the other hand, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which when distributed to shareholders will be taxable as
ordinary income.
The adjustable interest rate feature of the underlying mortgages generally
will act as a buffer to reduce sharp changes in a Portfolio's net asset value in
response to normal interest rate fluctuations. As the interest rates on the
mortgages underlying a Portfolio's investments are reset periodically, yields of
portfolio securities will gradually align themselves to reflect changes in
market rates and should cause the net asset value of a Portfolio to fluctuate
less dramatically than it would if a Portfolio invested in more traditional
long-term, fixed-rate debt securities. However, during periods of rising
interest rates, changes in the coupon rate lag behind changes in the market rate
possibly resulting in a slightly lower net asset value until the coupon resets
to market rates, which could take as long as one month to five years. Thus,
investors could suffer some principal loss if they sold their shares of a
Portfolio before the interest rates on the underlying mortgages are adjusted to
reflect current market rates. During periods of extreme fluctuations in interest
rates, a Portfolio's net asset value will fluctuate as well. Since most mortgage
securities in each Portfolio's portfolio will generally have annual reset caps
of 100 to 200 basis points, fluctuation in interest rates above these levels
could cause such mortgage securities to "cap out" and to behave more like
long-term fixed-rate debt securities and consequently to decrease in value.
Historically, ARMS have had a higher default rate than fixed rate
mortgages. Recently, however, most ARM originators have changed their
underwriting procedures to ensure that applicants qualify for their mortgage
amounts based on the "fully indexed" interest rate of the mortgage. In the past,
many originators
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would qualify applicants based on the initial interest rate of
the mortgage (commonly called a "teaser rate") which in most instances was
substantially lower than the "fully indexed" interest rate. This procedure
resulted in higher default and delinquency rates for ARMS than for fixed rate
mortgages once the mortgages adjusted up to the "fully indexed" interest rate.
The Manager believes that the curtailment of this practice by most originators
will, over time, lead to a substantial narrowing in the default rates between
fixed and adjustable rate mortgages.
Caps and Floors. The underlying mortgages which collateralize the ARMS in
which the Portfolios invest will frequently have caps and floors which limit the
maximum amount by which the loan rate to the residential borrower may change up
or down (1) per reset or adjustment interval and (2) over the life of the loan.
Some residential mortgage loans restrict periodic adjustments by limiting
changes in the borrower's monthly principal and interest payments rather than
limiting interest rate changes. These payment caps may result in negative
amortization. Negative amortization occurs when a loan payment does not keep
pace with interest rates and is less than the interest due for the time period
covered by such payment. The result is that the amount of the deficiency is
added to the unpaid principal balance on the loan, increasing the outstanding
amount of the loan notwithstanding the fact that the amount due has been paid.
Resets. The interest rates paid on the ARMS in which the Portfolios invest
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure such as a cost of funds index. Commonly utilized indices
include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury Bill rate, the 180-day Treasury Bill rate, rates on
longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost
of Funds, the National Median Cost of Funds, the one-month, three-month,
six-month or one year London Interbank Offered Rate (LIBOR), the prime rate of a
specific bank, or commercial paper rates. Some indices such as the one-year
constant maturity Treasury rate, closely mirror changes in market interest rate
levels. Others, such as the 11th District Home Loan Bank Cost of Funds index,
tend to lag behind changes in market rate levels and tend to be somewhat less
volatile.
Other Investment Policies of the Portfolios Include the Following:
Hedging Transactions. The Portfolios may enter into various hedging
transactions, such as engaging in interest rate swaps and interest rate futures
transactions and purchasing and selling interest rate collars, caps and floors
to protect against and potentially benefit from fluctuations in interest rates
and to preserve a return or spread on a particular investment or portion of its
portfolio. Hedging transactions may also be used to attempt to protect against
possible declines in the market value of a Portfolio's assets resulting from
downward trends in the debt securities markets (generally due to a rise in
interest rates), to protect a Portfolio's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities or to establish
a position in the securities markets as a temporary substitute for purchasing
particular securities. Any or all of these techniques may be used at any time.
There is no particular strategy that requires use of one technique rather than
another. Use of any hedging transaction is a function of market conditions.
Further hedging transactions may be used by the Portfolios in the future as they
are developed or deemed by the Board of Trustees of PIST to be appropriate and
to be in the best interest of investors in the Portfolios. The Portfolios intend
to use these transactions as a hedge against interest rate fluctuations and not
as speculative investments. Each Portfolio reserves the right, but have no
current intention, to engage in options and futures transactions other than
futures transactions on interest rates.
Interest rate swaps involve the exchange with another party of commitments
to pay or receive interest, e.g., an exchange of fixed rate payments for
variable rate payments. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
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predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. An interest
rate collar combines the elements of purchasing a cap and selling a floor. The
collar protects against an interest rate rise above the maximum amount but gives
up the benefits of an interest rate decline below the minimum amount. Neither
Portfolio will enter into swaps, caps, collars or floors if, on a net basis, the
aggregate notional principal amount with respect to such agreements exceeds the
net assets of such Portfolio.
An interest rate futures contract provides for the future sale and purchase
of a specified amount of a certain debt security at a stated date, place and
price. The Portfolio may enter into interest rate futures contracts to protect
against fluctuations in interest rates effecting the value of debt securities
that the Portfolio either holds or intends to acquire. The Portfolio will only
enter into futures transactions on a national exchange. The Portfolio's use of
such instruments will in all cases be consistent with the applicable regulatory
requirements and, in particular, the rules and regulations of the Commodity
Futures Trading Commission with which the Portfolio must comply in order to
avoid registration as a commodity pool operator under the Commodity Exchange Act
and any applicable state law.
Inasmuch as these hedging transactions are entered into for good-faith risk
management purposes, AMC and the Portfolios believe such obligations do not
constitute senior securities. The staff ("the Staff") of the Securities and
Exchange Commission (the "SEC") is presently considering its position with
respect to swaps, caps, collars and floors as senior securities. Pending a
determination by the Staff, the Portfolios will either treat caps, collars and
floors as being subject to its senior securities restrictions or will refrain
from engaging in caps, collars and floors. Once the Staff has expressed a
position with respect to swaps, caps, collars and floors, the Portfolios intend
to engage in swaps, caps, collars and floors, if at all, in a manner consistent
with such position. The Portfolios will not treat swaps covered in accordance
with applicable regulatory requirements as senior securities. The Portfolios
will usually enter into interest rate swaps on a net basis, i.e., where the two
parties make net payments with a Portfolio receiving or paying, as the case may
be, only the net amount of the two payments. The net amount of the excess, if
any, of a Portfolio's obligations over its entitlement with respect to each
interest rate swap will be accrued and an amount of cash, U.S. Government
Securities or other liquid high grade debt obligations having an aggregate net
asset value at least equal to the accrued excess will be maintained by the
Portfolio's custodian in a segregated account. If a Portfolio enters into a swap
on other than a net basis, the Portfolio will maintain in the segregated account
the full amount of the Portfolio's obligations under each such swap. The
Portfolios may enter into swaps, caps, collars and floors with member banks of
the Federal Reserve System, members of the New York Stock Exchange or other
entities determined by AMC, pursuant to procedures adopted and reviewed on an
ongoing basis by the Board of Trustees, to be credit worthy. If a default occurs
by the other party to such transaction, a Portfolio will have contractual
remedies pursuant to the agreements related to the transaction but such remedies
may be subject to bankruptcy and insolvency laws which could affect such
Portfolio's rights as a creditor.
The swap market has grown substantially in recent years with a large number
of banks and financial services firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps, collars and floors are more recent innovations
and they are less liquid than swaps. There can be no assurance, however, that a
Portfolio will be able to enter into interest rate swaps or to purchase interest
rate caps, collars or floors at prices or on terms AMC believes are advantageous
to such Portfolio. In addition, although the terms of interest rate swaps, caps,
collars and floors may provide for termination, there can be no assurance that a
Portfolio will be able to terminate an interest rate swap or to sell or offset
interest rate caps, collars or floors that it has purchased. Interest rate
swaps, caps, collars and floors are considered by the Staff to be illiquid
securities and, therefore, each Portfolio may not invest more than 15% of its
assets in such instruments.
The successful utilization of hedging and risk management transactions
requires skills different from those needed in the selection of a Portfolio's
portfolio securities and depends on AMC's ability to predict
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correctly the direction and degree of movements in interest rates. Although
the Portfolios believe that use of the hedging and risk management techniques
described above will benefit the Portfolios, if AMC's judgment about the
direction or extent of the movement in interest rates is incorrect, a
Portfolio's overall performance would be worse than if it had not entered into
any such transactions. For example, if a Portfolio had purchased an interest
rate swap or an interest rate floor to hedge against its expectation that
interest rates would decline but instead interest rates rose, such Portfolio
would lose part or all of the benefit of the increased payments it would receive
as a result of the rising interest rates because it would have to pay amounts to
its counterparts under the swap agreement or would have paid the purchase price
of the interest rate floor. The Portfolios believe that AMC possesses the skills
necessary for the successful utilization of hedging and risk management
transactions.
Other risks associated with the use of futures contracts are: (i) imperfect
correlation between the change in the market value of the underlying commodity
and the prices of futures contracts and options with the result that futures and
options may fail as hedging techniques in cases where the price movements of the
securities underlying the futures and options do not follow the price movements
of a Portfolio's portfolio securities subject to a hedge; and (ii) possible lack
of a liquid secondary market for a futures position when liquidation of that
position is desired with the result that a Portfolio will likely be unable to
control losses by closing its position where a liquid secondary market does not
exist. In addition, because of the margin deposits normally required in futures
trading, a high degree of leverage is typical of a futures trading account. As a
result, a relatively small price movement in a futures contract may result in
substantial losses to the trader (i.e., a Portfolio). Furthermore, many futures
exchanges and boards of trade limit the amount of fluctuations permitted in
futures contract prices during a single trading day. Futures contract prices
could move to the limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
potentially subjecting the Portfolio to substantial losses.
New financial products continue to be developed and the Portfolios may
invest in any such products to the extent consistent with their investment
objectives and the regulatory and Federal tax requirements applicable to
investment companies.
When-Issued and Forward Commitment Securities. The Portfolios may purchase
securities on a when-issued basis and may purchase or sell securities on a
forward commitment basis in order to hedge against anticipated changes in
interest rates and prices and/or secure a favorable rate of return. When such
transactions are negotiated, the price is fixed at the time the commitment is
made, but delivery and payment for the securities take place at a later date
which may be a month or more after the date of the transaction. At the time the
Portfolios make the commitment to purchase securities on a when-issued or
forward commitment basis, it will record the transaction and thereafter reflect
the value of such securities in determining its net asset value. At the time the
Portfolios enter into a transaction on a when-issued or forward commitment
basis, a segregated account consisting of cash, U.S. Government Securities or
other liquid high grade debt obligations equal to the value of the when-issued
or forward commitment securities will be established and maintained with the
custodian and will be marked to the market daily. When-issued securities and
forward commitments may be sold prior to the settlement date. If the Portfolios
dispose of the right to acquire a when-issued security prior to its acquisition
or disposes of its right to deliver or receive against a forward commitment, it
may experience a gain or loss due to market fluctuation. On the delivery date,
the Portfolios will meet their obligations from securities that are then
maturing or sales of the securities held in the segregated asset account and/or
from then available cash flow. There is always a risk that the securities may
not be delivered and that each Portfolio may incur a loss or will have lost the
opportunity to otherwise invest the amount set aside for such transaction in the
segregated asset account. Settlements in the ordinary course of business, which
may take substantially more than five business days for mortgage-related
securities, are not treated by the Portfolios as when-issued or forward
commitment transactions and accordingly are not subject to the foregoing
limitations even though some of the risks described above may be present in such
transactions. Securities purchased on a when-issued, delayed delivery or forward
commitment basis do not
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generally earn interest until their scheduled delivery date. The Portfolios
are not subject to any percentage limit on the amount of its assets which may be
invested in when-issued purchase obligations.
Borrowing. A Portfolio may from time to time borrow money for the purpose
of acquiring additional portfolio investments when it believes that the interest
payments and other costs with respect to such borrowings or indebtedness will be
exceeded by the anticipated total return (a combination of income and
appreciation) on such investments. The amount of any such borrowing or issuance
will depend upon market or economic conditions existing at that time. A
Portfolio may also borrow in order to assure that it remains fully invested by
using borrowed cash to purchase portfolio investments with the intent of
repaying the borrowings from the proceeds of expected sales of its shares.
A Portfolio may borrow money from banks on a secured or unsecured basis at
variable or fixed rates. However, as prescribed by the Investment Company Act of
1940, each Portfolio will be required to maintain specified asset coverage of at
least 300% with respect to any such bank borrowing immediately following any
such borrowing or issuance. If at any time asset coverage falls below 300%, each
Portfolio must, within three days (not including Sundays and holidays) reduce
the amount of its borrowings until it has 300% coverage. The Portfolios may be
required to dispose of portfolio investments on unfavorable terms if market
fluctuations or other factors reduce the required asset coverage to less than
the prescribed amount.
In addition, a Portfolio may on a temporary basis issue a note or other
evidence of indebtedness representing up to 5% of its assets at the time the
loan is made. Such a borrowing must be privately arranged and not intended to be
publicly distributed and is presumed to be for temporary purposes if it is
repaid within 60 days.
While, as stated above, a Portfolio will borrow money for the purpose of
acquiring additional portfolio investments only when it believes that such
borrowing will produce additional income to the Portfolio, the interest cost on
the capital raised through leverage may exceed the interest on the assets
purchased. A Portfolio may also be required to maintain minimum average balances
in connection with borrowings or to pay a commitment or other fee to maintain a
line of credit; either of these requirements will increase the cost of borrowing
over the stated interest rate. Borrowings and the issuance of indebtedness
create an opportunity to be more fully invested and to earn greater income per
share. Any such borrowing or issuance is a speculative technique in that it will
increase the Portfolio's exposure to capital risk. Such risks may be mitigated
through the use of borrowings and issuances of indebtedness that have floating
rates of interest. Unless the income and appreciation, if any, on assets
acquired with borrowed funds or offering proceeds exceeds the cost of borrowing
or issuing debt, the use of leverage will diminish the investment performance of
a Portfolio compared with what it would have been without leverage.
A Portfolio will not always borrow money or issue debt to finance
additional investments. A Portfolio's willingness to borrow money and issue debt
for investment purposes, and the amount it will borrow, will depend on many
factors, the most important of which are the investment outlook, market
conditions and interest rates. To the extent that a Portfolio invests borrowed
money in short-term fixed-rate debt obligations, successful use of a leveraging
strategy depends on AMC's ability to correctly predict interest rates and market
movements over these short-term periods. There is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
Loans of Portfolio Securities. Each Portfolio may make loans of its
portfolio securities under certain circumstances. With the approval of the
Trustees and subject to various conditions which may be imposed from time to
time under various securities regulations, a Portfolio may lend its portfolio
securities to qualified broker/dealers or other institutional investors provided
that such loans do not exceed 10% of the value of such Portfolio's total assets
at the time of the most recent loan, that the borrower deposits and maintains
with such Portfolio at least 102% cash collateral and provided the portfolio
securities loaned are "marked to market" daily. There are risks of delay in
recovery and loss of rights and collateral should the borrower fail financially.
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The lending of securities is a common practice in the securities industry. A
Portfolio will engage in security loan arrangements with the primary objective
of increasing its income through investment of the cash collateral in short-term
interest bearing obligations, but will do so only to the extent consistent with
its tax status as a regulated investment company. Such Portfolio will continue
to be entitled to all interest on any loaned securities.
Illiquid Securities. The Portfolios may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. Each Portfolio expects that the Subordinated
Residential Mortgage Securities in which it invests generally will be restricted
securities.
A Portfolio will not invest more than 15% of its assets in illiquid
investments. The Portfolio will adhere to a more restrictive limitation on its
investment in illiquid securities as required by the securities laws of those
jurisdictions where shares of the Trusts are registered for sale. Illiquid
securities include securities that are not readily marketable and restricted
securities, unless the Trustees determine, based upon a continuing review of the
trading markets for the specific restricted security, that such restricted
securities are liquid. The Trustees may adopt guidelines and delegate to the
Manager the daily function of determining and monitoring liquidity of restricted
securities. The Trustees, however, retain oversight and will be ultimately
responsible for the determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities sold and offered
under Rule 144A will develop, the Trustees will carefully monitor each
Portfolio's investments in these securities, focusing on such important factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of illiquidity
in the Portfolios to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities. In such an event,
the Trustees will consider appropriate remedies to maximize a Portfolio's
liquidity and its ability to meet redemption requests within seven days.
Significant increases in interest rates in 1994 resulted in a general
decline in bond prices. In an environment of rapidly rising interest rates,
while the interest rates on the underlying ARMs continue to reset, the value of
ARM securities decline, because interest rates rise faster than resets occur.
Typically it takes 45-60 days before interest rate resets are reflected in the
Portfolio. In addition, the mortgages underlying the Portfolio's securities
typically reset once a year, so it may be a full year before certain of the
Portfolio's mortgages reset to reflect any increases in the interest rates.
In 1995 U.S. short- and long-term interest rates generally declined.
However, performance of the Portfolio was negatively affected by the lingering
effects of the recessionary environment in California, which proved to be much
deeper and more prolonged than originally anticipated. In particular, real
estate values fell or remained at depressed levels, which led to
increased credit risk and, in turn, resulted in increased default losses on a
number of the subordinated mortgage securities backed by Southern California
real estate held by the Portfolio.
The performance of the Portfolio has been negatively affected by the
interest rate conditions in the ARM securities market. As a result of the 1994
interest rate increases and declining bond prices, combined with negative
publicity on the mortgage securities market and the higher than expected price
volatility experienced with many mortgage-backed securities, mortgage funds
industry-wide continued to experience heavy redemptions in 1995. As a result,
ARM funds continued to liquidate subordinated mortgage securities to meet
redemption requests. This resulted in an increased supply of subordinated
mortgage securities in the market, bringing wider spreads over the relevant
indices and reduced prices.
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The increase in redemptions along with adverse interest rate conditions in
1994 and deteriorating credit risks have caused the market for subordinated
mortgage securities to be less liquid. Over the long term, AMC believes that the
market will value portfolio securities based primarily upon fundamental
considerations of credit quality, prepayment rates and other such factors, with
less emphasis on market conditions. Yet there can be no assurance that such will
be the case.
The Staff has taken the position that special hazard certificates, interest
rate swaps, caps, collars and floors and SMBS not issued by the U.S. Government
or its agencies or instrumentalities and SMBS not backed by fixed rate mortgages
should be deemed illiquid. Accordingly, each Portfolio currently treats these
instruments as illiquid when testing its portfolio for compliance with the 15%
limitation on illiquid investments.
The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities trade when
they are not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market price is expected to vary
depending upon the type of security, the character of the issuer, the party who
bears the expenses of registering the restricted securities and prevailing
supply and demand conditions.
Portfolio Turnover. A Portfolio's portfolio turnover rate may vary from
year to year, as well as within a year. The annual rates of the Government
Portfolio's total portfolio turnover for the fiscal years ended October 31, 1994
and 1995 were 83% and 108% respectively. The annual rates of the Adjustable Rate
Portfolio's total portfolio turnover for the fiscal years ended October 31, 1994
and 1995 were 61% and 45%, respectively. Annual portfolio turnover is defined as
the lesser of total purchases or total sales divided by average portfolio value.
A high rate of portfolio turnover (generally defined as 100% or more) involves
correspondingly greater expenses than a lower rate, which expenses are borne by
the Portfolios and their shareholders. Each Portfolio anticipates that its
annual portfolio turnover rate generally will not exceed 100%.
Temporary Defensive Positions. When maintaining a temporary defensive
position, each Portfolio may invest its assets without limit in short-term U.S.
Government and U.S. Government agency securities including, among others, FNMA
and FHLMC short-term agency discount notes.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Trustees of AIST establish each Portfolio's policies and supervise and
review the operations and management of each Portfolio. Astra Management
Corporation ("AMC") provides investment management and administrative services
to the Portfolios. Investment management decisions made by AMC are made by a
committee with no one person being solely responsible for making recommendations
to the committee. For furnishing the Portfolios with investment advice and
investment management services with respect to each Portfolio's assets,
including making specific recommendations as to the purchase and sale of
portfolio securities, furnishing requisite office space and personnel, and in
general supervising and managing each Portfolio's investments subject to the
ultimate supervision and direction of the Trustees, AMC is paid monthly a fee
equal to: (a) with respect to the Government Portfolio, 0.55% per annum of the
average daily net assets of such Portfolio on the first $500 million of assets;
0.50% on net assets of such Portfolio from $500 million to $1 billion; and 0.45%
on net assets of such Portfolio over $1 billion, and (b) with respect to the
Adjustable Rate Portfolio, 0.65% per annum of the average daily net assets of
such Portfolio on the first $500 million of assets; 0.60% on net assets of such
Portfolio from $500 million to $1 billion; and 0.55% on net assets of such
Portfolio over $1 billion. AMC will reduce its aggregate fees for any fiscal
year, or reimburse the Portfolios or Trusts, to the extent required so that
aggregate expenses do not exceed the expense limitations applicable under the
securities laws or regulations of those states or jurisdiction in which the
Trusts' shares are registered for sale. Expenses for purposes of these expense
limitations include the management fee, but exclude brokerage commissions and
fees, taxes, interest and extraordinary expenses such as litigation, paid or
incurred by the Trusts or the Portfolios. In addition, the state with the most
restrictive expense limitation allows the exclusion of distribution expenses.
For the fiscal year ended October 31, 1995, the total expenses paid by the Trust
were approximately 1.09% of its average daily net assets for the Rate Portfolio
and 0.86% of its average daily net assets for the Government Portfolio.
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AMC, formerly Pilgrim Management Corp. ("PMC"), was founded in 1964. It
provides a number of mutual funds and other personal and institutional accounts
with portfolio management services. It maintains a staff of experienced
investment personnel and support facilities. Current assets under management
exceed $200 million. AMC is a wholly-owned subsidiary of Atlas Holdings Group,
Inc. (the "Atlas Group"), formerly Pilgrim Group Inc. ("PGI").
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 Astra Fund
Distributors Corp. (the "Distributor") (whose principal business address is 750
B Street, Suite 2350, San Diego, California 92101), which provide advisory,
distribution and administrative services to the Portfolios. Atlas Group is a
Delaware corporation of which Palomba Weingarten, Chairman of the Board of
Trustees of AIST, is the sole stockholder and Chief Executive Officer.
On December 7, 1994, PGI, PMC, Palomba Weingarten, Chairman and Chief
Executive Officer of PMC, and certain of PGI's affiliated companies (the
"Companies") entered into an Acquisition Agreement with Express America Holdings
Corporation ("Express America") pursuant to which the Companies sold to Express
America identified assets of the Companies. Pursuant to the terms of the
Acquisition Agreement, Express America did not acquire the assets of the Pilgrim
Adjustable U.S. Government Securities Trusts or the Pilgrim Adjustable Rate
Securities Trusts (the "Trusts"), which are series of Pilgrim Strategic
Investment Series ("PSIS"). PSIS invests all of its investable assets in the
Portfolios. On March 17, 1995, the Trustees approved an amendment to each of
PSIS' and PIST's respective Declarations of Trust changing the name of PSIS to
Astra Strategic Investment Series ("ASIS") and changing the name of PIST to
Astra Institutional Securities Trust ("AIST"). Effective as of April 10, 1995,
the Pilgrim Adjustable U.S. Government Securities Trusts and the Pilgrim
Adjustable Rate Trusts changed their names to the Astra Adjustable U.S.
Government Securities Trusts and the Astra Adjustable Rate Securities Trusts,
all series of ASIS.
The Distributor distributes shares for all of Astra Group's mutual funds
and is a wholly-owned subsidiary of Atlas Group.
The transfer agent for AIST is Investors Fiduciary Trust Company (the
"Transfer Agent"). The principal business address of the Transfer Agent is c/o
DST Systems, Inc., P.O. Box 419174, Kansas City, Missouri 64141.
Under a sub-administration agreement between AMC and PFPC Inc. ("PFPC"),
PFPC provides certain administrative services to the Trust, subject to the
supervision of the Board of Trustees of AIST. Such services include regulatory
compliance, assistance in the preparation and filing of amendments to AIST'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 managements 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 Trust) has agreed to pay PFPC a monthly fee at the annual rate of
.07% of the average net assets of the Trust subject to certain minimums,
exclusive of out-of-pocket expenses.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolios are series of AIST, which was organized as a Massachusetts
Business Trust on September 4, 1991. Each Portfolio consists of an unlimited
number of shares of beneficial interest without par value.
All shares of each Portfolio have equal voting rights. In the event of
dissolution or liquidation, holders of each Portfolio's shares will receive pro
rata, subject to the rights of creditors, the proceeds of the sale of
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the assets held. There are no preemptive or conversion rights applicable to any
of the shares. Portfolio shares do not have cumulative voting rights and, as
such, holders of at least 50% of the shares voting for Trustees can elect all
Trustees and the remaining shareholders would not be able to elect any Trustees.
The shares, when issued, will be fully paid and non-assessable. The Board of
Trustees may create additional series (or classes of series) of the shares of
AIST without shareholder approval. Any series of shares may be terminated by a
vote of shareholders of such series entitled to vote or by Trustees of AIST by
written notice to shareholders of such series.
Generally, there will not be annual meetings of shareholders. Shareholders
may remove Trustees from office by votes cast at a meeting of shareholders or by
written consent. If requested by shareholders of at least 10% of a Portfolio's
outstanding shares, such Portfolio will call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees and will
assist in communications with other shareholders as required by Section 16(c) of
the 1940 Act.
As used herein, the term "Majority Vote" means the affirmative vote of (a)
more than 50% of the outstanding shares of a Portfolio or AIST, as appropriate,
or (b) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares of a Portfolio or AIST, as appropriate, are represented at
the meeting in person or by proxy, whichever is less.
Under Massachusetts law, shareholders could, under certain circumstances,
be held liable for the obligations of AIST. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of AIST and requires the
notice of such disclaimer be given to all parties in each agreement, obligation
or instrument entered into or executed by AIST or the Trustees. The Declaration
of Trust provides for indemnification out of the property of AIST for all loss
and expense of any shareholder of AIST 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 AIST 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 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 AIST of the
Trustees and officers of AIST except with respect to any matter as to which such
person did not act in good faith in the reasonable belief that his action was in
or not opposed to the best interests of the AIST. Such person may not be
indemnified against any liability to AIST or the shareholders of AIST to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
Any conflict of interest arising between ASIS and AIST will be resolved by
the Trustees of ASIS and AIST in accordance with their fiduciary
responsibilities imposed by the Investment Company Act of 1940 and Massachusetts
law. Absent the adoption of procedures reasonably appropriate to deal with
conflicts of interest, state securities regulations generally do not permit the
Trustees of AIST to be the same individuals as the Trustees of ASIS. The
Trustees of ASIS and AIST, including a majority of disinterested Trustees (as
that term is defined in the Investment Company Act of 1940, as amended), have
adopted procedures that they believe are reasonably appropriate to deal with any
potential conflicts of interest up to and including creating a separate Board of
Trustees.
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Shareholder inquiries should be directed to the Shareholder Servicing
Agent, DST Systems, Inc. (800-441-7267).
Distributions. Income dividends will be declared daily and paid monthly.
Each Portfolio intends to declare or distribute sufficient dividends from its
net investment income and/or net capital gain income in order to avoid the
imposition of a 4% excise tax.
A shareholder may choose from the following three distribution options:
(1) The Share Option: The Share Option reinvests income dividends and/or
capital gains distributions, if any, in additional shares. If no option is
selected, income dividends (and capital gains, if any) will be reinvested in
additional shares of a Portfolio. Income dividends and/or capital gains will be
reinvested at the net asset value as of the reinvestment date for the
distribution.
(2) The Cash Option: With the Cash Option, a shareholder may receive income
dividends and/or capital gains distributions in cash. If this option is selected
and the U.S. Postal Service cannot deliver payment checks, or if such checks
remain uncashed for 6 months, the money will be reinvested in the shareholder's
account at the then-current net asset value and the shareholder's election will
be converted to reinvesting both income dividends and capital gain distributions
in additional shares.
(3) The Transfer Option: If a shareholder is also a shareholder in any of
the other Astra Funds distributed by the Distributor, the Transfer Option
permits income dividends and capital gains distributions of a Portfolio to be
automatically invested in shares of any of the Astra Funds shares which are held
by a shareholder at the applicable net asset value. If this option is selected,
the minimum investment requirements for additions to an existing account will be
waived.
A shareholder must specify which option is desired when placing an order or
submitting an application. The tax consequences of distributions (described
below) are the same whether a shareholder chooses to receive them in cash or to
reinvest them in additional shares of a Portfolio or another Astra Fund.
Taxation of the Portfolios. Each Portfolio is treated as a separate entity
for federal income tax purposes. Each Portfolio intends to elect to be treated
as a regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). By distributing all of its net investment
income and net realized short-term and long-term capital gain for a fiscal year
in accordance with the timing requirements imposed by the Code and by meeting
certain other requirements relating to the sources of its income and
diversification of its assets, each Portfolio should not be liable for federal
income or excise taxes.
Taxation of Shareholders. For federal income tax purposes, any income
dividends which a shareholder receives from a Portfolio, as well as any
distributions derived from the excess of net short-term capital gain over net
long-term capital loss, are treated as ordinary income whether elected to be
received in cash or in additional shares. Distributions derived from the excess
of net long-term capital gain over net short-term capital loss are treated as
long-term capital gain regardless of the length of time a shareholder has owned
shares and regardless of whether such distributions are received in cash or in
additional shares. Pursuant to the Code, certain distributions which are
declared in October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January, will be treated
for tax purposes as if received by the shareholder on December 31 of the
calendar year in which they are declared.
Redemptions and exchanges of a Portfolio's shares are taxable events on
which a shareholder may realize a gain or loss. All or a portion of a loss
realized upon a redemption of shares will be disallowed to the extent other
shares of such Portfolio are purchased (through reinvestment of dividends or
otherwise) within
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30 days before or after such redemption. Any loss realized upon the
redemption of shares within six months from the date of their purchase will be
treated as a long-term capital loss to the extent of amounts treated as
distributions of net long-term capital gain during such six-month period.
Each Portfolio may be required to report to the Internal Revenue Service
any taxable dividend or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the shareholder
application form. A shareholder may also be subject to backup withholding if the
IRS or a broker notifies a Portfolio that the number furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
Shareholders should consult their tax advisors with respect to the
applicability of state and local income taxes to distributions and redemption
proceeds received from the Trust. Distributions by the Trust to shareholders who
are nonresident aliens or foreign corporations may be subject to U.S.
withholding taxes. Such shareholders should consult with their financial or tax
advisors regarding the applicability of U. S. withholding taxes to distributions
received by them from the Trust.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED.
Shares of the Portfolios may be purchased by institutions, such as
investment companies, banks, thrift institutions, credit unions, trust
companies, corporations and other institutional entities. The minimum initial
investment is $1,000,000 and the minimum subsequent investment is $250,000, but
these requirements may be changed or waived at any time at management's
discretion. Shares of the Portfolios are made available through selected
financial service firms such as broker-dealer firms and banks ("Firms") who have
signed agreements with the Distributor (whose principal business address is 750
B Street, Suite 2350, San Diego, California 92101), the placement agent. The
Distributor compensates these Firms at a rate of up to .25% of purchase payments
for shares. Shares may also be purchased by check or wire directly to the
Transfer Agent. Each Portfolio's offering price is the net asset value next
determined after an order is received.
An investor will become a shareholder of record as of the close of business
on the day on which a purchase order is accepted by the Distributor or the
Transfer Agent. However, shareholders will not be credited with any return on an
investment until payment has been converted to Federal funds by the Transfer
Agent or a Portfolio's Custodian Bank, which may take up to three days.
Purchases By Wire. Purchases of shares of the Adjustable Rate Portfolio by
wire transfer should be directed to "Investors Fiduciary Trust Co. ABA 101003621
for credit to Astra Institutional Adjustable Rate Securities Portfolio as
instructed by the Distributor. Purchases of shares of the Government Securities
Portfolio by wire transfer should be directed to "Investors Fiduciary Trust Co.
ABA 101003621 for credit to Astra Institutional Adjustable U.S. Government
Securities Portfolio as instructed by the Distributor.
For initial purchase by Federal funds wire, a shareholder must first obtain
an account number by telephoning a Portfolio at 800-441-7267. A shareholder may
then instruct his bank to wire funds as described above. After an account number
has been received and funds have been wired, the application form must be
completed and, with respect to the Adjustable Rate Portfolio, sent to:
Astra Institutional Adjustable Rate
Securities Portfolio
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
Attn: Order Department
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<PAGE>
or, with respect to the Government Securities Portfolio, sent to:
Astra Institutional Adjustable U.S.
Government Securities Portfolio
DST Systems, Inc.
P.O. Box 419174
Kansas City, MO 64141
Attn: Order Department
This procedure is for the protection of shareholders. A Portfolio will not
honor orders for redemptions until it receives the proper authorizations.
Shares purchased by Federal funds wire will be purchased at the close of
business on the day on which the Federal funds wire is received and, if the wire
is received before 12:00 noon New York time, the shares will be entitled to
dividends on that business day. Shares purchased by Federal funds wire received
after 12:00 noon New York time will be entitled to dividends on the next
business day.
Purchase By Check. An initial investment made by check must be accompanied
by an Application, completed in its entirety. Additional shares of a Portfolio
may also be purchased by sending a check payable to such Portfolio, along with
information regarding a shareholder's 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.
Valuation. The net asset value and offering price of shares of a Portfolio
are determined once daily as of the close of trading on the New York Stock
Exchange during a Portfolio's "business day," which is any day on which the
Exchange is open for business. The net asset value of a Portfolio serves as the
basis for the purchase and redemption price of Portfolio shares. The net asset
value is also used in calculating the fee paid to AMC.
Calculation of Net Asset Value. Net asset value is calculated by dividing
the value of a Portfolio's portfolio securities, plus any cash or other assets
less all liabilities, by the number of shares outstanding. The securities held
in a Portfolio's portfolio will be valued by using market quotations, or
independent pricing services which use prices provided by market-makers or
estimates of market values obtained from yield data relating to instruments or
securities with similar characteristics. Securities for which reliable
quotations or pricing services are not readily available and all other assets
will be valued at their respective fair value as determined in good faith by, or
under procedures established by, the Trustees, which procedures may include the
delegation of certain responsibilities regarding valuation to the officers of
AIST. The officers of AIST report, as necessary, to the Trustees regarding
portfolio valuation determination.
Short-term securities with less than sixty days remaining to maturity when
acquired by a Portfolio will be valued on an amortized cost basis by such
Portfolio when the Trustees have determined that amortized cost is fair value.
If a Portfolio acquires such securities with more than sixty days remaining to
maturity, they will be valued at current market value (using the mean of the bid
and the asked prices) until the 60th day prior to maturity, and will then be
valued on an amortized cost basis based upon the value on such date unless the
Board determines during such 60-day period that this amortized cost basis does
not represent fair value.
ITEM 8. REDEMPTION OR REPURCHASE.
Shares of a Portfolio will be 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 Federal
income tax required to be withheld. Shares of a Portfolio may be redeemed in the
following ways:
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<PAGE>
(1) Redemptions by Mail. A written request for redemption (or an endorsed
share certificate, if issued) must be received by the Transfer Agent to
constitute a valid tender for redemption. It will also be necessary for
corporate investors and other associations to have an appropriate certification
authorizing redemptions by a corporation or an association on file before a
redemption request will be considered in proper form. The Transfer Agent may
also require a signature guarantee by an eligible guarantor as stipulated in
Rule 17 Ad-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 Shareholder Servicing Agent at (800) 441-7267.
(2) Redemption by Wire or Telephone. Brokers, dealers, or other sales
agents may communicate redemption orders by wire or telephone. These firms may
charge for their services in connection with redemption requests but neither of
the Portfolios nor the Distributor imposes any such charges.
(3) Expedited Redemption. Payment of redemption requests (of a specified
amount or more) may be wired or mailed directly to a domestic commercial bank
account that a shareholder has 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, a
wire redemption by telephone or wire to the Transfer Agent may be requested. For
telephone redemptions, a shareholder must call the Transfer Agent at (800)
441-7267.
Payment to shareholders for shares redeemed or repurchased will be made
within seven days after receipt by the Portfolio's Transfer Agent. A Portfolio
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, each Portfolio recommends that all purchases be made by bank
wire Federal funds. A Portfolio may suspend the right of redemption under
certain extraordinary circumstances in accordance with the Rules of the SEC.
Each Portfolio reserves the right upon 30-days' written notice to redeem, at net
asset value, the shares of any shareholder whose account (except for IRAs) has a
value of less than $1,000,000 other than as a result of a decline in the net
asset value per share.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Certain class action lawsuits, the first of which was filed on December 19,
1994 (entitled Lisa Liottali, on behalf of herself and all others similarly
situated v. Pilgrim Adjustable Rate Securities Trust I-A, Pilgrim Institutional
Securities Trust, Pilgrim Management Corporation, Pilgrim Group, Inc. and
Palomba Weingarten), are pending in the United States District Court for the
Central District of California in which Pilgrim Group, Inc., Pilgrim Management
Corporation, Pilgrim Distributors Corp., Pilgrim Institutional Securities Trust
("PIST"), Pilgrim Strategic Investment Series ("PSIS") (and certain series funds
of PSIS) (predecessors to the Atlas Group, AMC, the Distributor, AIST and ASIS)
and certain past and present Trustees and officers of AIST and ASIS are
defendants. These actions, which were consolidated in March 31, 1995, in an
action entitled In Re: Pilgrim Securities Litigation, principally allege
violations of the Securities Act of 1933 and the Investment Company Act of 1940
and relate primarily to disclosure in certain of PSIS' funds concerning pricing
and liquidity of portfolio securities. Management believes the Complaints are
without merit and intends to vigorously defend these actions.
Investors in the Portfolios will be informed of its progress through
periodic reports. Financial statements certified by independent public accounts
will be submitted to shareholders at least annually. A copy of a current list of
investments comprising the Portfolios as of the close of business on the last
day of each month may be obtained by written request to AIST, together with a
stamped, self-addressed envelope.
Shareholder inquiries should be directed to the Shareholder Servicing
Agent, DST Systems, Inc. (800-441-7267).
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS.
Page
----
General Information and History ............................... B-1
Investment Objective and Policies ............................. B-1
Management of the Portfolio ................................... B-6
Control Persons and Principal Holders
of Securities ............................................... B-7
Investment Advisor and Other Services ......................... B-8
Brokerage Allocation and Other Practices ...................... B-9
Capital Stock and Other Securities ............................ B-10
Purchase, Redemption and Pricing of
Securities Being Offered .................................... B-11
Tax Status .................................................... B-13
Underwriters .................................................. B-16
Calculation of Performance Data ............................... B-16
Financial Statements .......................................... B-18
ITEM 12. GENERAL INFORMATION AND HISTORY.
On December 7, 1994, PGI, PMC, Palomba Weingarten, Chairman and Chief
Executive Officer of PMC, and certain of PGI's affiliated companies (the
"Companies") entered into an Acquisition Agreement with Express America Holdings
Corporation ("Express America") pursuant to which the Companies sold to Express
America identified assets of the Companies. Pursuant to the terms of the
Acquisition Agreement, Express America did not acquire the assets of PIST, the
Pilgrim Adjustable U.S. Government Securities Trusts or the Pilgrim Adjustable
Rate Securities Trusts (the "Trusts"), which are series of Pilgrim Strategic
Investment Series ("PSIS"). PSIS invests all of its investable assets in the
Portfolios. On March 17, 1995, the Trustees approved an amendment to each of
PSIS' and PIST's respective Declarations of Trust changing the name of PSIS to
Astra Strategic Investment Series ("ASIS") and changing the name of PIST to
Astra Institutional Securities Trust ("AIST"). Effective as of April 10, 1995,
the Pilgrim Adjustable U.S. Government Securities Trusts and the Pilgrim
Adjustable Rate Trusts changed their names to the Astra Adjustable U.S.
Government Securities Trusts and the Astra Adjustable Rate Securities Trusts,
all series of ASIS.
ITEM 13. INVESTMENT OBJECTIVE.
Mortgage Securities Generally. Mortgage securities represent a direct or
indirect participation in, or are secured by and payable from, mortgage loans
secured by real property. There are three basic types of mortgage securities:
(1) those issued or guaranteed by the U.S. government, its agencies or
instrumentalities, such as the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation; (2) those issued by private issuers that are collateralized by U.S.
government mortgage securities and (3) those issued by private issuers that are
collateralized by mortgage loans without a government guarantee but that usually
have some form of private credit enhancement.
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Since the inception of the mortgage pass-through security in 1970, the
market for mortgage securities has expanded considerably. The size of the
primary issuance market, and active participation in the secondary market by
securities dealers and many types of investors, makes government and
government-related pass-through pools highly liquid. Yields on pass-through
securities are typically quoted by investment dealers and vendors based on the
maturity of the underlying instruments and the associated average life
assumption. The average life of pass-through pools varies with the maturities of
the underlying mortgage loans. In addition, a pool's term may be shortened by
unscheduled or early payments of principal on the underlying mortgages. The
occurrence of mortgage prepayments is affected by various factors, including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Because prepayment
rates of individual pools vary widely, it is not possible to predict accurately
the average life of a particular pool. For pools of fixed rate 30-year
mortgages, a common industry practice has been to assume that prepayments will
result in a 12-year average life. At present, pools (particularly those with
loans with other maturities or different characteristics) are priced on as
assumption of average life determined for each pool. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of a pool of mortgage-related securities. Conversely, in
periods of rising rates the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the pool. However, these effects may not
be present, or may differ in degree, if the mortgage loans in the pool have
adjustable interest rates or other special payment features. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at higher or
lower interest rates than the original investment, thus affecting the yield of a
Portfolio.
The coupon rate of interest on mortgage securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificate holders. Actual yield to the holder may vary
from the coupon rate if the mortgage securities are purchased at a premium or
discount or traded in the secondary market at a premium or discount.
Each Portfolio will only purchase mortgage securities issued by persons
that are governmental agencies or instrumentalities, fall outside of the
definition of investment company under the Investment Company Act of 1940, are
excluded from such definition pursuant to such sections 3(b) or 3(c) or other
provision of such Act, unless such purchase is made consistent within the limits
of Section 12(d) of the Act.
CHARACTERISTICS OF MULTI-CLASS MORTGAGE SECURITIES
The Certificates. In general, a series of certificates is issued in
multiple classes with a stated maturity or final distribution date. One or more
classes of each series may be entitled to receive distributions allocable only
to principal, principal prepayments, interest or any combination thereof prior
to one or more other classes, or only after the occurrence of certain events,
and may be subordinated in the right to receive such distributions on such
certificates to one or more senior classes of certificates. The rights
associated with each class of certificates are set forth in the applicable
pooling and servicing agreement, form of certificate and offering documents for
the certificates.
The subordination terms are usually designed to decrease the likelihood
that the holders of senior certificates will experience losses or delays in the
receipt of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
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In some cases, the aggregate losses in respect of defaulted mortgage loans
which must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and
over the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
Credit Enhancement. Credit enhancement for the senior certificates
comprising a series is provided by the holders of the subordinated certificates
to the extent of the specific terms of the subordination and, in some cases, by
the establishment of reserve funds. Depending on the terms of a particular
pooling and servicing agreement, additional or alternative credit enhancement
may be provided by a pool insurance policy and/or other insurance policies,
third party limited guaranties, letters of credit, or similar arrangements.
Letters of credit may be available to be drawn upon with respect to losses due
to mortgagor bankruptcy and with respect to losses due to the failure of a
master servicer to comply with its obligations, under a pooling and servicing
agreement, if any, to repurchase a mortgage loan as to which there was fraud or
negligence on the part of the mortgagor or originator and subsequent denial of
coverage under a pool insurance policy, if any. A master servicer may also be
required to obtain a pool insurance policy to cover losses in an amount up to a
certain percentage of the aggregate principal balance of the mortgage loans in
the pool to the extent not covered by a primary mortgage insurance policy by
reason of default in payments on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may
provide that the depositor and master servicer could effect early termination of
a trust, after a certain specified date or the date on which the aggregate
outstanding principal balance of the underlying mortgage loans is less than a
specific percentage of the original aggregate principal balance of the
underlying mortgage loans by purchasing all of such mortgage loans at a price,
unless otherwise specified, equal to the greater of a specified percentage of
the unpaid principal balance of such mortgage loans, plus accrued interest
thereon at the applicable certificate interest rate, or the fair market value of
such mortgage assets. Generally, the proceeds of such repurchase would be
applied to the distribution of the specified percentage of the principal balance
of each outstanding
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<PAGE>
certificate of such series, plus accrued interest, thereby retiring such
certificates. Notice of such optional termination would be given by the trustee
prior to such distribution date.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
Various servicers provide certain customary servicing functions with
respect to the mortgage loans pursuant to servicing agreements entered into
between each servicer and the master servicer. A servicer's duties generally
include collection and remittance of principal and interest payments,
administration of mortgage escrow accounts, collection of insurance claims,
foreclosure procedures, and, if necessary, the advance of funds to the extent
certain payments are not made by the mortgagors and are recoverable under
applicable insurance policies or from proceeds of liquidation of the mortgage
loans.
The mortgage pool is administered by a master servicer who (a) establishes
requirements for each servicer, (b) administers, supervises and enforces the
performance by the servicers of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates.
The master servicer may be an affiliate of the depositor and also may be
the servicer with respect to all or a portion of the mortgage loans contained in
a trust fund for a series of certificates.
Lending of Portfolio Securities. Each Portfolio may lend its portfolio
securities in order to generate additional income. The Portfolio may pay
reasonable administration and custodial fees in connection with a loan and may
pay a negotiated portion of the income earned on the cash to the borrower or
placing broker. Loans are subject to termination at the option of each Portfolio
or the borrower at any time, including when termination is necessary to enable
such Portfolio to be the record owner for each dividend paid by the issuer
thereof. A Portfolio does not have the right to vote securities on loan, but
would terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
Purchase of Mortgage Securities. The Portfolio intends to comply with the
provisions of Section 12(d) of the Investment Company Act of 1940 in connection
with purchasing mortgage securities.
Investment Restrictions. The following investment restrictions which have
been adopted by each Portfolio are fundamental and cannot be changed without
approval by the vote of a majority of the outstanding voting securities of each
Portfolio, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act"). (All policies of the Portfolios not specifically identified in this
Part B or Part A as fundamental may be changed without a vote of the
shareholders.)
The Portfolios may not:
1. Borrow money, except if after each borrowing there is asset coverage
of at least 300% as defined in the Act. For purposes of this
investment restriction, short sales, the entry into currency
transactions, options, futures contracts, including those relating to
indexes, options on futures contracts or indexes and forward
commitment transactions shall not constitute borrowing.
2. Invest more than 25% of the value of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry, except that a Portfolio will invest
more than 25% of the value of its total assets in securities of
issuers in the asset-backed securities industry. However, in some
future period or periods, due to adverse economic conditions or for
defensive purposes, a Portfolio may temporarily have less than
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<PAGE>
25% of the total value of its assets invested in that industry. This
limitation does not apply to investments or obligations of the U.S.
Government or any of its agencies or instrumentalities. In addition,
this limitation does not prevent a Portfolio from investing all or
substantially all of its assets in another registered investment
company having the same investment objective as that of such
Portfolio.
3. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to
the deposit of assets in escrow in connection with (a) the writing of
covered put and call options, (b) the purchase of securities on a
forward commitment or delayed-delivery basis and (c) collateral and
initial or variation margin arrangements with respect to currency
transactions, options, futures contracts, including those relating to
indexes, and options on futures contracts or indexes.
4. Purchase securities on margin, except for such short-term credits as
are necessary for the clearance of transactions, but a Portfolio may
make margin deposits in connection with transactions in currencies,
options, futures and options on futures.
5. With respect to the Government Securities Portfolio only, make short
sales of securities, except short sales against-the-box, or maintain a
short position.
6. Underwrite any issue of securities issued by others, except to the
extent that the sale of portfolio securities by a Portfolio may be
deemed to be underwriting, except that a Portfolio may invest all or
substantially all of its assets in another registered investment
company with the same investment objective as that of such Portfolio.
7. Purchase, hold or deal in real estate or oil and gas interests,
although a Portfolio may purchase and sell securities that are secured
by real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for a Portfolio
as a result of the ownership of securities.
8. Invest in commodities except that a Portfolio may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts, and purchase and
sell currencies (and options thereon) or securities on a forward
commitment or delayed-delivery basis.
9. Lend any funds or other assets except through the purchase of all or a
portion of an issue of securities or obligations of the type in which
it may invest; however, a Portfolio may lend portfolio securities in
an amount not to exceed 10% of the value of such Portfolio's total
assets. Any loans of portfolio securities will be made according to
guidelines established by the SEC and the Board of Trustees of AIST.
10. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) (including the amount of senior securities issued but
excluding liabilities and indebtedness not constituting senior
securities) except as permitted in Investment Restriction Nos. 1, 3, 4
and 8. Obligations under interest rate swaps will not be treated as
senior securities for purposes of this restriction so long as they are
covered in accordance with applicable regulatory requirements.
Obligations under interest rate collars, caps, and floors will be
treated as senior securities unless and until such time as the
Portfolio receives regulatory relief from the Staff or until such time
as the Staff no longer deems such instruments to be senior securities.
Other good faith hedging transactions and similar investment
strategies will also not be treated as senior securities for purposes
of this restriction so long as they are
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covered in accordance with applicable regulatory requirements and are
structured consistent with current Staff interpretation.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
Responsibility for management of the Portfolios is vested in a Board of
Trustees of AIST. The Trustees in turn appoint officers to supervise actively
the day-to-day operations of the Portfolios. The shareholders of AIST may elect
Trustees at any meeting of shareholders called by the Trustees for that purpose.
Each Trustee serves during the continued lifetime of AIST until he dies, resigns
or is removed, or, if sooner, until the next meeting of shareholders called for
the purpose of electing Trustees.
The affiliations and principal occupations during the past five years
of the Trustees and principal officers are:
PALOMBA WEINGARTEN, CHAIRMAN OF THE BOARD, PRESIDENT AND TRUSTEE+(53)
9595 Wilshire Boulevard, Beverly Hills, California 90212. Chairman of the
Board, Director and Chief Executive Officer of Atlas Holdings Group Inc.,
the parent of Astra Fund Distributors Corp. and Astra Management Corp.
("AMC"), the Portfolios' distributor and investment manager, respectively.
Chairman of the Board and Trustee of Astra Global Investment Series; Astra
Strategic Investment Series and Astra Institutional Trust.
AL BURTON, TRUSTEE (67)
2300 Coldwater Canyon, Beverly Hills, California 90210. President of Al
Burton Productions from 1992 to present; Executive Producer, First Run
Syndications for Castle Rock Entertainment Inc. from 1992 to 1995;
Executive Producer-Consultant for Universal Television, from 1982 to 1992;
Director of Pilgrim MagnaCap Fund, Inc., Pilgrim GNMA Fund, and Pilgrim
Regional BankShares Inc.; Trustee of Astra Global Investment Series, Astra
Strategic Investment Series, Astra Institutional Trust and Pilgrim Prime
Rate Trust.
FELICE R. CUTLER, TRUSTEE (58)
10601 Wilshire Boulevard, 19th Floor, Los Angeles, California 90024.
Partner in the law firm of Cutler & Cutler, Los Angeles, California since
1991 and for more than five years prior to 1990 and in the law firm of
Dilworth, Paxson, Kalish & Kauffman from 1990 to 1991. Trustee of Astra
Strategic Investment Series and Astra Institutional Trust.
GARRY D. PEARSON, TRUSTEE (47)
150 North Myers Street, Los Angeles, California 90033. Senior Vice
President of George Rice & Sons, a printing company located in Los Angeles,
California, since July 1994. Formerly, Vice President and partner in
Anderson Lithograph, a printing company located in Los Angeles, California,
from 1983 to 1994. Trustee of Astra Institutional Trust, Astra Global
Investment Series and Astra Strategic Investment Series.
RICHARD R. TARTRE, PRESIDENT AND CHIEF EXECUTIVE OFFICER + (58)
750 B Street, Suite 2350, San Diego, California 92101. President and Chief
Executive Officer of AMC and Astra Fund Distributors Corp. President and
Chief Executive Officer of Astra Global Investment Series, Astra Strategic
Investment Series and Astra Institutional Trust. From March 1982 to July
1995, Managing Director of the securities firm of Fundmark Investment Co.
Services Inc. in San Diego, California. Member of the Board of Directors of
Mission West Properties and Triton Group Ltd. since 1993 and Burnham
Pacific Properties since 1986. Chairman of Bio-Safety Systems from 1982 to
1995.
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JOHN R. ELERDING, SENIOR VICE PRESIDENT, SECRETARY, TREASURER AND CHIEF
FINANCIAL OFFICER + (44)
750 B Street, Suite 2350, San Diego, California 92101. Senior Vice
President, Secretary, Treasurer and Chief Financial Officer of AMC and
Astra Fund Distributors Corp. Senior Vice President, Secretary, Treasurer
and Chief Financial Officer of Astra Global Investment Series, Astra
Strategic Investment Series and Astra Institutional Trust. From January
1994 to September 1994, Chief Financial Officer at the investment banking
firm of Investment Securities Corp. in San Francisco, California. From 1991
to August 1993, investment manager and assistant to the Chief Operating
Officer at Robertson Stephens & Company in San Francisco, California. From
March 1979 to September 1989, Chief Financial Officer at the financial
services holding company of Omni World Wide in San Mateo, California.
+ Interested person of AIST as defined in the 1940 Act.
The Officers and Trustees of AIST, as a group, owned of record and
beneficially less than 1% of the outstanding shares of the Portfolios as of
October 31, 1995. The Trustees of AIST or ASIS who are not affiliated with or
interested persons of AMC may receive fees for attendance at Trustees' meetings
(during the fiscal year ended October 31, 1995, $93,790 was paid), while
officers of AIST receive no compensation directly from it for performing the
duties of their offices. However, those Officers and Trustees who are affiliated
with AMC may be considered to have received renumeration indirectly because AMC
receives management fees from the Portfolios.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
The Trustees of AIST establish each Portfolio's policies and supervise and
review the operations and management of each Portfolio.
The principal holders of shares of the Portfolios are the Astra Adjustable
U.S. Government Securities Trusts and the Astra Adjustable Rate Securities
Trusts, both series of ASIS (whose address is 750 B Street, Suite 2350, San
Diego, California 92101). As of January 31, 1995 the beneficial owners of record
of more than 5% of AIST's outstanding securities were as follows:
ADJUSTABLE RATE PORTFOLIO
Astra Adjustable Rate Securites Trust I 17%
Astra Adjustable Rate Securites Trust I-A 51%
Astra Adjustable Rate Securites Trust II 17%
Astra Adjustable Rate Securites Trust IV 15%
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ADJUSTABLE U.S. GOVERNMENT PORTFOLIO
Astra Adjustable U.S. Government Securites Trust I 55%
Astra Adjustable U.S. Government Securites Trust I-A 39%
ITEM 16. INVESTMENT ADVISER AND OTHER SERVICES
Investment management services are provided to the Portfolios by Astra
Management Corporation ("AMC") pursuant to an Investment Management Agreement
(the "Management Agreement"). As compensation for its services with respect to
the Government Portfolio, AMC is paid monthly a fee equal to 0.55% per annum of
the average daily net assets of such Portfolio on the first $500 million of
assets. The annual rate is reduced to 0.50% on net assets from $500 million to
$1 billion; and to 0.45% on net assets over $1 billion. As compensation for its
services with respect to the Adjustable Rate Portfolio, AMC is paid monthly a
fee equal to 0.65% per annum of the average daily net assets of such Portfolio
on the first $500 million of assets. The annual rate is reduced to 0.60% on net
assets from $500 million to $1 billion; and to 0.55% on net assets over $1
billion. As of October 31, 1995, the total net assets of the Government and
Adjustable Rate Portfolios were approximately $173 million and $28 million,
respectively. During the fiscal years ended October 31, 1993, 1994 and 1995, AMC
received compensation under its management agreement with the Government
Portfolio in the amounts of $6,233,257, $4,789,543 and $1,550,152, respectively.
During the fiscal years ended October 31, 1993, 1994 and 1995, AMC received
compensation under its management agreement with the Adjustable Rate Portfolio
in the amounts of $1,757,853, $3,257,763 and $629,095, respectively.
AIST pays its own operating expenses which are not assumed by AMC,
including such expenses as organizational and offering expenses of AIST and
expenses incurred in connection with the issuance, registration and transfer of
its shares; fees and costs of its custodian, transfer and shareholder servicing
agents; costs and expenses of pricing and calculating the daily net asset value
of shares of the Portfolios and of maintaining books of account required by the
1940 Act; expenditures in connection with meetings of shareholders and Trustees;
salaries of officers and fees and expenses of Trustees who are not members of or
affiliated with AIST or AMC; insurance premiums on property or personnel of the
Portfolio which inure to the Portfolio's benefit; salaries of personnel involved
in placing orders for the execution of the Portfolio's portfolio transactions
and in maintaining registration of shares under state securities laws; the cost
of preparing and printing reports and proxy statements of the Portfolios or
other communications for distribution to its shareholders; preparing and sending
prospectuses and statements of additional information to existing shareholders;
trade association dues; legal and accounting fees; fees and expenses of
registering and maintaining registration of its shares for sale under federal
and applicable state securities laws; and certain other costs and expenses
related to operation of the Portfolios.
AMC will reduce its aggregate fees for any fiscal year, or reimburse the
Trusts or the Portfolios, to the extent required so that aggregate expenses do
not exceed the expense limitations applicable under the securities laws or
regulations of those states or jurisdictions in which the Trusts' shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitations would require AMC to reduce its respective fees, or to
reimburse the Trusts or the Portfolios, to the extent required so that aggregate
expenses, as described above, for any fiscal year do not exceed 2-1/2% of the
first $30 million of each Trust's average net assets, 2% of the next $70 million
of each Trust's average net assets, and 1-1/2% of each Trust's remaining average
net assets for any fiscal year. Expenses for purposes of this expense limitation
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, paid or incurred by the Trusts or the Portfolios. The expense
limitation may change to reflect changes in the expense limitations of the state
having the most restrictive limitation in which shares of the Trusts are
registered for sale.
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The Management Agreement is in effect until August 9, 1996, and will be
continued in effect from year to year thereafter so long as such continuation is
approved at least annually (1) by the Trustees of AIST or the vote of a majority
of the outstanding voting securities of each Portfolio, and (2) by a majority of
the Trustees who are not interested persons of any party to the Management
Agreement cast in person at a meeting called for the purpose of voting on such
approval. The Management Agreement may be terminated at any time without
penalty, by either the Portfolios or AMC upon 60 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 Group, a Delaware corporation of
which Mrs. Weingarten is the sole stockholder. AMC also acts as the investment
manager to the series of Astra Strategic Investment Series, Astra Short-Term
Multi-Market Income Trust and Astra Short-Term Multi-Market Income Fund II
(series of Astra Global Investment Series) and Astra All-Americas Government
Income Trust (a series of Astra Institutional Trust), open-end investment
companies. As of the date of this Registration Statement, total assets under
management in the Atlas Group were approximately $200 million.
The cash and securities owned by AIST are held by PNC Bank, National
Association, Lester, Pennsylvania, as custodian, which takes no part in the
decisions relating to the purchase or sale of any of the Trust's portfolio
securities. DST Systems Inc. acts as AIST's transfer agent and dividend
disbursing agent.
The Trust's independent public accountant is Tait, Weller & Baker, Two Penn
Center Plaza, Philadelphia, Pennsylvania 19102.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
In all purchases and sales of securities for the portfolios of each
Portfolio, the primary consideration is to obtain the most favorable price and
execution available. Pursuant to the Management Agreements, AMC determines,
subject to the instructions of and review by the Trustees, which securities are
to be purchased and sold by each Portfolio and which brokers are to be eligible
to execute portfolio transactions of a Portfolio. Purchases and sales of
securities in the over-the-counter market will generally be executed directly
with a "market-maker," unless in the opinion of AMC, a better price and
execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, AMC will use its best efforts to choose
a broker capable of providing the brokerage services necessary to obtain the
most favorable price and execution available. The full range and quality of
brokerage services available will be considered in making these determinations,
such as the size of the order, the difficulty of execution, the operations
facilities of the firm involved, the firm's risk in
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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 a Portfolio and/or AMC, and provide other services in
addition to execution services. AMC considers such information, which is in
addition to and not in lieu of the services required to be performed by AMC
under its agreements with the Portfolios, to be useful in varying degrees, but
of indeterminable value. The placement of portfolio brokerage with
broker-dealers who have sold shares of the Portfolios is subject to rules
adopted by the National Association of Securities Dealers, Inc. Provided the
officers of AIST are satisfied that the Portfolios are receiving the most
favorable price and execution available, AIST may also consider the sale of its
shares as a factor in the selection of broker-dealers to execute its portfolio
transactions.
While it will continue to be each Portfolio's general policy to seek first
to obtain the most favorable price and execution available, in selecting a
broker to execute portfolio transactions for a Portfolio, such Portfolio may
also give weight to the ability of a broker to furnish brokerage and research
services to such Portfolio or AMC, even if the specific services were not
imputed just to such Portfolio and were useful to AMC in advising other clients.
In negotiating commissions with a broker, a Portfolio may therefore pay a higher
commission than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission has
been determined in good faith by such Portfolio and AMC to be reasonable in
relation to the value of the brokerage and research services provided by such
broker, which services either produce a direct benefit to the Portfolio or
assist AMC in carrying out its responsibilities to the Portfolio. The standard
of reasonableness is to be measured in light of AMC's overall responsibilities
to the Portfolio.
For the fiscal years ended October 31, 1993, 1994 and 1995, total brokerage
commissions paid by the Government Portfolio amounted to approximately $85,000,
$109,000 and $79,000 respectively. For the fiscal years ended October 31, 1993,
1994 and 1995, total brokerage commissions paid by the Adjustable Rate
Portfolios amounted to approximately $40,000, $1,416,000 and $28,000,
respectively. The Portfolios do not intend to effect any brokerage transactions
in their portfolio securities with any broker-dealer affiliated directly or
indirectly with AMC, except for any sales of portfolio securities pursuant to a
tender offer, in which event AMC will offset against the management fee a part
of any tender fees which legally may be received by such affiliated
broker-dealer.
Although investment decisions for each Portfolio are made independently
from those of the other funds in the Astra Group, it is possible that at times
identical securities will be selected for purchase or sale by more than one of
such funds. However, the position of each fund in the same issuer may vary and
the length of time that each fund may choose to hold its investment in the same
issuer may likewise vary. To the extent any of these funds seeks to acquire the
same security at the same time, one or more of the funds may not be able to
acquire as large a portion of such security as it desires, or it may have to pay
a higher price for such security. Similarly, any of the funds may not be able to
obtain as high a price for, or as large an execution of, an order to sell any
particular security if any of the other funds desires to sell the same security
at the same time. If more than one of such funds simultaneously purchases or
sells the same security, each day's transaction in such security will be
averaged as to price and allocated between such funds in accordance with the
total amount of such security being purchased or sold by each of such funds. It
is recognized that in some cases this system could have a detrimental effect on
the price or value of the security insofar as a Portfolio is concerned.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
The Declaration of Trust dated September 4, 1991, a copy of which is on
file in the office of the Secretary of The Commonwealth of Massachusetts,
authorizes the issuance of shares of beneficial interest in AIST without par
value. Each share of a Portfolio has one vote and shares equally in dividends
and
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distributions when and if declared by the Trustees of AIST and in each
Portfolio's net assets upon liquidation. All shares, when issued, are fully paid
and non-assessable. There are no preemptive, conversion or exchange rights.
Portfolio shares do not have cumulative voting rights and, as such, holders of
at least 50% of the shares voting for Trustees can elect all Trustees and the
remaining shareholders would not be able to elect any Trustees. The term
"majority vote" means the affirmative vote of (a) more than 50% of the
outstanding shares of the Portfolio or AIST, as appropriate or (b) 67% or more
of the shares present at a meeting if more than 50% of the outstanding shares of
the Portfolio or AIST, as appropriate are represented at the meeting in person
or by proxy, whichever is less.
The Board of Trustees may classify or reclassify any unissued shares of
AIST 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 each Portfolio is vested with the
Trustees. The Trustees approve all significant agreements between the Portfolios
and persons or companies furnishing services to the Portfolios. The day-to-day
operations of the Portfolios are delegated to the Officers of AIST subject to
the investment objective and policies of each Portfolio, the general supervision
of the 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 PIST. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of AIST and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by AIST or the Trustees. The Declaration of
Trust provides for indemnification out of AIST's property for all loss and
expense of any shareholder of AIST 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 AIST would
be unable to meet its obligations wherein the complaining party was held out to
be bound by the disclaimer.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a Trustee against any liability to which the
Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involving the conduct of
his office. The Declaration of Trust provides for indemnification by AIST of the
Trustees and officers of AIST 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 AIST. Such person may not be
indemnified against any liability to AIST or AIST's shareholders to which he
would otherwise be subjected by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office. The Declaration of Trust also authorizes the purchase of liability
insurance on behalf of Trustees and officers.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED.
The net asset value and offering price of each Portfolio's shares will be
determined once daily as of the close of trading on the New York Stock Exchange
(currently 4:00 p.m., New York Time) on such Portfolio's "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,
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Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
and on the preceding Friday or subsequent Monday when one of these holidays
falls on Saturday or Sunday, respectfully.
Portfolio securities, listed or traded on a national securities exchange
will be valued at the last sale price on such exchange on the valuation day.
Securities traded on an exchange for which there has been no sale that day and
securities traded in the over-the-counter market, will be valued at the last
reported bid price or the mean between the bid and the asked prices, as
determined by the Board of Trustees. Short-term obligations maturing in less
than 60 days will generally be valued at original cost plus accrued daily
interest. Securities for which quotations are not readily available and all
other assets will be valued at their fair value as determined in good faith by
the Trustees.
All liabilities incurred or accrued (including written call options) are
deducted from the total assets. The resulting net assets are divided by the
number of shares of a Portfolio 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 3:00
P.M. (Pacific time) on that day. It is the responsibility of the dealer to
insure that all orders are transmitted timely to the Portfolios. Orders received
by dealers after the close of trading on such Exchange will be confirmed at the
next computed offering price.
Shareholder Services and Privileges. For investors purchasing shares of a
Portfolio under a tax-qualified individual retirement or pension plan or under a
group plan through a person designated for the collection and remittance of
monies to be invested in shares of a Portfolio on a periodic basis, a Portfolio
may, in lieu of furnishing confirmations following each purchase of its shares,
send statements not less than quarterly pursuant to the provisions of the
Securities Exchange Act of 1934, as amended, and the rules thereunder. Such
quarterly statements, which will be sent to the investor or to the person
designated by the group for distribution to its members, will be made within
five business days after the end of each quarterly period and shall reflect all
transactions in the investor's account during the preceding quarter.
Each Portfolio's shareholders have the privilege of reinvesting both income
dividends and capital gains distributions, if any, in additional full or
fractional shares of the Portfolio at the net asset value in effect at the
reinvestment date. Each Portfolio's management has made arrangements with the
Transfer Agent to have all income dividends and capital gains distributions
which are declared by such Portfolio automatically reinvested for the account of
each shareholder unless a shareholder elects in writing to such Portfolio or the
Transfer Agent to have such dividends or distribution paid to him in cash. In
the absence of such an election, each purchase of shares of a Portfolio is made
upon the condition and understanding that the Transfer Agent is automatically
appointed to receive the dividends and distributions upon all shares in the
shareholder's account and to reinvest them in full and fractional shares of a
Portfolio at the applicable net asset value in effect at the close of business
on the reinvestment date. A shareholder may still at any time after a purchase
of Trust shares request that dividends and/or capital gains distributions be
paid to him in cash.
Every shareholder will receive a confirmation of each new transaction in
his account, which will also show the total number of Portfolio shares owned by
the shareholder and the number of shares being held in safekeeping by the
Transfer Agent for the account of the shareholders and a cumulative record of
his account for the entire year. Shareholders may rely on these statements in
lieu of certificates. Certificates representing shares of the portfolios will
not be issued unless the shareholder requests them in writing.
Redemptions. Payment to shareholders for shares redeemed or repurchased
will be made within seven days after receipt by the Transfer Agent of the
written request in proper form, except that a Portfolio may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the New York Stock Exchange is restricted as determined by the SEC or such
Exchange is closed for reasons
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other than weekends and holidays; (b) an emergency exists as determined by the
SEC making disposal of portfolio securities or valuation of net assets of a
Portfolio not reasonably practicable; or (c) for such other period as the SEC
may permit for the protection of a Portfolio's shareholders. At various times a
Portfolio may be requested to redeem its shares for which it has not yet
received good payment. Accordingly, a Portfolio may delay the mailing of a
redemption check until such time as it determines that it has received good
funds for the purchase of the shares being redeemed, which may take up to 15
days or longer.
Due to the relatively high cost of handling small investments, each
Portfolio reserves the right to redeem, at net asset value, the shares of any
shareholder whose account, as a result of voluntary redemption of shares and not
of investment performance of a Portfolio, has a value of less than $1,000,000
held in such Portfolio. Before a Portfolio redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in his account is less than the minimum amount and allow him 30 days
to make an additional investment in an amount which will increase the value of
his account to at least $1,000,000 before the redemption is processed. This
policy will not be implemented where a Portfolio had previously waived the
minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the portfolio securities
at the time of redemption or repurchase.
ITEM 20. TAX STATUS.
The following is only a summary of certain additional tax considerations
generally affecting a Portfolio and its shareholders that are not described in
Part A. No attempt is made to present a detailed explanation of the tax
treatment of any Portfolio or its shareholders, and the discussion here and in
Part A is not intended as a substitute for careful tax planning.
Qualification as a Regulated Investment Company. Each Portfolio intends to
elect to be taxed as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As a regulated
investment company, each Portfolio generally is not subject to federal income
tax on the portion of its net investment income (i.e., its taxable interest,
dividends and other taxable ordinary income, net of expenses) and net realized
capital gain (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. A Portfolio will be subject to tax at regular
corporate rates on any income or gains that it does not distribute.
Distributions by a Portfolio made during the taxable year or, under specified
circumstances, within one month after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and can
therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, each Portfolio
must (1) derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are ancillary to such Portfolio's principal business of investing
in stock or securities) and other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income Requirement");
and (2) derive less than 30% of its gross income (exclusive of certain gains on
designated hedging transactions that are offset by realized or unrealized losses
on offsetting positions) from the sale or other disposition of stock, securities
or foreign currencies (or options, futures or forward contracts thereon) held
for less than three months (the "Short-Short Gain Test"). However, foreign
currency gains, including those derived from options, futures and forwards, will
not be characterized as Short-Short Gain if they are directly related to a
Portfolio's investment in stock or securities (or options or futures thereon).
Because of the Short-Short Gain Test, a Portfolio may have to limit
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the sale of appreciated securities it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Portfolio from disposing
of investments at a loss, since the recognition of a loss before the expiration
of the three-month holding period is disregarded. Interest (including original
issue discount) received by the Portfolio at maturity or upon the disposition of
a security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, for purposes of determining whether capital gain or loss
recognized by a Portfolio on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by such Portfolio as part of a "straddle"
or (iii) the asset is stock and such Portfolio grants certain call options with
respect thereto. However, for purposes of the Short-Short Gain Test, the holding
period of the asset disposed of may be reduced only in the case of clause (i)
above.
Certain debt securities purchased by a Portfolio (such as zero-coupon
bonds) may be treated for Federal income tax purposes as having original issue
discount. Original issue discount, generally defined as the excess of the stated
redemption price at maturity over the issue price, is treated as interest for
Federal income tax purposes. Whether or not a Portfolio actually receives cash,
it is deemed to have earned original issue discount income that is subject to
the distribution requirements of the Code. Generally, the amount of original
issue discount included in the income of the Portfolio each year is determined
on the basis of a constant yield to maturity that takes into account the
compounding of accrued interest.
A Portfolio may purchase debt securities at a discount that exceeds any
original issue discount that remained on the securities at the time the
Portfolio purchased the securities. This additional discount represents market
discount for income tax purposes. For a debt security purchased after April 30,
1993, which had an original maturity date of more than one year from the date of
issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless the Portfolio elects for all its debt securities having
a fixed maturity date of more than one year from the date of issue to include
market discount in income in taxable years to which it is attributable).
Generally, market discount accrues on a daily basis. A Portfolio may be required
to capitalize, rather than deduct currently, part or all of any net direct
interest expense on indebtedness incurred or continued to purchase or carry any
debt security having market discount (unless the Portfolio makes the election to
include market discount in income as it accrues).
At the close of each quarter of its taxable year, at least 50% of the value
of each Portfolio's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and securities
of other issuers (as to which such Portfolio has not invested more than 5% of
the value of its total assets in securities of such issuer and such Portfolio
does not hold more than 10% of the outstanding voting securities of such
issuer), and no more than 25% of the value of its total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Test").
If for any taxable year a Portfolio 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 such Portfolio's current and accumulated
earnings and profits. In such event, such distributions generally will be
eligible for the dividends-received deduction in the case of corporate
shareholders.
B-14
<PAGE>
Excise Tax on Regulated Investment Companies. A 4% non-deductible excise
tax is imposed on regulated investment companies that fail to distribute in each
calendar year an amount equal to 98% of ordinary taxable income for the calendar
year and 98% of capital gain net income for the one-year period ended on October
31 of such calendar year. The balance of such income must be distributed during
the next calendar year. For the foregoing purposes, a regulated investment
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year.
Treasury regulations may permit a regulated investment company in
determining its investment company taxable income and undistributed net capital
gain for any taxable year to treat any capital loss incurred after October 31 as
if it had been incurred in the succeeding year. For purposes of the excise tax,
a regulated investment company may (1) reduce its capital gain net income by the
amount of any net ordinary loss for any calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income prior
to the end of each calendar year to avoid liability for the excise tax. However,
investors should note that a Portfolio may in certain circumstances be required
to liquidate portfolio investments to make sufficient distributions to avoid
excise tax liability.
Distributions. Each Portfolio anticipates distributing substantially all of
its investment company taxable income for each taxable year. Such distributions
will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will generally not qualify for the 70%
dividends-received deduction for corporations.
Distributions of net capital gains, if any, which are designated by a
Portfolio as capital gain dividends are taxable to shareholders as long-term
capital gains, regardless of how long the shareholder has held the Portfolio's
shares, and are not eligible for a dividends-received deduction. The Portfolio
generally intends to distribute any net capital gains.
If a Portfolio should retain net capital gains, it will be subject to a tax
of 35% of the amount retained. Each Portfolio expects to designate amounts
retained, if any, as undistributed capital gains in a notice to its shareholders
who, if subject to U.S. Federal Income taxation on long-term capital gains, (i)
would be required to include in income for U.S. Federal Income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
and (ii) would be entitled to credit against their U.S. Federal income tax
liabilities for their proportionate shares of the tax paid by each Portfolio on
the undistributed amount and to claim refunds to the extent that their credits
exceed their liabilities. For U.S. Federal Income tax purposes, each adjusted
basis of the Portfolio shares owned by a shareholder of each Portfolio would be
increased by an amount equal to 65% of the amount of undistributed capital gains
included in the shareholder's income.
Investors should be careful to consider the tax implications of purchasing
shares just prior to the next dividend date of any ordinary income dividend or
capital gain dividend. Those purchasing just prior to an ordinary income
dividend or capital gain dividend will be taxable on the entire amount of the
dividend received, even though the net asset value per share on the date of such
purchase reflected the amount of such dividend.
Distributions by a Portfolio that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital to
the extent of (and in the reduction of) the shareholder's tax basis in his
shares; any excess will be treated as gain from the sale of his shares.
Distributions by a Portfolio will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of a Portfolio. 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,
B-15
<PAGE>
determined as of the reinvestment date. Ordinarily, shareholders are required to
take distributions by a Portfolio into account in the year in which the
distributions are made. However, distributions declared in October, November or
December of any year and payable to shareholders of record on a specified date
in such a month will be deemed to have been received by the shareholders (and
made by the Portfolio) on December 31 of such calendar year if such
distributions are actually made in January of the following year. Shareholders
will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year.
Sale of Shares. In general, upon the sale or other disposition of shares of
a Portfolio, a shareholder will realize a capital gain or loss which will be
long-term or short-term, depending upon the shareholder's holding period for the
shares. However, if the shareholder sells Portfolio shares to the issuing
Portfolio, proceeds received by the shareholders may, in some cases, be
characterized for tax purposes as dividends. Any loss realized on a sale or
exchange will be disallowed to the extent the shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on a disposition of Portfolio shares held by the shareholder for six months or
less will be treated as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Portfolio is the Distributor, which
receives no additional compensation for serving in this capacity.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
For purposes of quoting and comparing the performance of the Portfolios to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return and yield. Under the rules of the SEC ("SEC Rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(1 + T) (superior){N}=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year periods at the end of the 1,
5 or 10 year periods (or fractional portion
thereof).
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover 1, 5 and 10 year periods or a shorter period dating from the effectiveness
of a Portfolio's Registration Statement. In calculating the ending redeemable
value, the maximum sales load, if any, is deducted from the initial $1,000
payment and all dividends and distributions by a Portfolio are assumed to have
been reinvested at net asset value 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
B-16
<PAGE>
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 Portfolio would be included
at that time.
A Portfolio may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of such Portfolio with other
measures of investment return. For example, in comparing a Portfolio's total
return with data published by Lipper Analytical Services, Inc., or with the
performance of the Standard & Poor's 500 Stock Index of the Dow Jones Industrial
Average, the Portfolio calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Trust shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. 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, a Portfolio may
advertise its yield based on a 30-day (or one month) period ended on the date of
the most recent balance sheet included in its Registration Statement, computed
by dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to the
following formula:
a-b 6
YIELD = 2[( ----- + 1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
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 such Portfolio 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 is in such Portfolio's portfolio (assuming a month of 30 days) and
(3) computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in such Portfolio'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 Portfolio 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.
B-17
<PAGE>
A Portfolio may also from time to time advertise its yield based on a
30-day period ending on a date other than the most recent balance sheet included
in its Registration Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing period for which the
yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
30-day period) will be given no greater prominence than the information
prescribed under SEC Rules. In addition, all advertisements containing
performance data of any kind will include a legend disclosing that such
performance data represents past performance and that the investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
As of October 31, 1995, the shares of the Adjustable Rate and Government
Portfolios were beneficially owned by the Series of Astra Strategic Investment
Series as follows:
Adjustable Rate Portfolio
Astra Adjustable Rate Securities Trust I 17%
Astra Adjustable Rate Securities Trust I-A 51%
Astra Adjustable Rate Securities Trust II 14%
Astra Adjustable Rate Securities Trust III 1%
Astra Adjustable Rate Securities Trust IV 17%
Government Portfolio
Astra Adjustable U.S. Government Securities Trust I 55%
Astra Adjustable U.S. Government Securities Trust I-A 39%
Astra Adjustable U.S. Government Securities Trust II 2%
Astra Adjustable U.S. Government Securities Trust III 2%
Astra Adjustable U.S. Government Securities Trust IV 2%
ITEM 23. FINANCIAL STATEMENTS.
Financial Statements of the Portfolios are included herein.
B-18
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF OCTOBER 31, 1995
- ----------------------
<TABLE>
<CAPTION>
Market
Principal Interest Value
Amount Rate* Maturity (Note 2A)
- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES: 85.5%
U.S. GOVERNMENT AGENCIES: 81.3%
$ 5,186,964 Federal Home Loan Mtge. Corp., Pool 775487 .......... 6.133% 09/01/18 $ 5,164,271
5,618,142 Federal National Mtge. Assoc., Pool 60680 ........... 6.429% 02/01/28 5,628,676
4,895,959 Federal National Mtge. Assoc., Pool 65579 ........... 6.391% 07/01/28 4,905,139
9,096,717 Federal National Mtge. Assoc., Pool 70229 ........... 7.765% 05/01/19 9,386,675
3,582,331 Federal National Mtge. Assoc., Pool 220328 .......... 7.877% 03/01/17 3,707,712
2,374,071 Federal National Mtge. Assoc., Pool 292846 .......... 6.570% 09/01/24 2,423,037
3,989,012 Federal National Mtge. Assoc., Pool 303503 .......... 6.690% 11/01/01 4,032,652
8,562,146 Government National Mtge. Assoc., Pool 8157 ......... 6.500% 03/20/23 8,669,173
8,616,212 Government National Mtge. Assoc., Pool 8288 ......... 6.500% 09/20/23 8,740,070
4,973,171 Government National Mtge. Assoc., Pool 8660 ......... 6.500% 07/20/25 5,032,228
26,511,960 Government National Mtge. Assoc., Pool 8717 ......... 6.000% 10/25/25 26,561,670
9,800,000 Government National Mtge. Assoc., Pool 8720. ........ 6.500% 10/25/25 9,916,375
5,000,000 Government National Mtge. Assoc., Pool 8722 ......... 7.000% 10/01/25 5,109,375
35,500,000 Government National Mtge. Assoc., November TBA ...... 6.500% TBA 35,921,563
5,000,000 Government National Mtge. Assoc., November TBA ...... 7.000% TBA 5,109,375
------------
Total U.S. Government Agencies .................... 140,307,991
------------
SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES: 4.2%
11,675,216 (R)(I)Coast Federal Savings Bank 1991-1 ................... 2.424% 06/01/20 1,364,833
5,193,709 (R) Coast Federal Savings Bank 1991-2, Class B-1 ........ 3.090% 11/25/21 57,707
15,987,737 (R) Paine Webber Acceptance Corp 1991-1, Class B ........ 1.502% 02/21/21 143,138
19,138,236 (R)(I)Ryland Mortgage Securities Corp. 1993-6A, Class C-1 . 7.490% 12/29/31 5,642,526
------------
Total Subordinated Residential Mortgage
Securities 7,208,204
------------
Total Adjustable Rate Mortgage Securities 147,516,195
------------
FIXED RATE MORTGAGE SECURITIES: 7.0%
SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES: 7.0%
7,968,857 (R) Citibank NA Multifamily 1992-1, Class B ............. 8.625% 04/20/00 4,781,314
1,687,100 (R) DLJ Mortgage Acceptance Corp 1992-1, Class B ........ 7.925% 08/01/21 1,555,391
7,764,997 (R) USGI Capital Markets Group Inc, Multi Family
1992-1 ............................................. 8.500% 09/30/07 5,711,341
------------
Total Fixed Rate Mortgage Securities .............. 12,048,046
------------
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
Market
Principal Interest Value
Amount Rate* Maturity (Note 2A)
- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
SHORT-TERM SECURITIES: 17.6%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES: 17.6%
$20,515,000 Federal Home Loan Mtge. Corp. .......................... 5.850% 11/01/95 $20,515,000
10,000,000 Federal Home Loan Mtge. Corp. .......................... 5.640% 11/20/95 9,970,233
------------
Total Short-Term Investments 30,485,233
------------
Total Investments in Securities
(Cost $232,605,884) .............................. 110.1% 190,049,474
Liabilities in Excess of Other Assets--Net ........ (10.1)% (17,457,013)
----- ------------
Total Net Assets .................................. 100.0% $172,592,461
===== ============
- -------------
<FN>
(R) Restricted securities (See Note 3).
(I) Illiquid securities (See Note 3).
* Rates shown are as of October 31, 1995. Interest rates on adjustable rate
mortgage securities reset periodically.
** Cost for Federal income tax purposes is $232,605,884 and net unrealized
depreciation consists of:
Gross Unrealized Appreciation ..................... $ 361,145
Gross Unrealized Depreciation ..................... (42,917,555)
------------
Net Unrealized Depreciation ....................... ($42,556,410)
============
</FN>
</TABLE>
See Notes to Financial Statements
B-20
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ----------------------
<S> <C>
ASSETS:
Investments in securities at value (identified cost $232,605,884) (Notes 2A and 3) . $ 190,049,474
Cash ............................................................................... 175,828
Receivables:
Interest .......................................................................... 1,356,873
Principal repayments .............................................................. 32,932
Securities sold ................................................................... 28,122,324
Deferred organization expense (net of accumulated amortization of $67,107) (Note 2E) 16,096
Other assets ....................................................................... 19,526
-------------
Total Assets .................................................................... 219,773,053
-------------
LIABILITIES:
Payable for securities purchased ................................................... 46,209,665
Accrued expenses ................................................................... 232,277
Distributions payable to Trusts .................................................... 738,650
-------------
Total Liabilities ............................................................... 47,180,592
NET ASSETS .......................................................................... $ 172,592,461
=============
Net asset value per share ($172,592,461 / 2,198,563 shares) ......................... $ 78.50
=============
At October 31, 1995 the components of net assets were as follows:
Paid-in capital .................................................................... $ 310,164,972
Accumulated net realized loss on investments ....................................... (95,030,989)
Undistributed net investment income ................................................ 14,888
Net unrealized depreciation of investments ......................................... (42,556,410)
-------------
Net Assets ........................................................................ $ 172,592,461
=============
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
- ----------------------
INVESTMENT INCOME:
INCOME:
Interest .......................................................................... $ 22,554,011
-------------
EXPENSES:
Investment management fee (Note 4) ................................................ 1,550,152
Recordkeeping fees ................................................................ 512,856
Professional fees ................................................................. 228,225
Custody fees ...................................................................... 51,260
Miscellaneous ..................................................................... 45,928
Amortization of organization expense (Note 2E) .................................... 15,783
Trustees' fees .................................................................... 7,349
Shareholder servicing costs ....................................................... 6,947
-------------
Total expenses .................................................................. 2,418,500
-------------
Net investment income .......................................................... 20,135,511
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments .................................................. (62,035,769)
Net change in unrealized depreciation of investments .............................. 10,936,142
-------------
Net loss on investments .......................................................... (51,099,627)
-------------
Net decrease in net assets resulting from operations ............................ $ (30,964,116)
=============
</TABLE>
See Notes to Financial Statements
B-21
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ----------------------
1995 1994
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 20,135,511 $ 55,439,118
Net realized loss on investments .......................................... (62,035,769) (36,149,068)
Net change in unrealized depreciation of investments ...................... 10,936,142 (55,270,698)
------------ -------------
Net decrease in net assets resulting from operations ...................... (30,964,116) (35,980,648)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($4.828 and $4.786
per share, respectively) ................................................. (16,286,136) (45,148,450)
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change in
the number of outstanding shares (a) ..................................... (315,510,221) (677,765,844)
------------ -------------
Total decrease in net assets ........................................... (362,760,473) (758,894,942)
Net assets at the beginning of period ...................................... 535,352,934 1,294,247,876
------------ -------------
NET ASSETS at the end of period (including undistributed
net investment income of $14,888 and $-0-, respectively) .................. $172,592,461 $ 535,352,934
============ =============
- ----------
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
--------------------------- ---------------------------
Shares Value Shares Value
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Shares sold ................................... 12,991 $ 1,294,478 155,249 $ 15,049,299
Shares issued in payment of
distributions to shareholders ................ 105,611 8,569,781 257,920 24,531,711
---------- ------------- ---------- -------------
Shares repurchased ............................ (3,958,690) (325,374,480) (7,526,415) (717,346,854)
---------- ------------- ---------- -------------
Net decrease ................................ (3,840,088) $(315,510,221) (7,113,246) $(677,765,844)
========== ============= ========== =============
</TABLE>
See Notes to Financial Statements
B-22
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------
November 27, 1991
(commencement of
Year Ended October 31, operations) to
------------------------------------------- October 31,
1995 1994 1993 1992
------- -------- ------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ............. $88.650 $ 98.410 $99.600 $100.000
------- -------- ------- --------
Income (loss) from investment
operations--
Net investment income ........................... 5.750(b) 5.890 6.040 7.539
Net realized and unrealized loss
on investments ................................. (11.072)(b) (10.864) (0.601) (0.419)
------- -------- ------- --------
Total from investment
operations ................................... (5.322) (4.974) 5.439 7.120
------- -------- ------- --------
Less distributions--
Distributions from net investment
income ......................................... 4.828 4.786 6.061 7.520
Distributions from paid-in capital -- -- 0.568
------- -------- ------- --------
Total distributions ........................... 4.828 4.786 6.629 7.520
------- -------- ------- --------
Net asset value, end of period ................... $78.500 $ 88.650 $98.410 $ 99.600
======= ======== ======= ========
TOTAL RETURN ..................................... (6.00)% (5.25)% 5.62% 7.80%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) .................................. $172,592 $535,353 $1,294,248 $1,111,565
Ratio to average net assets--
Expenses ........................................ 0.86% 0.62% 0.61% 0.64%(a)
Net investment income ........................... 7.14% 6.17% 6.66% 7.09%(a)
Portfolio turnover rate .......................... 108% 83% 87% 152%
</TABLE>
- ----------
(a) Annualized.
(b) Based upon average shares outstanding throughout the period.
See Notes to Financial Statements.
B-23
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE U.S. GOVERNMENT SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ------------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Institutional Securities Trust (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Company was organized as a Massachusetts
Business Trust on September 4, 1991 with an unlimited number of shares of
beneficial interest without par value. The Company offers shares in two
non-diversified series, Astra (formerly Pilgrim) Institutional Adjustable U.S.
Government Securities Portfolio (the "Portfolio") and Astra (formerly Pilgrim)
Institutional Adjustable Rate Securities Portfolio. The Portfolio was structured
to serve as the investment vehicle for five affiliated open-end management
investment companies: Astra (formerly Pilgrim) Adjustable U.S. Government
Securities Trust I, I-A, II, III and IV (collectively, the "Trusts"). The Trusts
invest substantially all of their net assets in the Portfolio, which has the
same investment objective as that of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. A valuation committee of the Board of Trustees is
responsible for establishing security valuation policies, reviewing the
valuation of portfolio securities, monitoring the level of illiquid
securities and reviewing liquidity determinations. The Company considers to
be illiquid all securities which cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which the
Portfolio values the security. Additionally, interest rate swap contracts,
interest-only and principal-only mortgage backed securities, and special
hazard certificates are treated as illiquid securities in accordance with
Securities and Exchange Commission policy. Liquid securities are valued
primarily using prices provided by independent pricing services which use
prices provided by market-makers or estimates of market values obtained
from yield and other data relating to instruments or securities with
similar characteristics, and secondarily based upon market quotations
and/or other available information. Securities for which reliable market
information or pricing service quotes are not readily available, including
illiquid securities, are valued at fair value as determined in good faith
by, or under procedures established by, the Board of Trustees, which
procedures may include the delegation of certain responsibilities regarding
valuation to Astra (formerly Pilgrim) Management Corporation (the
"Manager"). The Manager reports, as necessary, to the Trustees of the
Company regarding portfolio valuation determinations. Short-term securities
with less than sixty days remaining to maturity when acquired by the
Portfolio will be valued on an amortized cost basis by the Portfolio when
the Board of Trustees has determined that amortized cost is fair value.
B. FEDERAL INCOME TAXES. The Portfolio intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions are accounted for on the trade date.
Interest income on adjustable rate mortgage securities is recorded on the
accrual basis at current
B-24
<PAGE>
interest rates. Dividends to shareholders from net investment income are
declared daily and paid or reinvested monthly. Discounts and premiums on
debt securities are amortized in accordance with the provisions of the
Internal Revenue Code.
D. INTEREST RATE SWAP CONTRACTS. The Portfolio may enter into interest rate
swap contracts as a hedging technique. Interest rate swap contracts are
marked-to-market daily using market quotations or independent pricing
services. The change in market value is recorded by the Portfolio as an
unrealized gain or loss. Interest income (expense) is accrued daily on the
contract's notional amount and applicable interest rates.
Interest rate swap contracts may expose the Portfolio to risks resulting
from unanticipated movements in interest rates or the failure of the
counterparty to the agreement to perform in accordance with the terms of
the contract.
E. DEFERRED ORGANIZATION EXPENSES. All of the Portfolio's expenses in
connection with its organization are being borne by the Portfolio and will
be amortized on a straight-line basis over a period of five years.
NOTE 3--INVESTMENTS
For the year ended October 31, 1995, the cost of purchases and the proceeds from
sales of investments and principal repayments, excluding short-term securities,
aggregated $279,816,300 and $517,132,104, respectively.
On October 31, 1995, the Portfolio held restricted securities (i.e., securities
which may not be publicly sold without registration under the Federal Securities
Act of 1933 (the "'33 Act") or without an exemption under the '33 Act). The
valuation committee of the Board has reviewed the trading markets for certain of
the Portfolio's restricted securities and has determined that they are liquid
and readily marketable. At October 31, 1995 other restricted securities having a
market value of $7,007,359, representing 4.1% of the Portfolio's net assets have
been determined to be illiquid. On October 31, 1995, and on the acquisition
dates of the restricted securities, there were no market quotations available
for unrestricted securities of the same class. Dates of acquisition and costs of
restricted securities are as follows:
<TABLE>
<CAPTION>
Principal Date(s) of
Amount Acquisition Cost
- --------- --------------- ------------
<S> <C> <C> <C>
$ 7,968,857 Citibank NA Multifamily 1992-1, Class B ........... 03/25/92 $ 6,748,374
11,675,216 Coast Federal Savings Bank 1991-1 ................. 06/27/91 TO 08/02/91 10,494,539
5,193,709 Coast Federal Savings Bank 1991-2, Class B-1 ...... 12/04/91 4,396,398
1,687,100 DLJ Mortgage Acceptance Corp 1992-1,
Class B .......................................... 03/05/92 1,361,846
15,987,737 PaineWebber Mortgage Acceptance Corp
1991-1, Class B .................................. 10/24/91 TO 12/11/91 15,916,334
19,138,236 Ryland Mortgage Securities Corp 1993-6A,
Class C-1 ........................................ 09/01/93 16,927,471
7,764,997 USGI Capital Markets Group Inc, Multi Family
1992-1 ........................................... 09/28/92 6,012,758
-----------
Total restricted securities (Market Value of
$19,256,250 was 11.1% of net assets at
October 31, 1995) ................................ $61,857,720
===========
</TABLE>
B-25
<PAGE>
As of October 31, 1995 U.S. Government Securities with a value of $52,657,404
were placed in a separate account at the Custodian Bank to cover certain
purchases of securities made on a delayed delivery basis.
At October 31, 1995 the Portfolio had a capital loss carryforward for Federal
income tax purposes of $95,031,000 of which $6,618,000 expires in 2000,
$4,385,000 in 2001, $25,842,000 in 2002, and $58,186,000 in 2003.
NOTE 4--INVESTMENT MANAGEMENT FEE AND
OTHER TRANSACTIONS WITH AFFILIATES
The Manager provides the Portfolio with investment management and administrative
services under an Investment Management Agreement. The Manager furnishes all
investment advice, office space and salaries of personnel needed by the
Portfolio, except those involved with record-keeping, daily net asset value
calculations, placing orders for the execution of portfolio transactions,
shareholder servicing, and maintaining registration of shares under state
securities laws. As compensation for its services, the Manager is paid monthly a
fee which is equal to the annual rate of 0.55% of the first $500 million of
average daily net assets, 0.50% on net assets from $500 million to $1 billion
and 0.45% on net assets over $1 billion. The Manager has agreed to reimburse the
Portfolio and Trusts to the extent required so that the aggregate expenses do
not exceed the expense limitations applicable to the Portfolio and Trusts under
the securities laws or regulations of those states or jurisdictions in which the
Trusts' shares are registered or qualified for sale. Currently, the most
restrictive of such expense limitations would require the Manager to reimburse
the Portfolio and Trusts to the extent required so that the Portfolio's and
Trusts' expenses, as described above, for any fiscal year do not exceed 2-1/2%
of the first $30 million of average daily net assets, 2% of the next $70 million
of average net assets and 1-1/2% of the remaining average net assets. The amount
of any such required reimbursement is limited to the management fees paid by the
Portfolio to the Manager. Expenses for purposes of this expense limitation
include the management fee, but exclude distribution expenses, brokerage
commissions and fees, taxes, interest and extraordinary expenses such as
litigation, paid or incurred by the Portfolio or Trusts.
Certain officers and trustees of the Company are also officers and/or directors
of the Trusts and the Manager.
NOTE 5--LEGAL MATTERS
Between December 1994 and July 1995, various complaints have been filed by
certain shareholders of Astra Adjustable U.S. Government Securities Trusts I,
I-A, II, III and IV and Astra Adjustable Rate Securities Trusts I, I-A, II, III
and IV (collectively, the "Astra Trusts") in the United States District Court
for the Central District of California and in the Superior Court for the State
of California against the Company and certain of its officers and trustees, the
Astra Trusts and certain of their officers and trustees, Astra Management
Corporation, Astra Fund Distributors Corporation, and, Atlas Holdings Group Inc.
and its principal stockholder and certain of its employees. These complaints
have been consolidated in the United States District Court for the Central
District of California in the matter referred to as "In re Pilgrim Securities
Litigation."
The complaints allege violations of the Securities Act of 1933 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the two Portfolios of the
Company. The complaints seek relief measured by the consideration each
shareholder paid for shares of the Astra Trusts with interest thereon, less the
amount of income received thereon, or in the event the shareholder no longer
owns such shares, for damages, plus interest. Management of the Company believes
the complaints are without merit and intents, and has been advised that each of
the other defendants intends, to vigorously defend these actions. The ultimate
outcome of these matters, however, cannot presently be determined and
accordingly the Portfolios have made no provision for any losses which may
result from settlement of these complaints.
B-26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ---------------------
To the Shareholders of Astra Institutional Adjustable
U.S. Government Securities Portfolio and the
Trustees of Astra Institutional Securities Trust
San Diego, California
We have audited the statement of assets and liabilities of Astra (formerly
Pilgrim) Institutional Adjustable U.S. Government Securities Portfolio (a series
of shares Astra (formerly Pilgrim) Institutional Securities Trust), including
the portfolio of investments, as of October 31, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial highlights
for each of the three years in the period then ended and for the period from
November 22, 1991 (commencement of operations) to October 31, 1992. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Astra Institutional Adjustable U.S. Government Securities Portfolio as of
October 31, 1995, and the results of its operations for the year then ended, and
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the three years in the period then
ended and for the period from November 22, 1991 to October 31, 1992, in
conformity with generally accepted accounting principles.
As discussed in Note 5 to the accompanying financial statements, Astra
Institutional Adjustable U.S. Government Securities Portfolio has been named as
a defendant in various complaints alleging violations of the Securities Act of
1933 and the Investment Company Act of 1940 and seeking substantial relief. The
outcome of these matters cannot presently be determined and accordingly no
provision for any losses which may result from settlement of these matters has
been made in the accompanying financial statements.
As discussed in Notes 2A and 3, the financial statements include investments in
subordinated residential and derivative mortgage securities valued at $7,007,359
(representing 4.1% of net assets), which the Board of Trustees of Astra
Institutional Securities Trust has determined are illiquid and whose fair value
is determined under procedures approved by Astra Institutional Securities
Trust's Board of Trustees, in the absence of readily ascertainable market
values. We have reviewed the procedures adopted by the Board of Trustees in
determining fair value and have inspected underlying documentation, and in the
circumstances we believe the procedures are reasonable and the documentation of
those procedures appropriate. However, because the market value of these
securities can only be established by negotiation between parties in a sales
transaction, and because of the uncertainty inherent in the valuation process,
the fair values as determined may differ significantly from the values that
would have been used had a ready market for these securities existed.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
B-27
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS AS OF OCTOBER 31, 1995
- ------------
Market
Principal Interest Value
Amount Rate* Maturity (Note 2A)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE SECURITIES: 85.5%
U.S. GOVERNMENT AGENCY SECURITIES: 52.2%
$ 2,465,460 Federal Home Loan Mortgage Corporation,
Pool 775572 ...................................... 6.615% 06/01/24 $ 2,480,869
1,989,269 Government National Mortgage Association,
Pool 8660 ........................................ 6.500% 07/20/25 2,012,891
5,076,136 Government National Mortgage Association,
Pool 8685 ........................................ 6.500% 08/20/95 5,136,415
5,000,000 Government National Mortgage Association,
November TBA ..................................... 6.500% TBA 5,059,375
------------
Total U.S. Government Agency Securities ........ 14,689,550
------------
SUBORDINATED RESIDENTIAL MORTGAGE SECURITIES: 33.3%
1,554,415(R) Coast Federal Bank 1991-2, Class B-1 .............. 2.709% 11/25/21 17,271
613,146(R) Paine Webber Mortgage Acceptance Corp. 1991-1,
Class B .......................................... 1.050% 02/21/21 5,490
13,541,388(R)(I) Ryland Mortage Securities Corp 1993-6A, Class C-1 . 7.530% 12/29/31 3,992,408
3,350,527(R)(I) Securitized Asset Sales Inc. 1993-5, Class B-1 .... 8.417% 06/25/23 2,278,358
5,624,635(R)(I) Securitized Asset Sales Inc. 1993-8, Class D ...... 7.599% 12/26/23 3,093,549
------------
Total Subordinated Residential
Mortgage Securities ........................... 9,387,076
------------
Total Adjustable Rate Mortgage Securities ...... 24,076,626
------------
SHORT-TERM SECURITIES: 31.8%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES: 31.8%
6,650,000 Federal Home Loan Mortgage Corporation ............ 5.850% 11/01/95 6,650,000
2,330,000 Federal National Mortgage Association ............. 5.630% 11/21/95 2,322,712
------------
Total Short-Term Securities .................... 8,972,712
------------
Total Investments In Securities
(Cost $46,248,784) ............................... 117.3% 33,049,338
Liabilities in Excess of Other Assets-Net ......... ( 17.3%) (4,882,439)
----- ------------
Total Net Assets .................................. 100.0% $ 28,166,899
===== ============
- ----------
</TABLE>
(R) Restricted securities (See Note 3).
(I) Illiquid securities (See Note 3).
* Rates shown are as of October 31, 1995. Interest rates on adjustable rate
mortgage securities reset periodically.
** Cost for Federal income tax purposes is $46,248,784 and net unrealized
depreciation consists of:
Gross Unrealized Appreciation ........................ $ 43,399
Gross Unrealized Depreciation ........................ (13,242,845)
-----------
Net Unrealized Depreciation .......................... $(13,199,446)
============
See Notes to Financial Statements
B-28
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ------------
<S> <C>
ASSETS:
Investments in securities at value (identified cost $46,248,784) (Notes 2A and 3) ...... $ 33,049,338
Cash ................................................................................... 3,452
Receivables:
Interest .............................................................................. 293,803
Principal repayments .................................................................. 11,826
Deferred organization expense (net of accumulated amortization of $37,181) (Note 2E) ... 9,549
Prepaid expenses ....................................................................... 11,619
-------------
Total Assets ......................................................................... 33,379,587
-------------
LIABILITIES:
Payable for securities purchased ....................................................... 5,072,083
Accrued expenses ....................................................................... 140,605
-------------
Total Liabilities .................................................................... 5,212,688
-------------
NET ASSETS .............................................................................. $ 28,166,899
=============
Net asset value per share ($28,166,899 / 584,020 shares) ................................ $ 48.23
=============
At October 31, 1995 the components of net assets were as follows:
Paid-in capital ........................................................................ $ 142,344,982
Accumulated net realized loss on investments ........................................... (100,978,637)
Net unrealized depreciation of investments ............................................. (13,199,446)
-------------
Net Assets ........................................................................... $ 28,166,899
=============
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
INVESTMENT INCOME:
INCOME:
Interest .............................................................................. $ 9,633,825
-------------
EXPENSES:
Investment management fee (Note 4) .................................................... 629,095
Professional fees ..................................................................... 199,473
Recordkeeping fees .................................................................... 157,850
Custody fees .......................................................................... 39,693
Amortization of organization expense (Note 2E) ........................................ 9,519
Miscellaneous ......................................................................... 8,873
Shareholder servicing costs ........................................................... 7,795
-------------
Total expenses ....................................................................... 1,052,298
-------------
Net investment income ............................................................... 8,581,527
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ...................................................... (85,991,915)
Net change in unrealized depreciation of investments .................................. 11,674,390
-------------
Net loss on investments .............................................................. (74,317,525)
-------------
Net decrease in net assets resulting from operations ................................ $ (65,735,998)
=============
</TABLE>
See Notes to Financial Statements
B-29
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
- ------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 8,581,527 $ 32,919,997
Net realized loss on investments ................................ (85,991,915) (16,543,911)
Net change in unrealized depreciation of investments ............ 11,674,390 (29,384,149)
------------ ------------
Net decrease in net assets resulting from operations ............ (65,735,998) (13,008,063)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income ($2.545 and $6.040
per share, respectively) ....................................... (4,981,182) (31,490,080)
Distributions from paid-in capital ($0.316 per share) ........... (619,391) --
CAPITAL SHARE TRANSACTIONS:
Net decrease in net assets derived from the net change
in the number of outstanding shares(a) ......................... (234,382,963) (77,417,265)
------------ ------------
Total decrease in net assets ................................. (305,719,534) (121,915,408)
Net assets at the beginning of the period ....................... 333,886,433 455,801,841
------------ ------------
NET ASSETS at the end of the period ............................. $ 28,166,899 $333,886,433
============ ============
</TABLE>
- --------
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1995 October 31, 1994
----------------------------- --------------------------
Shares Value Shares Value
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ...................... 25,199 $ 2,037,744 2,178,149 $ 214,199,679
Shares issued in payment of
distributions to shareholders ... 48,815 3,084,153 98,531 9,503,167
Shares repurchased ............... (3,211,688) (239,504,860) (3,156,985) (301,120,111)
---------- ------------- ---------- -------------
Net decrease .................... (3,137,674) $(234,382,963) (880,305) $ (77,417,265)
========== ============= ========== =============
</TABLE>
See Notes to Financial Statements
B-30
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1995
- ------------
<S> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received ................................................................. $ 12,843,590
Operating expenses paid ........................................................... (1,430,432)
Net proceeds from disposition of short-term investments ........................... 32,787,896
Purchases of portfolio securities ................................................. (53,676,590)
Proceeds from disposition of portfolio securities and interest rate swap contracts 245,983,052
Proceeds from principal paydowns .................................................. 8,086,339
-------------
Net cash provided by operating activities ........................................ 244,593,855
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital stock sold ................................................. 2,037,744
Payments for capital stock redeemed .............................................. (239,504,860)
Cash dividends paid (a) .......................................................... (3,529,591)
Net decrease in cash overdraft ................................................... (3,593,696)
-------------
Net cash used for financing activities .......................................... (244,590,403)
-------------
Net change in cash ................................................................ 3,452
Cash at beginning of period ....................................................... --
-------------
Cash at end of period ............................................................. $ 3,452
=============
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations ............................. $ (65,735,998)
-------------
Adjustments to reconcile net decrease in net assets from operations to
net cash provided by operating activities:
Decrease in investments in securities .......................................... 311,156,139
Decrease in receivable for securities sold ..................................... 8,481,585
Decrease in receivables for principal paydowns ................................. 21,193
Increase in prepaid expenses ................................................... (11,619)
Decrease in deferred organization expenses ..................................... 9,520
Decrease in accrued expenses ................................................... (376,035)
Decrease in other liabilities .................................................. (138,402)
Decrease in interest receivable ................................................ 4,839,945
Decrease in interest rate swap contracts ....................................... 1,573,361
Decrease in payable for securities purchased ................................... (15,225,834)
-------------
Total adjustments ............................................................ 310,329,853
-------------
Net cash provided by operating activities .................................. $ 244,593,855
=============
- --------
<FN>
(a) Non-cash financing activities included herein consist of reinvestment of
distributions to shareholders of $3,084,153.
</FN>
</TABLE>
See Notes to Financial Statements
B-31
<PAGE>
<TABLE>
<CAPTION>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------
November 22, 1991
(commencement of
Year Ended October 31, operations) to
-------------------------------------- October 31,
1995 1994 1993 1992
------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ......... $89.710 $ 99.040 $ 99.050 $100.000
------- -------- -------- --------
Income (loss) from investment operations--
Net investment income ....................... 6.049(d) 6.460 7.804 8.606
Net realized and unrealized loss
on investments ............................. (44.668)(d) (9.750) (0.004) (0.950)
------- -------- -------- --------
Total from investment operations .......... (38.619) (3.290) 7.800 7.656
------- -------- -------- --------
Less distributions--
Distributions from net investment
income ..................................... 2.545 6.040 7.810 8.606
Distributions from paid-in capital .......... 0.316 -- -- --
------- -------- -------- --------
Total distributions ....................... 2.861 6.040 7.810 8.606
------- -------- -------- --------
Net asset value, end of period ............... $48.230 $ 89.710 $ 99.040 $ 99.050
======= ======== ======== ========
TOTAL RETURN ................................. (44.04)% (3.56)% 8.14% 8.51%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) ..... $28,167 $333,886 $455,802 $156,682
Ratio to average net assets--
Expenses .................................... 1.09% 0.76% 0.76% 0.76%(a)(b)
Net investment income ....................... 8.87% 6.55% 7.61% 9.14%(a)(c)
Portfolio turnover rate ...................... 45% 61% 107% 254%
- ------------
<FN>
(a) Annualized.
(b) Ratio of expenses to average net assets prior to expense waivers was
0.79%(a).
(c) Ratio of net investment income to average net assets prior to expense
waivers was 9.11%(a).
(d) Based upon average shares outstanding throughout the period.
</FN>
</TABLE>
See Notes to Financial Statements
B-32
<PAGE>
ASTRA INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1995
- ------------
NOTE 1--ORGANIZATION
Astra (formerly Pilgrim) Institutional Securities Trust (the "Company") is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Company was organized as a Massachusetts
Business Trust on September 4, 1991 with an unlimited number of shares of
beneficial interest without par value. The Company offers shares in two
non-diversified series, Astra (formerly Pilgrim) Institutional Adjustable Rate
Securities Portfolio (the "Portfolio") and Astra (formerly Pilgrim)
Institutional Adjustable U.S. Government Securities Portfolio. The Portfolio was
structured to serve as the investment vehicle for five affiliated open-end
management investment companies: Astra (formerly Pilgrim) Adjustable Rate
Securities Trust I, I-A, II, III and IV (collectively, the "Trusts"). The Trusts
invest substantially all of their net assets in the Portfolio, which has the
same investment objectives as that of the Trusts.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. valuation committee of the Board of Trustees is
responsible for establishing security valuation policies, reviewing the
valuation of portfolio securities, monitoring the level of illiquid
securities and reviewing liquidity determinations. The Company considers to
be illiquid all securities which cannot be disposed of within seven days in
the ordinary course of business at approximately the amount at which the
Portfolio values the security. Additionally, interest rate swap contracts,
interest-only and principal-only mortgage backed securities, and special
hazard certificates are treated as illiquid securities in accordance with
Securities and Exchange Commission policy. Liquid securities are valued
primarily using prices provided by independent pricing services which use
prices provided by market-markers or estimates of market values obtained
from yield and other data relating to instruments or securities with
similar characteristics, and secondarily based upon market quotation and/or
other available information. Securities for which reliable market
information or pricing service quotes are not readily available, including
illiquid securities, are valued at fair value as determined in good faith
by, or under procedures established by, the Board of Trustees, which
procedures may include the delegation of certain responsibilities regarding
valuation to Astra (formerly Pilgrim) Management Corporation (the
"Manager"). The Manager reports, as necessary, to the Trustees of the
Company regarding portfolio valuation determinations. Short-term securities
with less than sixty days remaining to maturity when acquired by the
Portfolio are valued on an amortized cost basis by the Portfolio when the
Board of Trustees has determined that amortized cost is fair value.
B. FEDERAL INCOME TAXES. The Portfolio intends to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Therefore,
no Federal income tax provision is required.
C. SECURITY TRANSACTIONS, INCOME AND DISTRIBUTIONS. As is common in the
industry, security transactions are accounted for on the trade date.
Interest income on adjustable rate mortgage securities is recorded on the
accrual basis at current interest rates. Dividends to shareholders from
B-33
<PAGE>
net investment income are declared daily and paid or reinvested monthly.
Discounts and premiums on debt securities are amortized in accordance with
the provisions of the Internal Revenue Code.
D. INTEREST RATE SWAP CONTRACTS. The Portfolio may enter into interest rate
swap contracts as a hedging technique. Interest rate swap contracts are
marked-to-market daily using market quotations or independent pricing
services. The change in market value is recorded by the Portfolio as an
unrealized gain or loss. Interest income (expense) is accrued daily on the
contract's notional amount and applicable interest rates.
Interest rate swap contracts may expose the Portfolio to risks resulting
from unanticipated movements in interest rates or the failure of the
counterparty to the agreement to perform in accordance with the terms of
the contract.
E. DEFERRED ORGANIZATION EXPENSES. All of the Portfolio's expenses in
connection with its organization are being borne by the Portfolio and are
amortized on a straight line basis over a period of five years.
NOTE 3--INVESTMENTS
For the year ended October 31, 1995, the cost of purchases and the proceeds from
sales of investments and principal repayments, excluding short-term securities,
aggregated $38,450,756 and $247,752,582, respectively.
On October 31, 1995, the Portfolio held restricted securities (i.e., securities
which may not be publicly sold without registration under the Federal Securities
Act of 1933 (the "33 Act") or without an exemption under the 33 Act). The
valuation committee of the Board has reviewed the trading markets for certain of
the Portfolio's restricted securities and has determined that they are liquid
and readily marketable. At October 31, 1995 other restricted securities having a
market value of $9,364,315, representing 33.2% of the Portfolio's net assets
have been determined to be illiquid. On October 31, 1995, and on the acquisition
dates of the restricted securities, there were no market quotations available
for unrestricted securities of the same class. Dates of acquisition and costs of
restricted securities are as follows:
<TABLE>
<CAPTION>
PRINCIPAL DATE(S) OF
AMOUNT ACQUISITION COST
---------- --------------- ----------
<S> <C> <C>
$1,554,415 Coast Federal Bank 1991-2 Class B-1 .................. 12/04/91 to 01/16/92 $ 1,313,968
613,146 Paine Webber Mortgage Acceptance Corp
1991-1, Class B .................................... 12/05/91 to 01/01/92 610,922
13,541,388 Ryland Mortgage Securities Corp. 1993-6A,
Class C-1 .......................................... 09/01/93 12,192,505
3,350,527 Securitized Asset Sales Inc. 1993-5,
Class B-1 .......................................... 09/28/93 3,157,158
5,624,635 Securitized Asset Sales Inc. 1993-8,
Class D ........................................... 03/04/94 5,355,368
-----------
Total restricted securities (Market Value of
$9,387,076 was 33.3% of net assets at
October 31, 1995) ................................. $22,629,921
===========
</TABLE>
As of October 31, 1995 U.S. Government Securities with a value of $5,136,415
were placed in a separate account at the Custodian Bank to cover
B-34
<PAGE>
certain purchases of securities made on a delayed delivery basis.
At October 31, 1995 the Portfolio had a capital loss carryforward for Federal
income tax purposes of $100,979,000 of which $221,000 expires in 2000,
$3,271,000 in 2001, $15,105,000 in 2002 and $82,382,000 in 2003.
NOTE 4--INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Manager provides the Portfolio with investment management and administrative
services under an Investment Management Agreement. The Manager furnishes all
investment advice, office space and salaries of personnel needed by the
Portfolio, except those involved with record keeping, daily net asset value
calculations, placing orders for the execution of portfolio transactions,
shareholder servicing, and maintaining registration of shares under state
securities laws. As compensation for its services, the Manager is paid monthly a
fee which is equal to the annual rate of 0.65% of the first $500 million of
average daily net assets, 0.60% on net assets from $500 million to $1 billion
and 0.55% on net assets over $1 billion.
The Manager has agreed to reimburse the Portfolio and Trusts to the extent
required so that the aggregate expenses do not exceed the expenses limitations
applicable to the Portfolio and Trust under the securities laws or regulations
of those states or jurisdictions in which the Trusts' shares are registered or
qualified for sale. Currently, the most restrictive of such expense limitations
would require the Manager to reimburse the Portfolio and Trusts to the extent
required so that the Portfolio's and Trusts' expenses, as described above, for
any fiscal year do not exceed 2-1/2% of the first $30 million of average daily
net assets, 2% of the next $70 million of average net assets and 1-1/2% of the
remaining average net assets. The amount of any such required reimbursement is
limited to the management fees paid by the Portfolio to the Manager. Expenses
for purposes of this expense limitation include the management fee, but exclude
distribution expenses, brokerage commissions and fees, taxes, interest and
extraordinary expenses such as litigation, paid or incurred by the Portfolio or
Trusts.
Certain officers and trustees of the Company are also officers and/or
trustees/directors of the Trusts and the Manager.
NOTE 5--LEGAL MATTERS
Between December 1994 and May 1995, various complaints have been filed by
certain shareholders of Astra Adjustable U.S. Government Securities Trusts I,
I-A, II, III and IV and Astra Adjustable Rate Securities Trusts I, I-A, II, III
and IV (collectively, the "Astra Trusts") in the United States District Court
for the Central District of California and in the Superior Court for the State
of California against the Company and certain of its officers and trustees, the
Astra Trusts and certain of their officers and trustees, Astra Management
Corporation, Astra Fund Distributors Corporation, and Atlas Holding Group Inc.
and its principal stockholder and certain of its employees. These complaints
have been consolidated in the United States District Court for the Central
District of California in the matter referred to as "In re Pilgrim Securities
Litigation."
The complaints allege violations of the Securities Act of 1933 and the
Investment Company Act of 1940 relating principally to disclosure concerning
pricing and liquidity of portfolio securities held by the two Portfolios of the
Company. The complaints seek relief measured by the consideration each
shareholder paid for shares of the Astra Trusts with interest thereon, less the
amount of income received thereon, or in the event the shareholder no longer
owns such shares, for damages, plus interest. Management of the Company believes
the complaints are without merit and intends, and has been advised that each of
the other defendants intends, to vigorously defend these actions. The ultimate
outcome of these matters, however, cannot presently be determined and
accordingly the Portfolios
B-35
<PAGE>
have made no provision for any losses which may result from settlement of these
complaints.
NOTE 6--SUBSEQUENT EVENT
On December 6, 1995 the Portfolio entered into contracts for the sale of three
subordinated residential mortgage securities which the Valuation Committee of
the Company's Board of Trustees had designated as illiquid (see Note 3). These
securities were carried at fair value of $9,364,315, representing approximately
33.2% of the Portfolio's net assets, as of October 31, 1995. The total
consideration received from these sales was $8,266,676 which was approximately
11.7% less than fair value as of October 31, 1995.
B-36
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- ------------
To the Shareholders of Astra Institutional Adjustable Rate
Securities Portfolio and the Trustees of Astra Institutional Securities Trust
San Diego, California
We have audited the statement of assets and liabilities of Astra (formerly
Pilgrim) Institutional Adjustable Rate Securities Portfolio (a series of shares
of Astra (formerly Pilgrim) Institutional Securities Trust), including the
portfolio of investments, as of October 31, 1995, and the related statements of
operations and cash flows for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of three years in the period then ended and for the period
from November 22, 1991 (commencement of operations) to October 31, 1992. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free from material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Astra
Institutional Adjustable Rate Securities Portfolio as of October 31, 1995, and
the results of its operations and its cash flows for year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the three years in the period then ended
and for the period from November 22, 1991 to October 31, 1992, in conformity
with generally accepted accounting principles.
As discussed in Note 5 to the accompanying financial statements Astra
Institutional Adjustable Rate Securities Portfolio has been named as a defendant
in various complaints alleging violations of the Securities Act of 1933 and the
Investment Company Act of 1940 and seeking substantial relief. The outcome of
these matters cannot presently be determined and accordingly no provision for
any losses which may result from settlement of these matters has been made in
the accompanying financial statements.
As discussed in Notes 2A and 3, the financial statements include investments in
subordinated residential mortgage securities valued at $9,364,315 (representing
33.2% of net assets), which the Board of Trustees of Astra Institutional
Securities Trust has determined are illiquid and whose fair value is determined
under procedures approved by Astra Institutional Securities Trust's Board of
Trustees, in the absence of readily ascertainable market values. We have
reviewed the procedures adopted by the Board of Trustees in determining fair
value and have inspected underlying documentation, and in the circumstance we
believe the procedures are reasonable and the documentation of those procedures
appropriate. However, because the market value of these securities can only be
established by negotiation between parties in a sales transaction, and because
of the uncertainty inherent in the valuation process, the fair values as
determined may differ significantly from the values that would have been used
had a ready market for these securities existed.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 7, 1995
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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: None.
In Part B: Audited Financial Statements for Astra Institutional
Adjustable U.S. Government Securities Portfolio and
Astra Institutional Adjustable Rate Securities
Portfolio for the fiscal year ended October 31, 1995
including the report of Tait, Weller & Baker,
independent public accountants for the Portfolios.
In Part C: None.
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust of Astra
Institutional Securities Trust (formerly Pilgrim
Institutional Securities Trust).(1)
(1)(b) Name Change Amendment to the Agreement and Declaration
of Trust of Astra Institutional Securities Trust.
(formerly Pilgrim Institutional Securities Trust).(2)
(2)(a) By-laws of Astra Institutional Securities Trust
(formerly Pilgrim Institutional Securities Trust).(1)
(2)(b) Name Change Amendment to the By-laws of Astra
Institutional Securities Trust. (formerly Pilgrim
Institutional Securities Trust).(2)
(3) Not applicable.
(4) Specimen share certificate.(1)
(5)(a) Form of Investment Management Agreement.(1)
(5)(b) Form of Name Change Amendment to Investment Management
Agreement.(2)
(6) Not applicable.
(7) Not applicable.
(8)(a) Custodian Services Agreement.(2)
- --------------
(1) Incorporated herein by reference from AIST's initial registration statement,
filed September 9, 1991.
(2) Filed herewith.
C-1
<PAGE>
(8)(b) Sub-Administration Agreement.(2)
(8)(c) Accounting Services Agreement.(2)
(9) Form of Transfer Agency Agreement.(1)
(10) Not applicable.
(11) Not applicable.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Not applicable.
(16) Not applicable.
(17) Financial Data Schedule.(2)
(18) Not applicable.
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 January 31, 1996:
(1) (2)
Title of Class Number of Record Holders
--------------- -------------------------
Astra Institutional
Adjustable U.S. Government
Securities Portfolio -- 5
Shares of Beneficial
Interest (no Par Value)
Astra Institutional
Adjustable Rate Securities
Portfolio -- 4
Shares of Beneficial
Interest (no Par Value)
- --------------
(1) Incorporated herein by reference from AIST's initial registration statement,
filed September 9, 1991.
(2) Filed herewith.
C-2
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article VIII of Registrant's Declaration of
Trust referenced herewith as Exhibit (b)(1).
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.
The exclusive placement agent for the Portfolio is Astra Fund Distributors
Corp., which receives no additional compensation for serving in this capacity.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books or other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 will be kept by the Registrant, its
Investment Manager or its Shareholder Servicing Agent.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Parts A
and B.
ITEM 32. UNDERTAKINGS.
None.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant 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 Los Angeles and the State of California, on the 7th day of February, 1996.
ASTRA INSTITUTIONAL SECURITIES TRUST
(formerly Pilgrim Institutional Securities Trust)
/s/ PALOMBA WEINGARTEN
-------------------------------------------
Palomba Weingarten, Chairman
S-1
<PAGE>
EXHIBIT INDEX
Exhibits: Description
--------- -----------
(1)(b) Name Change Amendment to the Agreement and Declaration of
Trust of Astra Institutional Securities Trust. (formerly
Pilgrim Institutional Securities Trust).
(2)(b) Name Change Amendment to the By-laws of Astra Institutional
Securities Trust. (formerly Pilgrim Institutional Securities
Trust).
(5)(b) Form of Name Change Amendment to Investment Management
Agreement.
(8)(a) Custodian Services Agreement.
(8)(b) Sub-Administration Agreement.
(8)(c) Accounting Services Agreement.
(17) Financial Data Schedule.
EXHIBIT 1-B
ASTRA INSTITUTIONAL SECURITIES TRUST
(formerly known as Pilgrim Institutional Securities Trust)
AMENDMENT TO THE AGREEMENT AND DECLARATION OF TRUST
The following resolution was passed by the Board of Trustees on March 17,
1995, and such resolution is in full force and effect:
WHEREAS, paragraph 9.10 of an Acquisition Agreement, dated December 7,
1994, among Express America Holdings Corporation, Pilgrim Group Inc.,
Pilgrim Management Corporation, Pilgrim Distributors Corp. and Palomba
Weingarten, provides that each of the Non-Acquired Funds concurrently with
and conditional upon the closing of the transactions contemplated by the
Acquisition Agreement shall change its name to a name which shall not
include the word "Pilgrim";
WHEREAS, pursuant to the Acquisition Agreement, Pilgrim Institutional
Securities Trust ("PIST") is deemed to be a Non-Acquired Fund;
WHEREAS, Article IX, Section 8, of the Trust's Agreement and
Declaration of Trust authorizes the Trustees to amend the Agreement and
Declaration of Trust for the purpose of changing the name of the Trust
without authorization by shareholder vote;
WHEREAS, the Trustees deem it advisable to change the Trust's name
from Pilgrim Institutional Securities Trust to Astra Institutional
Securities Trust;
NOW, THEREFORE, BE IT RESOLVED, that PIST's name is hereby changed to
Astra Institutional Securities Trust, effective upon closing of the
transactions contemplated by the Acquisition Agreement and Declaration of
Trust is filed with the Secretary of State of the Commonwealth of
Massachusetts; and
FURTHER RESOLVED, that the officers of the Trust are authorized to
take all necessary steps to effect the name change, including amending the
Trust's Agreement and Declaration of Trust.
By: /s/ NANCY L. PEDEN
---------------------
Nancy L. Peden
Secretary
Dated this 31st day of March, 1995
EXHIBIT 2-B
Amendment to the By-laws of Astra Institutional Securities Trust
(formerly Pilgrim Institutional Securities Trust)
The By-laws are hereby amended to change all references to the name
"Pilgrim" to "Astra," including the name of the Trust to "Astra Institutional
Securities Trust."
As adopted at a meeting of
the Board of Trustees on
April 10th , 1995
EXHIBIT 5-B
AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT
BETWEEN
ASTRA INSTITUTIONAL SECURITIES TRUST
(formerly Pilgrim Institutional Securities Trust)
AND
ASTRA MANAGEMENT COMPANY
(formerly Pilgrim Management Corporation)
The Investment Management Agreement dated September 30, 1991 between
Pilgrim Institutional Securities Trust and Pilgrim Management Corporation (the
"Agreement") is hereby amended to change all references to "Pilgrim" to "Astra,"
including the names of the signatories to Astra Institutional Securities Trust
and Astra Management Company, respectively, effective April 10, 1995.
ASTRA INSTITUTIONAL SECURITIES TRUST
By: _____________________________________
Palomba Weingarten, President
ATTEST:
________________________________
ASTRA MANAGEMENT COMPANY
By: _____________________________________
ATTEST:
________________________________
EXHIBIT 8-A
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC Bank"), and ASTRA
INSTITUTIONAL SECURITIES TRUST, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian services
to its investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PNC Bank wishes to furnish custodian services, either directly or through an
affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
<PAGE>
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral and
Written Instructions on behalf of the Fund and listed on the Authorized
Persons Appendix attached hereto and made a part hereof or any amendment
thereto as may be received by PNC Bank. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in
the Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury book-entry
system for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
(f) "Oral Instructions" mean oral instructions received by PNC Bank
from an Authorized Person or from a person reasonably believed by PNC Bank
to be an Authorized Person.
2
<PAGE>
(g) "PNC Bank" means PNC Bank, National Association or a subsidiary or
affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(j) "Shares" mean the shares of beneficial interest of any series or
class of the Fund.
(k) "Property" means:
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be deposited, with PNC
Bank or which PNC Bank may from time to time hold for the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on behalf of
the Fund.
(l) "Written Instructions" mean written instructions signed by two
Authorized Persons and received by PNC Bank. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile sending
device.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to
3
<PAGE>
provide custodian services to the Fund, on behalf of each of its investment
portfolios (each, a "Portfolio"), and PNC Bank accepts such appointment and
agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PNC Bank or its affiliates
to provide services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreements;
(d) a copy of the distribution agreement with respect to each class of
Shares;
(e) a copy of each Portfolio's administration agreement if PNC Bank is
not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Fund or a Portfolio; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4
<PAGE>
4. COMPLIANCE WITH LAWS.
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PNC Bank
hereunder. Except as specifically set forth herein, PNC Bank assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PNC Bank shall act
only upon Oral and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PNC Bank to be an Authorized Person) pursuant to
this Agreement. PNC Bank may assume that any Oral or Written Instructions
received hereunder are not in any way inconsistent with the provisions of
organizational documents of the Fund or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PNC Bank Written Instructions
confirming Oral
5
<PAGE>
Instructions (except where such Oral Instructions are given by PNC
Bank or its affiliates) so that PNC Bank receives the Written Instructions
by the close of business on the same day that such Oral Instructions are
received. The fact that such confirming Written Instructions are not
received by PNC Bank shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions.
Where Oral or Written Instructions reasonably appear to have been received
from an Authorized Person, PNC Bank shall incur no liability to the Fund in
acting upon such Oral or Written Instructions provided that PNC Bank's
actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any
question of law pertaining to any action it should or should not take, PNC
Bank may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's investment adviser or
PNC Bank, at the option of PNC Bank).
6
<PAGE>
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC Bank receives from the Fund, and
the advice it receives from counsel, PNC Bank shall be entitled to rely
upon and follow the advice of counsel. In the event PNC Bank so relies on
the advice of counsel, PNC Bank remains liable for any action or omission
on the part of PNC Bank which constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard by PNC Bank of any duties,
obligations or responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral or
Written Instructions it receives from the Fund or from counsel and which
PNC Bank believes, in good faith, to be consistent with those directions,
advice or Oral or Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PNC Bank (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written Instructions
unless, under the terms of other provisions of this Agreement, the same is
a condition of
7
<PAGE>
PNC Bank's properly taking or not taking such action. Nothing in this
subsection shall excuse PNC Bank when an action or omission on the part of
PNC Bank constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Portfolio, which are in the possession or under the control of PNC Bank, shall
be the property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities laws,
rules and regulations. The Fund and Authorized Persons shall have access to such
books and records at all times during PNC Bank's normal business hours. Upon the
reasonable request of the Fund, copies of any such books and records shall be
provided by PNC Bank to the Fund or to an authorized representative of the Fund,
at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees on its own behalf and that of its
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), unless the release
of such records or information is otherwise consented to, in writing, by the
Fund.
8
<PAGE>
The Fund agrees that such consent shall not be unreasonably withheld and
may not be withheld where PNC Bank may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PNC Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PNC Bank shall have no liability with respect to
the loss of data or service interruptions caused by equipment failure provided
such loss or interruption is not covered by PNC Bank's own willful misfeasance,
bad faith, gross negligence or reckless disregard of
9
<PAGE>
its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC Bank
during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PNC Bank a fee or fees as may be agreed to in writing
from time to time by the Fund and PNC Bank.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PNC Bank and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state and foreign
securities and blue sky laws, and amendments thereto, and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or omission to act which PNC Bank takes (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither PNC Bank, nor any of its affiliates,
shall be indemnified against any liability (or any expenses incident to such
liability) arising out of PNC Bank's or its affiliates' own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties under this
Agreement.
10
<PAGE>
13. RESPONSIBILITY OF PNC BANK.
(a) PNC Bank shall be under no duty to take any action on behalf of
the Fund or any Portfolio except as specifically set forth herein or as may
be specifically agreed to by PNC Bank in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within
reasonable limits, in performing services provided for under this
Agreement. PNC Bank shall be liable for any damages arising out of PNC
Bank's failure to perform its duties under this agreement to the extent
such damages arise out of PNC Bank's willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty or
obligation to inquire into and shall not be liable for (A) the validity or
invalidity or authority or lack thereof of any Oral or Written Instruction,
notice or other instrument which conforms to the applicable requirements of
this Agreement, and which PNC Bank reasonably believes to be genuine; or
(B) subject to section 10, delays or errors or loss of data occurring by
reason of circumstances beyond PNC Bank's control,
11
<PAGE>
including acts of civil or military authority, national emergencies,
fire, flood, catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, PNC
Bank shall have no liability to the Fund or to any Portfolio for any
consequential, special or indirect losses or damages which the Fund may
incur or suffer by or as a consequence of PNC Bank's performance of the
services provided hereunder, whether or not the likelihood of such losses
or damages was known by PNC Bank.
14. DESCRIPTION OF SERVICES.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all the Property owned by the Portfolios, including
cash received as a result of the distribution of Shares, during the period
that is set forth in this Agreement. PNC Bank will not be responsible for
such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate accounts in the Fund's name
using all cash received from or for the account of the Fund, subject to the
terms of this
12
<PAGE>
Agreement. In addition, upon Written Instructions, PNC Bank shall open
separate custodial accounts for each separate series or Portfolio of the
Fund (collectively, the "Accounts") and shall hold in the Accounts all cash
received from or for the Accounts of the Fund specifically designated to
each separate series or Portfolio.
PNC Bank shall make cash payments from or for the Accounts of a
Portfolio only for:
(i) purchases of securities in the name of a Portfolio or PNC
Bank or PNC Bank's nominee as provided in sub-section (j)
and for which PNC Bank has received a copy of the broker's
or dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to
PNC Bank;
(iii) payment of, subject to Written Instructions, interest,
taxes, administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne by
a Portfolio;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and
13
<PAGE>
distributions to shareholders in accordance with procedures
mutually agreed upon from time to time by and among the
Fund, PNC Bank and the Fund's transfer agent.
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
(vi) payments of the amounts of dividends received with respect
to securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Accounts.
(c) Receipt of Securities; Subcustodians.
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates
such securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry
System. All such securities shall be held or disposed of
only upon Written Instructions of the Fund pursuant to the
terms of this Agreement. PNC Bank shall have no power or
authority to assign, hypothecate, pledge or otherwise
14
<PAGE>
dispose of any such securities or investment, except upon
the express terms of this Agreement and upon Written
Instructions, accompanied by a certified resolution of the
Fund's Board of Trustees, authorizing the transaction. In no
case may any member of the Fund's Board of Trustees, or any
officer, employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into sub-custodian agreements with other
United States banks or trust companies to perform duties
described in this sub-section (c). Such bank or trust
company shall have an aggregate capital, surplus and
undivided profits, according to its last published report,
of at least one million dollars ($1,000,000), if it is a
subsidiary or affiliate of PNC Bank, or at least twenty
million dollars ($20,000,000) if such bank or trust company
is not a subsidiary or affiliate of PNC Bank. In addition,
such bank or trust company must be qualified to act as
custodian and agree to comply with the relevant provisions
of the 1940 Act and other applicable rules and regulations.
Any such arrangement will not be entered into without prior
written notice to the Fund.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund and each Portfolio harmless from its own acts or
omissions, under the standards of care provided for herein,
or the acts and omissions of any sub-custodian chosen by PNC
Bank under the terms of this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt
15
<PAGE>
of Oral or Written Instructions and not otherwise, PNC Bank, directly
or through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio against the
receipt of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of a Portfolio as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for a Portfolio against receipt
of other securities or cash issued or paid in connection
with the liquidation, reorganization, refinancing, tender
offer, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio to any
protective committee, reorganization committee or other
person in connection with the reorganization, refinancing,
merger, consolidation, recapitalization or sale of assets of
any corporation, and receive and hold under the terms of
this Agreement such certificates of deposit, interim
receipts or other instruments or documents as may be issued
to it to evidence such delivery;
16
<PAGE>
(vi) make such transfer or exchanges of the assets of the
Portfolios and take such other steps as shall be stated in
said Oral or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Fund;
(vii) release securities belonging to a Portfolio to any bank or
trust company for the purpose of a pledge or hypothecation
to secure any loan incurred by the Fund on behalf of that
Portfolio; provided, however, that securities shall be
released only upon payment to PNC Bank of the monies
borrowed, except that in cases where additional collateral
is required to secure a borrowing already made subject to
proper prior authorization, further securities may be
released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in
17
<PAGE>
kind shares of the Fund upon delivery thereof to PNC Bank;
and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph d.
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Board of Trustees approving,
authorizing and instructing PNC Bank on a continuous basis, to deposit in
the Book-Entry System all securities belonging to the Portfolios eligible
for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of
securities by the Portfolios, and deliveries and returns of securities
loaned, subject to repurchase agreements or used as collateral in
connection with borrowings. PNC Bank shall continue to perform such duties
until it receives Written or Oral Instructions authorizing contrary
actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which are
maintained in the Book-Entry System, the records of PNC Bank
shall
18
<PAGE>
identify by Book-Entry or otherwise those securities
belonging to each Portfolio. PNC Bank shall furnish to the
Fund a detailed statement of the Property held for each
Portfolio under this Agreement at least monthly and from
time to time and upon written request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its
sub-custodian, if any, will pay out money only upon receipt
of securities and will deliver securities only upon the
receipt of money.
(iii) All books and records maintained by PNC Bank which relate
to the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open
to the inspection of Authorized Persons, and PNC Bank will
furnish to the Fund all information in respect of the
services rendered as it may require.
PNC Bank will also provide the Fund with such reports on its own system of
internal control as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for a Portfolio
which are issued or issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by PNC Bank in bearer form;
all other securities held for a
19
<PAGE>
Portfolio may be registered in the name of the Fund on behalf of that
Portfolio, PNC Bank, the Book-Entry System, a sub-custodian, or any duly
appointed nominees of the Fund, PNC Bank, Book-Entry System or
sub-custodian. The Fund reserves the right to instruct PNC Bank as to the
method of registration and safekeeping of the securities of the Fund. The
Fund agrees to furnish to PNC Bank appropriate instruments to enable PNC
Bank to hold or deliver in proper form for transfer, or to register in the
name of its nominee or in the name of the Book-Entry System, any securities
which it may hold for the Accounts and which may from time to time be
registered in the name of the Fund on behalf of a Portfolio.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall
vote any of the securities held pursuant to this Agreement by or for the
account of a Portfolio, except in accordance with Written Instructions. PNC
Bank, directly or through the use of the Book-Entry System, shall execute
in blank and promptly deliver all notices, proxies and proxy soliciting
materials to the registered holder of such securities. If the registered
holder is not the Fund on behalf of a Portfolio, then Written or Oral
Instructions must designate the person who owns such securities.
(h) Transactions Not Requiring Instructions. In the
20
<PAGE>
absence of contrary Written Instructions, PNC Bank is authorized to take
the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of each Portfolio, all
income, dividends, distributions, coupons, option premiums,
other payments and similar items, included or to be included
in the Property, and, in addition, promptly advise each
Portfolio of such receipt and credit such income, as
collected, to each Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money;
(C) receive and hold for the account of each Portfolio all
securities received as a distribution on the Portfolio's
securities as a result of a stock dividend, share split-up
or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar
securities issued with respect to any securities belonging
to a Portfolio and held by PNC Bank hereunder;
(D) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or
retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of
21
<PAGE>
such income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) deliver or cause to be delivered Property against payment or
other consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for the
account of a Portfolio in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the Fund on
behalf of a Portfolio or PNC Bank or nominee of either,
or for exchange of securities for a different number of
bonds, certificates, or other evidence, representing
the same aggregate face amount or number of units
bearing the same interest rate, maturity date and call
provisions, if any; provided that, in any such case,
the new securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by
22
<PAGE>
it which call for payment upon presentation and hold
the cash received by it upon such payment for the
account of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued with
respect to any securities held by PNC Bank; and
(4) execute as agent on behalf of the Fund all necessary
ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States
Treasury Department or under the laws of any state now
or hereafter in effect, inserting the Fund's name, on
behalf of a Portfolio, on such certificate as the owner
of the securities covered thereby, to the extent it may
lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain segregated accounts on its records
for and on behalf of each Portfolio. Such accounts may be
used to transfer cash and securities, including securities
in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option
23
<PAGE>
exchange, providing such procedures comply with the
1940 Act and any releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies; and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA
custodian accounts for such shareholders holding Shares
through IRA accounts, in accordance with the Fund's
prospectuses, the Internal Revenue Code of 1986, as amended
(including regulations promulgated thereunder), and with
such other procedures as are mutually agreed upon from time
to time by and among the Fund, PNC Bank and the Fund's
transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased
securities upon receipt of Oral or Written Instructions from the Fund or
its investment advisers that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
24
<PAGE>
(vii) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for a Portfolio pay out of the
moneys held for the account of the Portfolio the total
amount payable to the person from whom or the broker through
whom the purchase was made, provided that the same conforms
to the total amount payable as set forth in such Oral or
Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities upon
receipt of Oral or Written Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom
the sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Portfolio upon such sale, provided
25
<PAGE>
that the total amount payable is the same as was set forth in the Oral or
Written Instructions. Subject to the foregoing, PNC Bank may accept payment in
such form as shall be satisfactory to it, and may deliver securities and arrange
for payment in accordance with the customs prevailing among dealers in
securities.
(l) Reports; Proxy Materials.
(i) PNC Bank shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may reasonably
request;
(B) a monthly statement summarizing all transactions and entries
for the account of each Portfolio, listing each Portfolio
securities belonging to each Portfolio with the adjusted
average cost of each issue and the market value at the end
of such month and stating the cash account of each Portfolio
including disbursements;
(C) the reports required to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from time to
time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy statement,
proxy material, notice of a call or conversion or similar
communication received by it as custodian of the Property. PNC
Bank shall be under no other obligation to inform the Fund as to
26
<PAGE>
such actions or events.
(m) Collections. All collections of monies or other property in
respect, or which are to become part, of the Property (but not the
safekeeping thereof upon receipt by PNC Bank) shall be at the sole risk of
the Fund. If payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify the Fund in
writing, including copies of all demand letters, any written responses,
memoranda of all oral responses and shall await instructions from the Fund.
PNC Bank shall not be obliged to take legal action for collection unless
and until reasonably indemnified to its satisfaction. PNC Bank shall also
notify the Fund as soon as reasonably practicable whenever income due on
securities is not collected in due course and shall provide the Fund with
periodic status reports of such income collected after a reasonable time.
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by the Fund or by PNC Bank on sixty (60) days' prior written notice
to the other party. In the event this Agreement is terminated (pending
appointment of a successor to PNC Bank or vote of the shareholders of the Fund
to dissolve or to function without a custodian of its cash, securities or
27
<PAGE>
other property), PNC Bank shall not deliver cash, securities or other property
of the Portfolios to the Fund. It may deliver them to a bank or trust company of
PNC Bank's choice, having an aggregate capital, surplus and undivided profits,
as shown by its last published report, of not less than twenty million dollars
($20,000,000), as a custodian for the Fund to be held under terms similar to
those of this Agreement. PNC Bank shall not be required to make any such
delivery or payment until full payment shall have been made to PNC Bank of all
of its fees, compensation, costs and expenses. PNC Bank shall have a security
interest in and shall have a right of setoff against the Property as security
for the payment of such fees, compensation, costs and expenses.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at
Airport Business Center, International Court 2, 200 Stevens Drive, Lester,
Pennsylvania 19113, marked for the attention of the Custodian Services
Department (or its successor) (b) if to the Fund, at Astra Management Corp.,
Symphony Towers, 750 B Street, Suite 2350, San Diego, CA 92101; or (c) if to
neither of the
28
<PAGE>
foregoing, at such other address as shall have been given by like notice to the
sender of any such notice or other communication by the other party. If notice
is sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately. If notice is sent by first-class
mail, it shall be deemed to have been given five days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered.
17. AMENDMENTS. This Agreement, or any term hereof, may be changed or
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee)
agrees with PNC Bank and the Fund to comply with all relevant provisions of the
1940 Act; and (iii) PNC Bank and such delegate (or assignee) promptly provide
such information as the Fund may request, and respond to such questions as the
Fund may ask, relative to the delegation (or assignment), including (without
29
<PAGE>
limitation) the capabilities of the delegate (or assignee).
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents their agreement, if
any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this
30
<PAGE>
Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected
thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such
party.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ JOHN FOSTER
-----------------------------------------
Title: Vice President
--------------------------------------
ASTRA INSTITUTIONAL SECURITIES TRUST
By: /s/ JOHN R. ELERDING
-----------------------------------------
Title: Chief Financial Officer
--------------------------------------
32
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of ________________________, 1995, is Exhibit A to
that certain Custodian Services Agreement dated as of ____________________, 1995
between PNC Bank, National Association and Astra Institutional Securities Trust.
PORTFOLIOS
Astra Institutional Adjustable Rate Securities Portfolio Astra
Institutional Adjustable U.S. Government Securities Portfolio
33
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
__________________________________ _______________________________________
__________________________________ _______________________________________
__________________________________ _______________________________________
__________________________________ _______________________________________
__________________________________ _______________________________________
__________________________________ _______________________________________
34
EXHIBIT 8-B
SUB-ADMINISTRATION SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between ASTRA
MANAGEMENT CORPORATION (the "Company") and PFPC INC., a Delaware corporation
("PFPC"), which is an indirect wholly owned subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, ASTRA INSTITUTIONAL SECURITIES TRUST (the "Fund") is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Company has been appointed by the Fund as Administrator of the
Fund; and
WHEREAS, the Company wishes to retain PFPC to provide administration
services for the benefit of the Fund's investment portfolios listed on Exhibit A
attached hereto and made a part hereof, as such Exhibit A may be amended from
time to time (each a "Portfolio"), and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly
<PAGE>
authorized by the Fund's Board of Trustees to give Oral and Written
Instructions on behalf of the Fund and listed on the Authorized Persons
Appendix attached hereto and made a part hereof or any amendment thereto as
may be received by PFPC. An Authorized Person's scope of authority may be
limited by setting forth such limitation in the Authorized Persons
Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "Shares" mean the shares of beneficial interest of any series or
class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC to provide administration
services for the benefit of each of the Portfolios, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where applicable,
will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board
2
<PAGE>
of Trustees, approving the appointment of PFPC or its affiliates to
provide services to each Portfolio and approving this Agreement;
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each class of
Shares representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with respect to
a Portfolio;
(f) a copy of any shareholder servicing agreement made in respect of
the Fund or a Portfolio; and
(f) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all
applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Fund or any
Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organiza-
3
<PAGE>
tional documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
(c) The Company agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given
by PFPC or its affiliates) so that PFPC receives the Written Instructions
by the close of business on the same day that such Oral Instructions are
received. The fact that such confirming Written Instructions are not
received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions.
Where Oral or Written Instructions reasonably appear to have been received
from an Authorized Person, PFPC shall incur no liability to the Fund or the
Company in acting upon such Oral or Written Instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including Oral
or Written Instructions, from the Company or the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be
counsel for the Company, the Fund, the Fund's investment adviser or PFPC,
at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Company
4
<PAGE>
or the Fund and the advice PFPC receives from counsel, PFPC may rely upon
and follow the advice of counsel. In the event PFPC so relies on the advice
of counsel, PFPC remains liable for any action or omission on the part of
PFPC which constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities
set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Company, the Fund or from counsel and
which PFPC believes, in good faith, to be consistent with those directions,
advice and Oral or Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PFPC (i) to seek such
directions, advice or Oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral or Written Instructions
unless, under the terms of other provisions of this Agreement, the same is
a condition of PFPC's properly taking or not taking such action. Nothing in
this subsection shall excuse PFPC when an action or omission on the part of
PFPC constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities
set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the Portfolios
which are in the possession or under the control of PFPC shall be the
property of the Company or the Fund as the Company may direct. Such books
and records shall be prepared and maintained as required by the 1940 Act
and other applicable securities laws, rules and regulations. The Company,
the Fund and their Authorized Persons shall have access to such books and
records
5
<PAGE>
at all times during PFPC's normal business hours. Upon the
reasonable request of the Company, copies of any such books and records
shall be provided by PFPC to the Fund, the Company or to an Authorized
Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each Portfolio's books
of account;
(ii) records of each Portfolio's securities transactions;
(iii) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act in connection with
the services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Company and the Fund and information
relating to the Fund and its shareholders (past, present and future), unless the
release of such records or information is otherwise consented to, in writing, by
the Company or the Fund. The Company agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to civil
or criminal contempt proceedings or when required to divulge such information or
records to duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable action in the performance of its duties under
this Agreement to assure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the
Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with
6
<PAGE>
appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Company, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Company will pay to PFPC a fee or fees as may be
agreed to in writing by the Company and PFPC.
12. INDEMNIFICATION. The Company agrees to indemnify and hold harmless PFPC
and its affiliates from all taxes, charges, expenses, assessments, claims and
liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements arising directly or indirectly from any action or
omission to act which PFPC takes (i) at the request or on the direction of or in
reliance on the advice of the Company or the Fund or (ii) upon Oral or Written
Instructions. Neither PFPC, nor any of its affiliates, shall be indemnified
against any liability (or any expenses incident to such liability) arising out
of PFPC's or its affiliates' own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. Any amounts payable by the Fund hereunder shall be satisfied only
against the relevant Portfolio's assets and not against the assets of any other
investment
7
<PAGE>
portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Company, the Fund or any Portfolio except as specifically set forth herein
or as may be specifically agreed to by PFPC in writing. PFPC shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within
reasonable limits, in performing services provided for under this
Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond
its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts
of civil or military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Company, the Fund or
to any Portfolio for any
8
<PAGE>
consequential, special or indirect losses or damages which the Company, the
Fund or any Portfolio may incur or suffer by or as a consequence of PFPC's
or any affiliate's performance of the services provided hereunder, whether
or not the likelihood of such losses or damages was known by PFPC or its
affiliates.
14. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following administration services with respect
to each Portfolio:
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Portfolio and Fund
statistical data as requested on an ongoing basis;
(iv) Coordinate the preparation and filing of the Fund's Federal
and state tax returns;
(v) Coordinate the preparation and filing of the Fund's Form
N-SAR and Rule 24f-2 Notices;
(vi) Assist in the preparation and coordinate the production and
filing of the Fund's annual, semi-annual, and quarterly
shareholder reports;
(vii) Assist in the preparation of registration statements and
other filings relating to the registration of Shares;
(viii) Assist in monitoring each Portfolio's status as a
regulated investment company under Sub-chapter M of the
Internal Revenue Code of 1986, as amended;
(ix) Assist in coordinating the contractual relationships and
communications between the Fund and its contractual service
providers; and
(x) Assist in monitoring the Fund's state blue sky registration
and
9
<PAGE>
compliance with the amounts and conditions of each state
qualification.
15. DESCRIPTION OF ADDITIONAL REGULATORY COMPLIANCE AND ADMINISTRATION
SERVICES.
PFPC will perform the following services with respect to each
Portfolio.
(i) Assist the investment adviser in monitoring the Fund's compliance
with certain investment restrictions, limited to
after-transactions testing regarding the following procedures:
- Industry Diversification
- Issuer Diversification
- State Diversification
- Country Diversification
- Limitation of International Holdings;
(ii) Assist management in developing a response to the Securities and
Exchange Commission staff's routine examinations;
(iii) Assist in the preparation of Post Effective Amendments to the
Funds Registration Statement on Form N-1A;
(iv) Monitor various SEC and IRS regulatory developments affecting
investment companies;
(v) Coordinate the administrative details of preparing for the Fund's
Board Meeting, including the preparation of the Administration
report and coordination of reports and related materials from the
adviser, distributor, transfer agent and custodian, etc.;
(vi) Provide the Fund with signatories which may be authorized by the
Fund to facilitate certain required regulatory filings and the
processing of invoices;
(vii) Monitor the maintenance of Directors' and Officers' insurance
and Fidelity Bond insurance coverage on behalf of the Fund;
(viii) Coordinate with fund management, independent auditors and
printers for the preparation of shareholder reports;
10
<PAGE>
(ix) Prepare and distribute operational reports to management by the
tenth business day after receiving all applicable reports from
outside vendors; and
(x) Maintain a monthly "task list" calendar noting required
completion dates.
16. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Company, at Astra Management Corp., Symphony Towers, 750 B Street, Suite
2350, San Diego, CA 92101; or (c) if to neither of the foregoing, at such other
address as shall have been provided by like notice to the sender of any such
notice or other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Company
thirty (30) days'
11
<PAGE>
prior written notice; (ii) the delegate (or assignee) agrees with PFPC and the
Company to comply with all relevant provisions of the 1940 Act; and (iii) PFPC
and such delegate (or assignee) promptly provide such information as the Company
may request, and respond to such questions as the Company may ask, relative to
the delegation (or assignment), including (without limitation) the capabilities
of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
22. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents their agreement, if
any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles
of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made
12
<PAGE>
invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by such
party.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ STEPHEN M. WYNNE
----------------------------------------
Title: Executive Vice President
-------------------------------------
ASTRA MANAGEMENT CORPORATION
By: /s/ JOHN R. ELERDING
----------------------------------------
Title: Chief Financial Officer
-------------------------------------
14
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of September 5, 1995, is Exhibit A to that certain
Administration Services Agreement dated as of September 5, 1995 between PFPC
Inc. and Astra Management Corporation.
PORTFOLIOS OF ASTRA INSTITUTIONAL SECURITIES TRUST
Astra Institutional Adjustable Rate Securities Portfolio Astra
Institutional Adjustable U.S. Government Securities Portfolio
15
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
_________________________________ _______________________________________
_________________________________ _______________________________________
_________________________________ _______________________________________
_________________________________ _______________________________________
_________________________________ _______________________________________
_________________________________ _______________________________________
16
EXHIBIT 8-C
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made as of September 5, 1995 by and between ASTRA
INSTITUTIONAL SECURITIES TRUST, a Massachusetts business trust (the "Fund"), and
PFPC Inc., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide accounting services to
its investment portfolios listed on Exhibit A attached hereto and made a part
hereof, as such Exhibit A may be amended from time to time (each a "Portfolio"),
and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Fund and any other
person duly authorized by the Fund's Board of Trustees to give Oral and
Written Instructions on behalf of the Fund and listed on the Authorized
Persons Appendix attached hereto and made a part hereof or any amendment
thereto as may be received by PFPC. An Authorized Person's scope of
authority
<PAGE>
may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Oral Instructions" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(h) "Shares" mean the shares of beneficial interest of any series or
class of the Fund.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered
by hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide accounting
services to the each of the Portfolios, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PFPC or its affiliates to
provide services to each Portfolio and approving this Agreement;
2
<PAGE>
(b) a copy of Fund's most recent effective registration statement;
(c) a copy of each Portfolio's advisory agreement or agreements;
(d) a copy of the distribution agreement with respect to each class of
Shares representing an interest in a Portfolio;
(e) a copy of any additional administration agreement with respect to
a Portfolio;
(f) a copy of any shareholder servicing agreement made in respect of
the Fund or a Portfolio; and
(f) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS.
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC
hereunder. Except as specifically set forth herein, PFPC assumes no
responsibility for such compliance by the Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to this
Agreement. PFPC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of
organizational documents or this Agreement or of any vote, resolution or
proceeding of the Fund's Board of Trustees or of the Fund's shareholders,
unless and until PFPC receives Written Instructions to the contrary.
3
<PAGE>
(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions (except where such Oral Instructions are given by PFPC or
its affiliates) so that PFPC receives the Written Instructions by the close
of business on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC
shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral or Written
Instructions reasonably appear to have been received from an Authorized
Person, PFPC shall incur no liability to the Fund in acting upon such Oral
or Written Instructions provided that PFPC's actions comply with the other
provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should
or should not take, PFPC may request directions or advice, including Oral
or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PFPC, at the option
of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice PFPC receives from counsel, PFPC may rely upon and follow the advice
of counsel. In
4
<PAGE>
the event PFPC so relies on the advice of counsel, PFPC remains liable for
any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC of
any duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes
or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PFPC
believes, in good faith, to be consistent with those directions, advice and
Oral or Written Instructions. Nothing in this section shall be construed so
as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral or Written Instructions unless, under the terms
of other provisions of this Agreement, the same is a condition of PFPC's
properly taking or not taking such action. Nothing in this subsection shall
excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by
PFPC of any duties, obligations or responsibilities set forth in this
Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund and the Portfolios
which are in the possession or under the control of PFPC shall be the
property of the Fund. Such books and records shall be prepared and
maintained as required by the 1940 Act and other applicable securities
laws, rules and regulations. The Fund and Authorized Persons shall have
access to such books and records at all times during PFPC's normal business
hours. Upon the reasonable request of the Fund, copies of any such books
and records shall be provided by PFPC to the Fund or to
5
<PAGE>
an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to each Portfolio's books
of account;
(ii) records of each Portfolio's securities transactions;
(iii) all other books and records as PFPC is required to maintain
pursuant to Rule 31a-1 of the 1940 Act in connection with
the services provided hereunder.
8. CONFIDENTIALITY. PFPC agrees on its own behalf and that of its employees
to keep confidential all records of the Fund and information relating to the
Fund and its shareholders (past, present and future), unless the release of such
records or information is otherwise consented to, in writing, by the Fund. The
Fund agrees that such consent shall not be unreasonably withheld and may not be
withheld where PFPC may be exposed to civil or criminal contempt proceedings or
when required to divulge such information or records to duly constituted
authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules with respect to each Portfolio.
PFPC shall take all reasonable action in the performance of its duties under
this Agreement to assure that the necessary information is made available to
such accountants for the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
6
<PAGE>
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Fund, on behalf of each Portfolio, will pay to PFPC
a fee or fees as may be agreed to in writing by the Fund and PFPC.
12. INDEMNIFICATION. The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC and its affiliates from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the Securities Laws and any state or foreign
securities and blue sky laws, and amendments thereto), and expenses, including
(without limitation) attorneys' fees and disbursements arising directly or
indirectly from any action or omission to act which PFPC takes (i) at the
request or on the direction of or in reliance on the advice of the Fund or (ii)
upon Oral or Written Instructions. Neither PFPC, nor any of its affiliates',
shall be indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement. Any amounts payable by the Fund hereunder shall be
satisfied only against the relevant Portfolio's assets and not against the
assets of any other investment portfolio of the Fund.
13. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Fund or any Portfolio except as specifically set forth herein or as may be
specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise care and diligence in the performance of its duties
7
<PAGE>
hereunder, to act in good faith and to use its best efforts, within
reasonable limits, in performing services provided for under this
Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses beyond
its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts
of civil or military authority, national emergencies, labor difficulties,
fire, flood, catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages
which the Fund or any Portfolio may incur or suffer by or as a consequence
of PFPC's or any affiliate's performance of the services provided
hereunder, whether or not the likelihood of such losses or damages was
known by PFPC or its affiliates.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services with respect to each
Portfolio:
(i) Journalize investment, capital share and income and expense
activities;
8
<PAGE>
(ii) Verify investment buy/sell trade tickets when received from the
investment adviser for a Portfolio (the "Adviser") and transmit
trades to the Fund's custodian (the "Custodian") for proper
settlement;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Fund with the
Custodian, and provide the Adviser with the beginning cash
balance available for investment purposes;
(vi) Update the cash availability throughout the day as required by
the Adviser;
(vii) Post to and prepare the Statement of Assets and Liabilities and
the Statement of Operations;
(viii) Calculate various contractual expenses (e.g., advisory and
custody fees);
(ix) Assist in monitoring the expense accruals and notify Fund
management of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements upon
Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Obtain security market quotes from independent pricing services
approved by the Adviser, or if such quotes are unavailable, then
obtain such prices from the Adviser, and in either case calculate
the market value of each Portfolio's Investments;
(xiv) Transmit or mail a copy of the daily portfolio valuation to the
Adviser;
(xv) Compute net asset value;
(xvi) As appropriate, compute yields, total
9
<PAGE>
return, expense ratios, portfolio turnover rate, and, if
required, portfolio average dollar-weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include the
following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses.
10
<PAGE>
15. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
16. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to
the Fund, at Astra Management Corp., Symphony Towers, 750 B Street, Suite 2350,
San Diego, CA 92101; or (c) if to neither of the foregoing, at such other
address as shall have been provided by like notice to the sender of any such
notice or other communication by the other party.
17. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
18. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee) agrees
with PFPC and the Fund to comply with all relevant provisions of the 1940 Act;
and (iii) PFPC and such delegate (or assignee) promptly provide such information
as the Fund may request, and respond to such questions as the Fund may ask,
relative to the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
11
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one or more separate documents their agreement, if
any, with respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles
of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
Agreement
12
<PAGE>
shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: /s/ STEPHEN M. WYNNE
--------------------------------------
Title: Executive Vice President
-----------------------------------
ASTRA INSTITUTIONAL SECURITIES TRUST
By: /s/ JOHN R. ELERDING
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
13
<PAGE>
EXHIBIT A
THIS EXHIBIT A, dated as of _________________, 1995, is Exhibit A to that
certain Accounting Services Agreement dated as of __________________, 1995
between PFPC Inc. and Astra Institutional Securities Trust.
PORTFOLIOS
Astra Institutional Adjustable Rate Securities Portfolio
Astra Institutional Adjustable U.S. Government Securities Portfolio
14
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
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________________________________ ______________________________________
________________________________ ______________________________________
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15
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000879132
<NAME> ASTRA INSTITUTIONAL SECURITIES TRUST
<SERIES>
<NUMBER> 01
<NAME> INSTITUTIONAL ADJUSTABLE U.S. GOV'T SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 232605884
<INVESTMENTS-AT-VALUE> 190049474
<RECEIVABLES> 29687957
<ASSETS-OTHER> 19526
<OTHER-ITEMS-ASSETS> 16096
<TOTAL-ASSETS> 219773053
<PAYABLE-FOR-SECURITIES> 46209665
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 970927
<TOTAL-LIABILITIES> 47180592
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 310164972
<SHARES-COMMON-STOCK> 2198563
<SHARES-COMMON-PRIOR> 6038651
<ACCUMULATED-NII-CURRENT> 14888
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (95030989)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (42556410)
<NET-ASSETS> 172592461
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22554011
<OTHER-INCOME> 0
<EXPENSES-NET> 2418500
<NET-INVESTMENT-INCOME> 20135511
<REALIZED-GAINS-CURRENT> (62035769)
<APPREC-INCREASE-CURRENT> 10936142
<NET-CHANGE-FROM-OPS> (30964116)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16286136
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 12991
<NUMBER-OF-SHARES-REDEEMED> 3958690
<SHARES-REINVESTED> 105611
<NET-CHANGE-IN-ASSETS> (362760473)
<ACCUMULATED-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2418500
<AVERAGE-NET-ASSETS> 281846000
<PER-SHARE-NAV-BEGIN> 88.650
<PER-SHARE-NII> 5.750
<PER-SHARE-GAIN-APPREC> (11.072)
<PER-SHARE-DIVIDEND> 4.828
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<PER-SHARE-NAV-END> 78.500
<EXPENSE-RATIO> .86
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000879132
<NAME> ASTRA INSTITUTIONAL SECURITIES TRUST
<SERIES>
<NUMBER> 02
<NAME> INSTITUTIONAL ADJUSTABLE RATE SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 46248784
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<RECEIVABLES> 309081
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 21168
<TOTAL-ASSETS> 33379587
<PAYABLE-FOR-SECURITIES> 5072083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 140605
<TOTAL-LIABILITIES> 5212688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 142344982
<SHARES-COMMON-STOCK> 584020
<SHARES-COMMON-PRIOR> 3721694
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (100978637)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13199446)
<NET-ASSETS> 28166899
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9633825
<OTHER-INCOME> 0
<EXPENSES-NET> 1052298
<NET-INVESTMENT-INCOME> 8581527
<REALIZED-GAINS-CURRENT> (85991915)
<APPREC-INCREASE-CURRENT> 11674390
<NET-CHANGE-FROM-OPS> (65735998)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4981182
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 619391
<NUMBER-OF-SHARES-SOLD> 25199
<NUMBER-OF-SHARES-REDEEMED> 3211688
<SHARES-REINVESTED> 48815
<NET-CHANGE-IN-ASSETS> (305719534)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18596586
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 629095
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1052298
<AVERAGE-NET-ASSETS> 96784000
<PER-SHARE-NAV-BEGIN> 89710
<PER-SHARE-NII> 6.049
<PER-SHARE-GAIN-APPREC> (44.668)
<PER-SHARE-DIVIDEND> 2.545
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.316
<PER-SHARE-NAV-END> 48.230
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
