As filed with the Securities and Exchange Commission on June 28, 1998
Registration Nos. 33-56881; 811-8817
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No. __
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. No. 1
NORTHSTAR EQUITY TRUST
--------------------------------------------------
(Exact name of Registrant as specified in charter)
300 First Stamford Place, Stamford, CT 06902
--------------------------------------------
(Address of Principal Executive Offices)
(203)602-7950
-------------------------------
(Registrant's telephone number)
Mark L. Lipson
c/o Northstar Investment Management Corporation
300 First Stamford Place, Stamford, CT 06902
--------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeffrey L. Steele, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(a)
UNDER THE SECURITIES ACT OF 1933
The enclosed prospectus and Statement of Additional Information ("SAI") for the
Northstar Mid-Cap Growth Fund Class A, B and C shares relate to such shares and
the prospectus and SAI for the Northstar Mid-Cap Growth Fund Class I relate to
Institutional Class shares.
PART A
FORM N-1A PART A ITEM PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Synopsis Cover Page; Objective; Investment
Strategy; Holdings; Risks; The
Risks of Investing in Mutual
Funds; Investment Practices; The
Business of Mutual Funds; Where
to go for More Information
3. Condensed Financial Information N/A
4. General Description of Registrant Cover Page; Objective; Investment
Strategy; Holdings; Risks; The
Risks of Investing in Mutual
Funds; Investment Practices; The
Business of Mutual Funds; Where
to go for More Information
5. Management of the Fund Meet the Portfolio Managers; The
Business of Mutual Funds
6. Capital Stock and Other Securities Buying, Selling and Exchanging;
Choosing a Share Class; Opening a
Northstar Account; Mutual Fund
Earnings and your Taxes; Where to
go for More Information
7. Purchases of Securities Being Offered Buying, Selling and Exchanging;
Choosing a Share Class; Opening a
Northstar Account; How Dealers
are Compensated
8. Redemption or Repurchase Buying, Selling and Exchanging
9. Legal Proceedings N/A
<PAGE>
CROSS REFERENCE SHEET
PART B
FORM N-1A PART B ITEM STATEMENT OF ADDITIONAL
INFORMATION CAPTION
10. Cover Page and Table of Contents Cover Page; Table of Contents
11. General Information & History Cover Page; Other Information
12. Investment Objectives and Policies Cover Page; Investment
Restrictions; Investment
Techniques
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal
Holders of Securities N/A
15. Investment Advisory and Other Services of Northstar and the
Services Administrator
16. Brokerage Allocation and Other Portfolio Transactions and
Practices Brokerage Allocation
17. Capital Stock and Other Purchases and Redemptions
Securities
18. Purchases, Redemptions and Net Asset Value; Purchases and
Pricing Redemptions
19. Tax Status Dividends, Distribution and Taxes
20. Underwriter Underwriter and Distribution
Services
21. Calculation of Performance Data Performance Information
22. Financial Statements Financial Statements
<PAGE>
NORTHSTAR
MID-CAP
GROWTH FUND
PROSPECTUS
August 17, 1998
(Star Graphic)
This prospectus contains important information about investing in the Northstar
Mid-Cap Growth Fund. Please read the prospectus carefully before you invest and
keep it for future reference. Your investment: is not a bank deposit, is not
insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency, is affected by market fluctuations -- there is no guarantee
that the fund will achieve its objective. Like all mutual funds, these
securities have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission nor has the Securities and
Exchange Commission or any state securities commission passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[TARGET] OBJECTIVE
[COMPASS] INVESTMENT
STRATEGY
[SAFE] HOLDINGS
[SCALE] RISKS
[PENNY] WHAT
YOU PAY
TO INVEST
These pages contain a description of the fund, including its objective,
investment strategy, types of holdings, risks and portfolio managers.
You'll also find:
What you pay to invest. A list of the fees and expenses you pay --
both directly and indirectly --
when you invest in the fund.
Northstar Mid-Cap Growth Fund 2
Meet the porfolio managers 3
Your guide to buying, selling and
exchanging shares of Northstar Funds 4
Mutual fund earnings and your taxes 11
The business of mutual funds 13
The risks of investing in mutual funds 15
Where to go for more information 18
<PAGE>
NORTHSTAR Registrant
MID-CAP GROWTH Northstar Equity Trust
FUND
Portfolio managers
Mary Lisanti,
Jeffrey Bernstein
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
This fund's objective is long-term capital appreciation by investing in a
diversified portfolio of equity securities.
INVESTMENT [GRAPHIC]
STRATEGY
The fund invests primarily in mid-sized companies that the portfolio managers
feel have above average prospects for growth. The portfolio managers select
growth companies that are involved in new technologies, new products, foreign
markets and special developments, such as research discoveries, acquisitions,
recapitalizations, liquidations or management changes. The fund also invests in
companies that the portfolio managers determine to be priced below their
long-term value.
HOLDINGS [GRAPHIC]
Under normal market conditions, the fund invests at least 65% of its total
assets in companies with a market capitalization of between $500 million to $2
billion. It may invest up to 25% of its net assets in foreign issuers, but only
10% may be invested in securities that are not listed on a U.S. securities
exchange. The fund may invest up to 20% of its net assets in debt obligations,
including intermediate- to long-term corporate or U.S. Government Securities. It
may also invest in other, higher-risk securities and engage in other investment
practices. These are described in the section beginning on page 15.
RISKS [GRAPHIC]
Because it invests in equities, the fund is affected by changes in the stock
market which could affect your investment in the fund. This fund is also subject
to the risks associated with investing in mid-sized companies. Securities of
mid-sized companies may be subject to more abrupt or erratic market movements
because they are traded in lower volume and are subject to greater changes in
earnings and growth prospects. Please refer to the section beginning on page 15,
The risks of investing in mutual funds.
- --------------------------------------------------------------------------------
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C
---------- -------------- --------------
<S> <C>
Maximum sales charge on your initial
investment (as a % of offering price) % 4.75 none none
Maximum deferred sales charge % none(1) 5.00(2) 1.00(2)
Operating expenses paid each year by the Fund
Class A Class B Class C
--------- --------- ---------
<S> <C> <C> <C> <C>
Management fee % 1.00 1.00 1.00
12b-1 fee(3) % 0.30 1.00 1.00
Other expenses % 0.50 0.50 0.50
Total fund operating expenses % 1.80 2.50 2.50
Example
Here's an example of what you would pay in expenses if you
invested $1,000, reinvested all your dividends, the fund
earned an average annual return of 5%, and annual operating
expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance
may vary.
Year 1 Year 3
-------- -------
<S> <C> <C>
Class A
with redemption $65 101
..................................
Class B
with redemption $75 108
without redemption $25 78
..................................
Class C
with redemption $35 78
without redemption $25 78
..................................
</TABLE>
- ------------------------
(1) Except for purchases of $1 million or more, when you sell any of the
shares within 18 months of when you bought them. Please see page 6
for details.
(2) This charge decreases over time. Please see page 6 for details.
- ------------------------
(3) Because of the 12b-1 fee, long-term shareholders may pay more than the
maximum permitted front-end sales charge.
2 Mid-Cap Growth Fund
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
Jeffrey Bernstein
Jeffrey Bernstein has been the co-manager of the Northstar Mid-Cap Growth Fund
since inception. He joined Northstar in May 1998.
Mr. Bernstein has over 10 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Bernstein was a Portfolio Manager at Strong
Capital Management where he co-managed the Strong Mid Cap Fund. From November
1995 to February 1997, Mr. Bernstein was a Portfolio Manager with Berkeley
Capital. From September 1993 to November 1995, Mr. Bernstein was an Assistant
Portfolio Manager at Bankers Trust Corp. Prior to Bankers Trust, Mr. Berstein
was an Analyst for Cowen & Co.
Mary Lisanti
Mary Lisanti has been the co-manager of the Northstar Mid-Cap Growth Fund since
inception and manager of the Northstar Special Fund since July 1998. She joined
Northstar in May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the
Strong Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and
Head of Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp.
where she managed the BT Small Cap Fund and the BT Capital Appreciation Fund.
Prior to Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen
Funds. She began her career as an analyst specializing in emerging growth
stocks with Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, was ranked
number one Institutional Investor emerging growth stock analyst in 1989 and was
named to that survey two other times.
Ms. Lisanti earned her BA with honors from Princeton University. She is a
Chartered Financial Analyst, member of the New York Society of Security
Analysts and the Financial Analyst Federation.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 3
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
THERE ARE THREE STEPS TO TAKE WHEN
YOU WANT TO BUY, SELL OR EXCHANGE SHARES OF OUR FUNDS:
o first, choose a share class
o second, open a Northstar account and make your first investment
o third, choose one of several ways to buy, sell or exchange shares.
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
The chart below summarizes the differences between the share classes -- your
choice of share class will depend on how much you are investing and for how
long. Large investments qualify for a reduced Class A sales charge and avoid
the higher distribution fees of classes B and C. Investments in Class B and
Class C shares don't have a front-end sales charge but there is a restriction
on the amount you can invest at one time. Your financial consultant can help
you, or feel free to call us for more information.
We've listed actual expenses charged to the fund beginning on page 2.
<TABLE>
<S> <C> <C>
Maximum CLASS A no limit
amount you CLASS B $ 500,000
can buy CLASS C $ 750,000
Front-end CLASS A yes, varies by size of investment
sales charge CLASS B none
CLASS C none
Deferred CLASS A only on investments of $1 million or more if you sell within 18 months
sales charge CLASS B yes, if you sell within 5
CLASS C yes, if you sell within 1 years
Service fee CLASS A 0.25% per year
CLASS B 0.25% per year
CLASS C 0.25% per year
Distribution CLASS A 0.05% per year
fee CLASS B 0.75% per year
CLASS C 0.75% per year
Conversion CLASS B Class B shares convert to Class A shares after 8 years
</TABLE>
4 Mid-Cap Growth Fund
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
FRONT-END SALES CHARGES
(Class A shares only)
<TABLE>
<S> <C> <C> <C>
Amount retained by
Your investment Front-end sales charge dealers
- ----------------------- -------------------------------------------------- -------------------
as a percentage as a percentage as a percentage
of your net investment of offering price of offering price
up to $99,999 4.99 4.75 4.00
$100,000 to $249,000 3.90 3.75 3.10
$250,000 to $499,000 2.83 2.75 2.30
$500,000 to $999,000 2.04 2.00 1.70
$1,000,000 and over -- -- --
</TABLE>
WAYS TO REDUCE OR ELIMINATE SALES CHARGES
There are three ways you can reduce your front-end sales charges.
1. Take advantage of purchases you've already made Rights of accumulation let
you combine the value of all the Class A shares you already own with your
current investment to calculate your sales charge.
2. Take advantage of purchases you intend to make By signing a non-binding
letter of intent, you can combine investments you plan to make over a 13
month period to calculate the sales charge you'll pay on each investment.
3. Buy as part of a group of investors
You can combine your investments with others in a recognized group when
calculating your sales charge. The following is a general list of the
groups Northstar recognizes for this benefit:
o you, your spouse and your children under the age of 21
o a trustee or fiduciary for a single trust, estate or fiduciary account
(including qualifying pension, profit sharing and other employee benefit
trusts)
o any other organized group that has been in existence for at least six
months, and wasn't formed solely for the purpose of investing at a
discount.
You may not have to pay front-end sales charges or a CDSC if you are:
o an active or retired trustee, director, officer, partner or employee
(including immediate family) of
-- Northstar or of any of its affiliated companies
-- any Northstar affiliated investment company -- a dealer that has a
sales agreement with the distributor
-- a trustee or custodian of any qualified retirement plan or IRA
established for the benefit of anyone in the point above
o a dealer, broker or registered investment adviser who has entered into an
agreement with the distributor providing for the use of shares of the
fund in particular investment products such as "wrap accounts" or other
similar managed accounts for the benefit of your clients
o asset allocation and other fee-based programs for the benefit of clients
o a service provider for Northstar, any Northstar affiliated company, or any
Northstar affiliated investment company
o a Brandes employee, officer or partner
o an owner, participant or beneficiary of life insurance and/or annuity
contracts with ReliaStar Life Insurance Company (ReliaStar) or any
ReliaStar affiliated life insurance company to the extent they invest
payments made to them under the contracts in one or more Northstar Funds
within sixty days of payment under the contracts.
You won't pay a sales charge when you buy Class A shares of a Northstar fund
through a dealer by transferring the proceeds of the sale of another open-end
fund, so long as:
o you have held the shares in the fund you're selling for at least six
months, and you paid a sales charge when you bought them
o you send the proceeds of the sale directly to Northstar or our agent or
hold them in cash or a money market fund
o you buy the shares of the fund within 60 days of the sale, and
o the fund has the same or a similar investment objective.
Pension, profit sharing and other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 456 of the Code
don't pay a front-end sales charge or a CDSC, as long as the shares are
purchased by an employer sponsored plan with at least 50 eligible employees.
Investment Advisors or Financial Planners who place trades for their own
accounts or the accounts of their clients and who charge a management,
consulting or other fee for their services; and clients of such investment
advisors or financial planners who place trades for their own accounts don't
pay a front-end sales charge or a CDSC if the accounts are linked to the master
account of such investment advisor or financial planner on the books and
records of the broker or agent.
If you think you might be eligible to reduce your sales charges using any of
these methods, please call us or consult the Statement of Additional
Information (SAI).
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 5
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
DEFERRED SALES
CHARGES
(Classes A, B & C)
We deduct a contingent deferred sales charge (CDSC) from the proceeds when you
sell shares as indicated below. A CDSC is charged on the current market value
of the shares, or on the price you paid for them, whichever is less. You aren't
charged a CDSC on shares you acquired by reinvesting your dividends, or on
amounts representing appreciation.
When you ask us to sell shares, we will sell those that are exempt from the
CDSC first, and then sell the shares you have held the longest. This helps keep
your CDSC as low as possible.
CLASS A SHARES
There is generally no CDSC on Class A shares, except for purchases of $1
million or more, when you sell them within 18 months of when you bought them.
<TABLE>
<CAPTION>
Your Investment CDSC on shares being sold
<S> <C>
First $1,000,000 to
$ 2,499,999 1.00%
$2,500,000 to $4,999,999 0.50%
$5,000,000 and over 0.25%
</TABLE>
CLASS B & C SHARES
<TABLE>
<CAPTION>
Years after you
bought the shares Class B Class C
<S> <C> <C>
1st year 5.00% 1.00%
2nd year 4.00% --
3rd year 3.00% --
4th year 2.00% --
5th year 2.00% --
after 5 years -- --
</TABLE>
WHEN THE CDSC MIGHT BE WAIVED
We may waive the CDSC for Class B and Class C shares if:
o the shareholder dies or becomes disabled
o you're selling your shares through our systematic withdrawal program
o you're selling shares of a retirement plan and you are over 70 1/2 years old
o you're exchanging Class B, C or T shares for the same class of shares of
another Northstar fund
o you fall into any of the waiver categories listed on page 5.
If you think you might be eligible for a CDSC waiver, please call us or consult
the SAI.
6 Mid-Cap Growth Fund
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
OPENING A
NORTHSTAR
ACCOUNT
Once you've chosen the share class you prefer, you're ready to open an account.
First, determine how much money you want to invest. The minimum initial
investment for Northstar funds is:
o $2,500 for non-retirement accounts (we reserve the right to accept smaller
amounts)
o $250 for retirement accounts
o $25 if you are investing using our automatic investment plan (see page 9).
Next, open an account in one of two ways:
o give a check to your financial consultant, who will open an account for you,
or
o complete the application enclosed with this prospectus and mail it to us,
along with your check made payable to Northstar Funds.
TAX-SHELTERED RETIREMENTS PLANS
Call or write to us about opening your Northstar account as any one of the
following retirement plans:
o Roth IRAs,
o IRAs,
o SEP-IRAs,
o Simple IRAs.
- --------------------------------------------------------------------------------
BUYING, SELLING
AND EXCHANGING
Once you've opened an account and made your first investment, you can choose
one of three ways to buy, sell or exchange shares of Northstar funds:
o through your financial consultant
o directly, by mail or over the telephone
o using one of our automatic plans.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 9, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is
determined by the fund's net asset value (NAV) per share and share class. NAV
is calculated each business day at the close of regular trading on the New York
Stock Exchange (usually 4:00 Eastern Time) by dividing the net assets of each
fund class by the number of shares outstanding. To calculate NAV, we determine
the fair market value of the fund's portfolio securities using the method
described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form, plus any sales charges that apply. When
you're selling shares, you'll receive the NAV that is next calculated after we
receive your order in proper form, less any deferred sales charges that apply.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each investment after your first one is:
- $100 for non-retirement accounts
- $25 for retirement accounts
- $25 if you are investing using our automatic investment plan (see page
9).
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone or using the systematic
withdrawal program.
o We have the right to refuse a request to buy shares.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 7
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o Selling your shares may result in a deferred sales charge. Please refer to
the table on page 6.
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in
writing. Please call us for information.
o You can reinvest part or all of the proceeds of any shares you sell without
paying a sales charge. You must let us know in writing 30 days from the
day you sold the shares, and buy the same class of shares you sold. We
will reimburse you for any CDSC you paid. Please see page 11 for
information about how this can affect your taxes.
o If selling shares results in the value of your account falling below $500, we
have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if
you don't bring the account balance above $500, we'll sell your shares,
mail the proceeds to you and close your account. We may also close your
account if you give us an incorrect social security number or taxpayer
identification number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
- --------------------------------------------------------------------------------
SOME RULES FOR
EXCHANGING
o When you exchange shares, you are selling shares of one fund and using the
proceeds to buy shares of another fund. Please see page 11 for information
about how this can affect your taxes.
o Before you make an exchange, be sure to request and read the sections of the
prospectus of the fund you are exchanging to that discuss the shares
you're exchanging to.
o You can exchange shares of any fund for the same class of shares of any other
fund, or for shares of the Cash Management Fund of Salomon Brothers
Investment Series (a money market fund that's available through Northstar,
but isn't one of the Northstar funds). You will not pay a sales charge on
the exchange. You will, however, pay a sales charge if you buy shares of
the Cash Management Fund, and then exchange them for Class A shares of any
of the funds.
o For the purposes of calculating CDSC, shares you exchange will continue to
age from the day you first purchased them, even if you're exchanging into
the Cash Management Fund.
o We'll let you know 60 days in advance if we want to make any changes to these
rules.
8 Mid-Cap Growth Fund
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WAYS TO BUY, SELL OR EXCHANGE WHEN TO USE THIS OPTION
<S> <C>
Through your financial consultant o buy
o sell
o exchange
By mail
Please call us if you have any questions -- o buy
we can't process your request until we have o sell
all of the documents we need. o exchange
By telephone
To sign up for this service, complete o sell
section 9 of the application or call us at o exchange
1-800-595-7827.
Automatic investment plan
To sign up for this service, complete o buy
section 7 of the application or call us at
1-800-595-7827.
Systematic withdrawal program
To sign up for this service, complete o sell
section 8 of the application or call us at
1-800-595-7827.
</TABLE>
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 9
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're buying shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us.
When you're selling, give your written request to your financial consultant,
who may charge you a fee for this service.
- --------------------------------------------------------------------
Send your request to buy, sell or exchange in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling, and, for exchanges,
the fund name and share class you're exchanging to
o the dollar value or number of shares you want to buy, sell or exchange.
If you're buying include a check payable to Northstar Funds with your request.
If you're selling or exchanging, your request must be signed by all registered
owners of the account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered owner,
to an address other than the address of record, or in any form other than
by check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------
You can sell or exchange up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern Time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
- --------------------------------------------------------------------
You can authorize us to automatically withdraw a minimum of $25 each month from
your bank account and use it to buy shares in Northstar funds.
There's no charge for this service, but your bank may charge you a small set-up
or transaction fee. You can cancel the program at any time.
- --------------------------------------------------------------------
You can ask us to automatically transfer money from your Northstar account into
your bank account.
We will sell shares or share fractions on your behalf monthly, quarterly or
annually and automatically deposit the proceeds into your bank account. There
may be a sales charge on shares we sell on your behalf.
You must have at least $5,000 worth of shares in your account to participate in
this program. The minimum transfer amount is $25.
It isn't to your advantage to buy and sell shares of the same fund at the same
time, so you can't set up a systematic withdrawal program for an account you've
already signed up on an automatic investment plan.
10 Mid-Cap Growth Fund
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUND
PAYS DISTRIBUTIONS
The fund distributes virtually all of its net investment income and net capital
gains to shareholders once a year in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains
the fund distributes. The amount you receive is based on the number of shares
you own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
You can choose to reinvest your distributions in one of three ways:
o reinvest both income dividends and capital gain distributions to buy
additional Class A, B or C shares of any fund you choose
o receive income dividends in cash and reinvest capital gain distributions to
buy additional Class A, B or C shares of any fund you choose
o receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional shares of the same fund.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 11
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The fund intends to meet the requirements for being a tax-qualified regulated
investment company, which means it generally does not pay federal income tax on
the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in Northstar funds affects your personal tax
situation.
12 Mid-Cap Growth Fund
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW THE FUND
IS ORGANIZED
AND MANAGED
The Northstar Mid-Cap Growth Fund is a diversified mutual fund. The fund is a
series of the Northstar Equity Trust, which is registered as an investment
company with the SEC.
The trustees of the trust oversee the business affairs of the fund and are
responsible for major decisions about the fund's investment objective and
policies.
The fund does not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of the fund request it. Certain objectives and policies of
the fund may only be changed by shareholder vote. A shareholder vote is
required to change the investment objective of the fund.
The day-to-day management of the fund is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the fund and provides advice and
recommendations about investments made by the fund. The investment adviser is
paid out of the fund's management fee, which is 1% of average daily net assets.
Northstar Investment Management Corporation 300 First Stamford Place
Stamford, CT 06902
ADMINISTRATOR
Provides administrative, compliance and accounting services to the fund. The
administrator receives an annual administrative services fee from the fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
300 First Stamford Place
Stamford, CT 06902
DISTRIBUTOR
Markets the fund and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
300 First Stamford Place
Stamford, CT 06902
CUSTODIAN
Holds all the funds' assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends
and processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS
You'll find profiles of the fund's portfolio managers on page 3.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 13
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW DEALERS ARE
COMPENSATED
Dealers receive payment for selling shares of the Northstar Mid-Cap Growth Fund
in three ways:
THEY RECEIVE A COMMISSION WHEN YOU BUY SHARES
The amount of the commission depends on the amount you invest and the share
class you buy. Sales commissions are detailed in the chart below.
o Class A investments
(% of offering price)
<TABLE>
<CAPTION>
Commission
received by dealers Amount
out of sales charges paid by the
you pay distributor
<S> <C> <C>
up to $99,999 4.00 --
$100,000 to $249,999 3.10 --
$250,000 to $499,999 2.30 --
$500,000 to $999,999 1.70 --
$1,000,000 to $2,499,999 -- 1.00
$2,500,000 to $4,999,999 -- 0.50
$5,000,000 and over -- 0.25
</TABLE>
o Class B investments
<TABLE>
<S> <C>
Receives 4% of the sale price from the
distributor
</TABLE>
o Class C investments
<TABLE>
<S> <C>
Receives 1% of the sale price from the
distributor
</TABLE>
THEY ARE PAID A FEE BY THE DISTRIBUTOR FOR SERVICING YOUR ACCOUNT
They receive a service fee depending on the average net asset value of the
class of shares their clients hold in the fund. These fees are paid from the
12b-1 fee deducted from each fund class. In addition to covering the cost of
commissions and service fees, the 12b-1 fee is used to pay for other expenses
such as sales literature, prospectus printing and distribution and compensation
to the distributor and its wholesalers. You'll find the 12b-1 fees listed in
the fund information beginning on page 2. Service and distribution fee
percentages appear on page 4.
THEY MAY RECEIVE ADDITIONAL BENEFITS AND REWARDS
Selling shares of the fund may make dealers eligible for awards or to
participate in sales programs sponsored by Northstar. The costs of these
benefits and rewards are not deducted from the assets of the fund -- they are
paid from the distributor's own resources.
The distributor may also pay additional compensation to dealers including out
of its own resources for marketing and other services to shareholders.
14 Mid-Cap Growth Fund
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that the fund will achieve its
investment objective.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
o Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities, stock purchase rights and interests in real estate
investment trusts are types of equities. Real estate investment trusts are
companies that manage a portfolio of real estate to earn profits for
shareholders.
o The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
o Securities of smaller companies may be subject to more abrupt or erratic
market movements because they are traded in lower volume and are subject
to greater changes in earnings and growth prospects. Such securities may
include securities of emerging growth companies. Emerging growth companies
may:
-- be in a relatively early stage of development, but will usually have
consistent or accelerating earnings growth
-- occupy a profitable market niche
-- have products or technologies that are new, unique or proprietary
-- be in an industry that has a favorable long-term growth outlook.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
o Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations,
and also including securities issued to refinance foreign government bank
loans and other debt also known as Brady Bonds.
o Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment.
-- foreign markets may be less regulated, may have less volume and be less
liquid
-- foreign securities may be less liquid and more volatile
-- the value of foreign securities may be affected by adverse political
and economic developments, seizure or nationalization of foreign
deposits, and government restrictions
-- there is often less information available about foreign companies and
many countries do not have the accounting, auditing and financial
reporting that we have in the United States.
EMERGING MARKETS
o Investment in emerging markets have additional risks: developing countries
have economic structures that are less mature, they have less stable
political systems and may have high inflation, rapidly changing interest
and currency exchange rates, and their securities markets are
substantially less developed.
DEPOSITORY RECEIPTS
o American Depository Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by
foreign companies, and are
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 15
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
traded on U.S. exchanges. European Depository Receipts (EDRs) and Global
Depository Receipts (GDRs) are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust
companies. They are based on ownership of securities issued by foreign or
U.S. companies, and are traded on stock exchanges around the world.
- --------------------------------------------------------------------------------
DEBT SECURITIES
o Obligations to repay borrowed money within a certain time with or without
interest. Zero-coupon securities, pay-in-kind securities, discount
obligations, mortgage-backed securities, convertible securities and
high-yield securities are types of debt securities.
o Debt securities are affected by changes in interest rates. In general, when
interest rates go up, the value of a debt security decreases; when
interest rates go down, the value of a debt security increases.
o There is also the risk that the borrower won't be able to fulfill its
obligation, resulting in loss or a lower price than anticipated.
LOWER-RATED OR JUNK BONDS
The fund may invest in high-yield securities (junk bonds). Junk bonds are
high-yield securities with a credit rating of BB or lower. The fund may invest
in junk bonds that are rated as low as C by S&P or unrated debt securities
Northstar determines to be of equivalent quality. In addition to general risks
listed above that are associated with debt securities, junk bonds have special
risks:
o They fluctuate more in value than higher-rated securities.
o They are more subject to the risk that the borrower won't fulfill its
obligation.
o There may not be a market to sell them at a reasonable price, resulting in
loss or a lower price than anticipated.
o The fund's ability to achieve its investment objective may be more dependent
on Northstar's credit analysis than is the case for higher-rated
securities.
- --------------------------------------------------------------------------------
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
o Used to realize higher profits.
o There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
o Following guidelines established by the trustees of the fund, Northstar may
consider a security than can't be sold on the open market to be liquid if
it can be sold to institutional investors (Rule 144A) or on foreign
markets.
DERIVATIVE SECURITIES
o Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and
forward contracts.
o Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
16 Mid-Cap Growth Fund
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
o In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
-- changes in the value of the derivative may not match changes in the
value of its underlying asset
-- hedging may not be successful, and may prevent the fund from making
other gains
-- derivatives used for speculative purposes can result in gains or losses
that are substantially greater than the derivative's original cost.
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than
seven days are considered to be illiquid investments. Investments in this
type of repurchase agreement can only be 5% of a fund's net asset value.
o Used for temporary and defensive purposes or to generate income from cash
balances.
o The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
o Selling a security soon after you buy it.
o Used when the fund needs to be more liquid, in response to changes in
interest rates and economic or other developments, or when a security has
reached its price or yield objective.
o May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
o Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
o Used for temporary defensive purposes in periods of unusual market
conditions.
o Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARDING COMMITMENTS -- NO LIMIT
o A commitment to buy a security on a specific day in the future at a specified
price.
o Used to realize short-term profits.
o If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
o There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 17
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Mid-Cap Growth Fund in our:
ANNUAL REPORT
The Annual report contains information about fund performance, the financial
statements and the auditor's reports. Because this is a new fund, its Annual
Report won't be available until February 1999.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar Mid-Cap Growth Fund.
The SAI is legally part of this prospectus (it is incorporated by reference). A
copy has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the Annual report or the current SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
18 Mid-Cap Growth Fund
<PAGE>
NORTHSTAR
MID-CAP
GROWTH FUND
INSTITUTIONAL CLASS SHARES
PROSPECTUS
August 17, 1998
(Star Graphic)
This prospectus contains important information about investing in the Northstar
Mid-Cap Growth Fund. Please read the prospectus carefully before you invest and
keep it for future reference. Your investment: is not a bank deposit, is not
insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency, is affected by market fluctuations -- there is no guarantee
that the fund will achieve its objective. Like all mutual funds, these
securities have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission nor has the Securities and
Exchange Commission or any state securities commission passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[TARGET] OBJECTIVE
[COMPASS] INVESTMENT
STRATEGY
[SAFE] HOLDINGS
[SCALE] RISKS
[PENNY] WHAT
YOU PAY
TO INVEST
These pages contain a description of the fund, including its objective,
investment strategy, types of holdings, risks and portfolio managers.
You'll also find:
What you pay to invest. A list of
the fees and expenses you pay -- both directly and indirectly -- when you
invest in the fund.
Northstar Mid-Cap Growth Fund 2
Meet the portfolio managers 3
Your guide to buying and selling
Class I shares of the Northstar Mid-Cap Growth Fund 4
Mutual fund earnings and your taxes 7
The business of mutual funds 9
The risks of investing in mutual funds 10
Where to go for more information 13
<PAGE>
NORTHSTAR Registrant
MID-CAP GROWTH Northstar Equity
FUND Trust
Portfolio managers
Mary Lisanti,
Jeffrey Bernstein
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
This fund's objective is long-term capital appreciation by investing in a
diversified portfolio of equity securities.
INVESTMENT [GRAPHIC]
STRATEGY
The fund invests primarily in mid-sized companies that the portfolio managers
feel have above average prospects for growth. The portfolio managers select
growth companies that are involved in new technologies, new products, foreign
markets and special developments, such as research discoveries, acquisitions,
recapitalizations, liquidations or management changes. The fund also invests in
companies that the portfolio managers determine to be priced below their
long-term value.
HOLDINGS [GRAPHIC]
Under normal market conditions, the fund invests at least 65% of its total
assets in companies with a market capitalization of between $500 million to $2
billion. It may invest up to 25% of its net assets in foreign issuers, but only
10% may be invested in securities that are not listed on a U.S. securities
exchange. The fund may invest up to 20% of its net assets in debt obligations,
including intermediate- to long-term corporate or U.S. Government Securities. It
may also invest in other, higher-risk securities and engage in other investment
practices. These are described in the section beginning on page 10.
RISKS [GRAPHIC]
Because it invests in equities, the fund is affected by changes in the stock
market which could affect your investment in the fund. This fund is also subject
to the risks associated with investing in mid-sized companies. Securities of
mid-sized companies may be subject to more abrupt or erractic market movements
because they are traded in lower volume and are subject to greater changes in
earnings and growth prospects. Please refer to the section beginning on page 10,
The risks of investing in mutual funds.
- --------------------------------------------------------------------
Fees you pay directly
Class I
--------
Maximum sales charge on your initial
investment (as a % of offering price) % none
Maximum deferred sales charge % none
Operating expenses paid each year by the fund
(as a % of average net assets)
Class I
----------
Management fee % 1.00
12b-1 fee % 0.00
Other expenses % 0.50
Total fund operating expenses % 1.50
Example
Here's an example of what you would pay in expenses if you
invested $1,000, reinvested all your dividends, the fund
earned an average annual return of 5%, and annual operating
expenses remained at the current level. Keep in mind that
this is only an example -- actual expenses and performance
may vary.
Year 1 Year 3
-------- -------
Class I $ 15 47
............................
2 Mid-Cap Growth Fund
<PAGE>
MEET THE
PORTFOLIO
MANAGERS
- --------------------------------------------------------------------------------
Jeffrey Bernstein
Jeffrey Bernstein has been the co-manager of the Northstar Mid-Cap Growth Fund
since inception. He joined Northstar in May 1998.
Mr. Bernstein has over 10 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Bernstein was a Portfolio Manager at Strong
Capital Management where he co-managed the Strong Mid Cap Fund. From November
1995 to February 1997, Mr. Bernstein was a Portfolio Manager with Berkeley
Capital. From September 1993 to November 1995, Mr. Bernstein was an Assistant
Portfolio Manager at Bankers Trust Corp. Prior to Bankers Trust, Mr. Bernstein
was an Analyst for Cowen & Co.
Mary Lisanti
Mary Lisanti has been the co-manager of the Northstar Mid-Cap Growth Fund since
inception and manager of the Northstar Special Fund since July 1998. She joined
Northstar in May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Northstar, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the
Strong Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and
Head of Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp.
where she managed the BT Small Cap Fund and the BT Capital Appreciation Fund.
Prior to Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen
Funds. She began her career as an analyst specializing in emerging growth
stocks with Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, was ranked
number one Institutional Investor emerging growth stock analyst in 1989 and was
named to that survey two other times.
Ms. Lisanti earned her BA with honors from Princeton University. She is a
Chartered Financial Analyst, member of the New York Society of Security
Analysts and the Financial Analyst Federation.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 3
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
MINIMUM
INVESTMENT
The minimum initial investment for Class I shares is $10,000,000. Class I shares
are only available to certain defined benefit plans, insurance companies and
foundations investing for their own account.
- --------------------------------------------------------------------------------
BUYING AND SELLING
Once you've opened an account and made your first investment, you can choose one
of two ways to buy or sell shares of the Northstar Mid-Cap Growth Fund
o through your financial consultant or
o directly, by mail or over the telephone.
We'll send you a confirmation statement every time you make a transaction that
affects your account balance, except when we pay distributions.
Some broker-dealers or agents might charge you a fee if you buy or sell shares
through them.
Instructions for each option appear in the chart on page 5, but here are a few
things you should know before you begin.
- --------------------------------------------------------------------------------
HOW SHARES ARE
PRICED
The price you pay or receive when you buy, sell or exchange shares is
determined by the fund's net asset value (NAV) per share and share class. NAV
is calculated each business day at the close of regular trading on the New York
Stock Exchange (usually 4:00 Eastern Time) by dividing the net assets of each
fund class by the number of shares outstanding. To calculate NAV, we determine
the fair market value of the fund's portfolio securities using the method
described in the SAI.
When you're buying shares, you'll pay the NAV that is next calculated after we
receive your order in proper form. When you're selling shares, you'll receive
the NAV that is next calculated after we receive your order in proper form.
- --------------------------------------------------------------------------------
SOME RULES FOR
BUYING
o The minimum amount of each Class I investment after your first one is
$1,000,000.
o We record most shares on our books electronically. We will issue a
certificate if you ask us to in writing, however most of our shareholders
prefer not to have their shares in certificate form because certificated
shares can't be sold or exchanged by telephone.
o We have the right to refuse a request to buy shares.
- --------------------------------------------------------------------------------
SOME RULES FOR
SELLING
o We'll pay you within three days from the time we receive your request to
sell, unless you're selling shares you recently paid for by check. In that
case, we'll pay you when your check has cleared, which may take up to 15
days.
o If you are a corporation, partnership, executor, administrator, trustee,
custodian, guardian or you are selling shares of a retirement plan, you'll
need to complete special documentation and give us your request in
writing. Please call us for information.
o You won't pay a service charge when you sell your shares, but your dealer may
charge you a fee.
o If selling shares results in the value of your account falling below $10,000,
we have the right to close your account, so long as your account has been
open for at least a year. We'll let you know 60 days in advance, and if
you don't bring the account balance above $10,000, we'll sell your shares,
mail the proceeds to you and close your account. We may also close your
account if you give us an incorrect social security number or taxpayer
identification number.
o In unusual circumstances, we may temporarily suspend the processing of
requests to sell.
4 Mid-Cap Growth Fund
<PAGE>
YOUR GUIDE TO BUYING AND SELLING
CLASS I SHARES OF THE
NORTHSTAR MID-CAP GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WAYS TO BUY OR SELL WHEN TO USE THIS OPTION
<S> <C>
Through your financial consultant o buy
o sell
By mail
Please call us if you have any questions -- we can't o buy
process your request until we have all of the o sell
documents we need.
By telephone o sell
To sign up for this service, complete section 9 of
the application or call us at 1-800-595-7827.
</TABLE>
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 5
<PAGE>
YOUR GUIDE TO BUYING,
SELLING AND EXCHANGING SHARES
OF NORTHSTAR FUNDS
- --------------------------------------------------------------------------------
HOW TO USE IT
- --------------------------------------------------------------------------------
If you're buying shares, make your check payable to Northstar Funds and give it
to your financial consultant, who will forward it to us. When you're selling,
give your written request to your financial consultant, who may charge you a fee
for this service.
- --------------------------------------------------------------------------------
Send your request to buy or sell in writing to:
Northstar Funds
c/o First Data Investor Services Group, Inc.
P.O. Box 5131
Westborough, MA 01581-5131
Your letter should tell us:
o your account number
o your social security number or taxpayer identification number
o the name the account is registered in
o the fund name and share class you're buying or selling
o the dollar value or number of shares you want to buy or sell.
If you're buying include a check payable to Northstar Funds with your request.
If you're selling, your request must be signed by all registered owners of the
account.
We'll ask you to guarantee the signatures if:
o you are selling more than $50,000 worth of shares
o your address of record has changed in the past 30 days
o you want us to send the payment to someone other than the registered owner,
to an address other than the address of record, or in any form other than by
check.
Signatures can be guaranteed by a bank, a member of the national stock exchange
or another eligible institution.
- --------------------------------------------------------------------------------
You can sell up to $50,000 of your shares by telephone.
Call us at 1-800-595-7827 between 8:30 a.m. and 4:00 p.m. Eastern Time.
When you're calling with your request, we'll ask you for your name, social
security number, broker of record or other identification. If we don't ask for
these things and process an unauthorized telephone transaction, we are
responsible for any losses to your account. Otherwise you are responsible for
any unauthorized use of the telephone transaction service.
We'll mail the proceeds of the sale to the address of record or wire $1,000 or
more to any commercial bank in the U.S. that is a member of the Federal Reserve
System. Northstar does not charge a fee for this service, but your bank may
charge you a fee for receiving a wire transfer.
6 Mid-Cap Growth Fund
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW THE FUND
PAYS DISTRIBUTIONS
The fund distributes virtually all of its net investment income and net capital
gains to shareholders once a year in the form of dividends.
As a shareholder, you are entitled to a share of the income and capital gains
the fund distributes. The amount you receive is based on the number of shares
you own.
DISTRIBUTION OPTIONS
You can take your distributions as cash or reinvest them in the same class of
shares of any of our funds. You specify your preference when you open your
account. Distribution options vary by share class, as follows.
You can choose to reinvest your distributions in one of three ways:
o reinvest both income dividends and capital gain distributions to buy
additional Class I shares of either the Northstar Mid-Cap Growth Fund or
the Northstar Growth Fund
o receive income dividends in cash and reinvest capital gain distributions to
buy additional Class I shares of either the Northstar Mid-Cap Growth Fund
or the Northstar Growth Fund
o receive both income dividends and capital gain distributions in cash.
You can change your distribution instructions at any time by notifying us by
phone (if going to the address of record), or in writing.
If you don't specify how you would like to receive your distributions, we'll
automatically reinvest both income dividends and capital gain distributions in
additional Class I shares of the Northstar Mid-Cap Growth Fund.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 7
<PAGE>
MUTUAL FUND
EARNINGS AND
YOUR TAXES
- --------------------------------------------------------------------------------
HOW YOUR
DISTRIBUTIONS
ARE TAXED
The fund intends to meet the requirements for being a tax-qualified regulated
investment company, which means it generally does not pay federal income tax on
the earnings it distributes to shareholders.
As a result, distributions that you receive will generally be considered to be
taxable in your hands. Income distributions, whether you take them as cash or
reinvest them, are taxable as ordinary income. Capital gain distributions are
taxable as long-term capital gains, regardless of how long you've held the
shares.
Distributions may also be subject to state, local or foreign taxes.
If income distributed to you includes dividends paid by U.S. corporations, part
of the dividends the fund pays may be eligible for the corporate
dividends-received deduction.
TIMING YOUR PURCHASE
If you buy shares of a fund just before it makes a distribution, you will pay
the full price but part of your investment will come back to you as a taxable
distribution. Unless you are investing in a tax- deferred account, such as an
IRA, this is not to your advantage because you'll pay tax on the dividend but
will not have shared in the increase in the net asset value of the fund.
WHEN DISTRIBUTIONS ARE DECLARED
For tax purposes, distributions declared by the fund in October, November or
December and paid to you in January are taxable in the calendar year in which
they were declared.
BACKUP WITHHOLDING TAX
We'll notify you each year of the tax status of dividends and distributions. If
we don't have your tax identification number, or if you have been told by the
IRS that you are subject to backup withholding tax, we may be required to
withhold U.S. federal income tax on any distributions at the rate of 31%.
WHEN YOU SELL YOUR SHARES
When you sell or exchange shares you will realize a capital gain or loss,
depending on the difference between what your shares cost you and what you
receive for them. A capital gain or loss will be long-term or short-term,
depending on the length of time you held the shares.
In your federal income tax return you report a capital gain as income and a
capital loss as a deduction.
CONSULT YOUR TAX ADVISER
The information above is general in nature. You should consult your tax adviser
to discuss how investing in the Northstar Mid-Cap Growth Fund affects your
personal tax situation.
8 Mid-Cap Growth Fund
<PAGE>
THE BUSINESS
OF MUTUAL
FUNDS
- --------------------------------------------------------------------------------
HOW THE FUND
IS ORGANIZED
AND MANAGED
The Northstar Mid-Cap Growth Fund is a diversified mutual fund. The fund is a
series of the Northstar Equity Trust, which is registered as an investment
company with the SEC.
The trustees of the trust oversee the business affairs of the fund and are
responsible for major decisions about the fund's investment objective and
policies.
The fund does not hold regular shareholder meetings, but may hold special
meetings. A special meeting is called if investors holding at least 10% of the
outstanding shares of the fund request it. Certain objectives and policies of
the fund may only be changed by shareholder vote. A shareholder vote is
required to change the investment objective of the fund.
The day-to-day management of the fund is handled by the following companies and
advisers appointed by the trustees:
INVESTMENT ADVISER
Oversees the investment management of the fund and provides advice and
recommendations about investments made by the fund. The investment adviser is
paid out of the fund's management fee, which is 1% of average daily net assets.
Northstar Investment Management Corporation
300 First Stamford Place
Stamford, CT 06902
ADMINISTRATOR
Provides administrative, compliance and accounting services to the fund. The
administrator receives an annual administrative services fee from the fund of
0.10% of the fund's average daily net assets, plus $5 per account per year.
Northstar Administrators Corporation
300 First Stamford Place
Stamford, CT 06902
DISTRIBUTOR
Markets the fund and distributes shares through financial consultants and other
financial representatives.
Northstar Distributors, Inc.
300 First Stamford Place
Stamford, CT 06902
CUSTODIAN
Holds all the funds' assets.
Custodian and fund accounting agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
TRANSFER AGENT
Handles shareholder record-keeping and statements, distribution of dividends
and processing of orders to buy and sell shares.
First Data Investor Services Group, Inc.
4400 Computer Drive
Westborough, MA 01581-5120
PORTFOLIO MANAGERS
You'll find profiles of the fund's portfolio managers on page 3.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 9
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Risk is the potential that your investment will lose money or not earn as much
as you hope. Mutual funds have varying degrees of risk, depending on the
securities they invest in. There is no guarantee that the fund will achieve its
investment objective.
This section provides information about the risks associated with different
kinds of securities. It also lists additional investment practices that may
involve elements of risk.
- --------------------------------------------------------------------------------
EQUITIES
o Give the buyer ownership rights in the issuer. Common and preferred stocks,
convertible securities, stock purchase rights and interests in real estate
investment trusts are types of equities. Real estate investment trusts are
companies that manage a portfolio of real estate to earn profits for
shareholders.
o The market value of an equity security may go up or down rapidly depending on
market conditions. This affects the value of the shares of a fund, and the
value of your investment.
o Securities of smaller companies may be subject to more abrupt or erratic
market movements because they are traded in lower volume and are subject
to greater changes in earnings and growth prospects. Such securities may
include securities of emerging growth companies. Emerging growth companies
may:
o be in a relatively early stage of development, but will usually have
consistent or accelerating earnings growth
o occupy a profitable market niche
o have products or technologies that are new, unique or proprietary
o be in an industry that has a favorable long-term growth outlook.
- --------------------------------------------------------------------------------
FOREIGN
INVESTMENTS
o Securities issued by companies or governments of foreign countries. May
include equities and debt securities including sovereign debt obligations,
and also including securities issued to refinance foreign government bank
loans and other debt also known as Brady Bonds.
o Subject to all of the risks associated with equity and debt securities. There
are also other risks that can affect the value of a foreign investment.
-- foreign markets may be less regulated, may have less volume and be less
liquid
-- foreign securities may be less liquid and more volatile
-- the value of foreign securities may be affected by adverse political
and economic developments, seizure or nationalization of foreign
deposits, and government restrictions
-- there is often less information available about foreign companies and
many countries do not have the accounting, auditing and financial
reporting that we have in the United States.
EMERGING MARKETS
o Investment in emerging markets have additional risks: developing countries
have economic structures that are less mature, they have less stable
political systems and may have high inflation, rapidly changing interest
and currency exchange rates, and their securities markets are
substantially less developed.
DEPOSITORY RECEIPTS
o American Depository Receipts (ADRs) are typically issued by U.S. banks or
trust companies. They are based on ownership of securities issued by
foreign companies, and are
10 Mid-Cap Growth Fund
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
traded on U.S. exchanges. European Depository Receipts (EDRs) and Global
Depository Receipts (GDRs) are typically issued by foreign banks or trust
companies, although they also may be issued by U.S. banks or trust
companies. They are based on ownership of securities issued by foreign or
U.S. companies, and are traded on stock exchanges around the world.
- --------------------------------------------------------------------------------
DEBT SECURITIES
o Obligations to repay borrowed money within a certain time with or without
interest. Zero-coupon securities, pay-in-kind securities, discount
obligations, mortgage-backed securities, convertible securities and
high-yield securities are types of debt securities.
o Debt securities are affected by changes in interest rates. In general, when
interest rates go up, the value of a debt security decreases; when
interest rates go down, the value of a debt security increases.
o There is also the risk that the borrower won't be able to fulfill its
obligation, resulting in loss or a lower price than anticipated.
LOWER-RATED OR JUNK BONDS
The fund may invest in high-yield securities (junk bonds). Junk bonds are
high-yield securities with a credit rating of BB or lower. The fund may invest
in junk bonds that are rated as low as C by S&P or unrated debt securities
Northstar determines to be of equivalent quality. In addition to general risks
listed above that are associated with debt securities, junk bonds have special
risks:
o They fluctuate more in value than higher-rated securities.
o They are more subject to the risk that the borrower won't fulfill its
obligation.
o There may not be a market to sell them at a reasonable price, resulting in
loss or a lower price than anticipated.
o The fund's ability to achieve its investment objective may be more dependent
on Northstar's credit analysis than is the case for higher-rated
securities.
- --------------------------------------------------------------------------------
OTHER, HIGHER
RISK SECURITIES
ILLIQUID SECURITIES -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o Securities that can't be sold quickly at a reasonable price, or that can't be
sold on the open market. Includes restricted securities and private
placements.
o Used to realize higher profits.
o There may be fewer market players which can result in lower prices, and sales
can take longer to complete.
o Following guidelines established by the trustees of the fund, Northstar may
consider a security than can't be sold on the open market to be liquid if
it can be sold to institutional investors (Rule 144A) or on foreign
markets.
DERIVATIVE SECURITIES
o Securities that derive their value from the performance of an underlying
asset. Usually take the form of a contract to buy or sell an asset or
commodity either now or in the future, but mortgage and other asset-backed
securities are also generally considered derivatives. Types of derivative
securities include options, futures contracts, options on futures and
forward contracts.
o Used often to "hedge" or offset market fluctuations or changes in currency
exchange or interest rates. May also be used for speculative purposes to
increase returns.
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 11
<PAGE>
THE RISKS OF
INVESTING IN
MUTUAL FUNDS
- --------------------------------------------------------------------------------
o In addition to the risks associated with equities and debt securities, there
are several special risks associated with the use of derivatives:
o changes in the value of the derivative may not match changes in the value of
its underlying asset
o hedging may not be successful, and may prevent the fund from making other
gains
o derivatives used for speculative purposes can result in gains or losses that
are substantially greater than the derivative's original cost.
- --------------------------------------------------------------------------------
INVESTMENT
PRACTICES
REPURCHASE AGREEMENTS -- FUND IS LIMITED TO 15% OF NET ASSET VALUE
o Buying a security from a bank or dealer who must buy it back at a fixed price
on a specified day. Repurchase agreements that mature after more than seven
days are considered to be illiquid investments. Investments in this type of
repurchase agreement can only be 5% of a fund's net asset value.
o Used for temporary and defensive purposes or to generate income from cash
balances.
o The bank or dealer may not be able to buy back the security.
SHORT-TERM TRADING -- NO LIMIT
o Selling a security soon after you buy it.
o Used when the fund needs to be more liquid, in response to changes in
interest rates and economic or other developments, or when a security has
reached its price or yield objective.
o May result in higher costs for brokerage commissions, dealer mark-ups and
other transactions costs, as well as taxable capital gains.
TEMPORARY INVESTMENTS -- NO LIMIT
o Temporarily maintaining part or all of a fund's assets in cash or in U.S.
Government Securities, commercial paper, banker's acceptances, repurchase
agreements and certificates of deposit.
o Used for temporary defensive purposes in periods of unusual market
conditions.
o Provides lower returns.
WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS -- NO LIMIT
o A commitment to buy a security on a specific day in the future at a specified
price.
o Used to realize short-term profits.
o If made through a dealer, there is a risk that the dealer won't complete the
sale, and that the fund will lose out on a good yield or price.
o There is also risk that the value of the security will change before the
transaction is settled, resulting in short-term losses instead of gains.
12 Mid-Cap Growth Fund
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Northstar Mid-Cap Growth Fund in our:
ANNUAL REPORT
The Annual report contains information about fund performance, the financial
statements and the auditor's reports. Because this is a new fund, its Annual
Report won't be available until February 1999.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains complete information about the Northstar Mid-Cap Growth Fund.
The SAI is legally part of this prospectus (it is incorporated by reference). A
copy has been filed with the Securities and Exchange Commission.
Please write or call for a free copy of the Annual report or the current SAI:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
1-800-595-7827
PROSPECTUS FOR CLASS A, B AND C
Class A, B and C shares of the Northstar Mid-Cap Growth Fund are discussed in a
separate prospectus. Class A, B and C shares have sales charges and other
expenses that may affect performance. You may obtain a prospectus for Class A,
B and C shares of the fund by calling 1-800-595-7827 or writing:
The Northstar Funds
300 First Stamford Place
Stamford, CT 06902
[GRAPHIC] If you have any questions, please call 1-800-595-7827.
Mid-Cap Growth Fund 13
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 17, 1998
(star)NORTHSTAR MID-CAP GROWTH FUND
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Northstar Mid-Cap Growth Fund (the "Fund") dated August 17, 1998, as each may
be revised from time to time. To obtain a copy of the Fund's Prospectus, please
contact Northstar Investment Management Corporation at the address or phone
number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar Distributors, Inc. (the
"Underwriter") is the underwriter to the Fund. Northstar Administrators
Corporation (the "Administrator") is the Fund's administrator. The Underwriter
and the Administrator are affiliates of Northstar.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.................................................. 2
INVESTMENT TECHNIQUES.................................................... --
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION.......................... --
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR.............................. --
NET ASSET VALUE.......................................................... --
PURCHASES AND REDEMPTIONS................................................ --
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................... --
UNDERWRITER AND DISTRIBUTION SERVICES.................................... --
TRUSTEES AND OFFICERS.................................................... --
OTHER INFORMATION........................................................ --
PERFORMANCE INFORMATION.................................................. --
FINANCIAL STATEMENTS..................................................... --
APPENDIX................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Mid-Cap Growth Fund. The Fund has adopted investment
restrictions numbered 1 through 11 as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up to 10% of
its net assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions in
options, futures, and options on futures and other transactions not deemed to
involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (the Fund may purchase marketable securities of companies that deal
in real estate or interests therein, including real estate investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
7. Sell short, except that the Fund may enter into short sales against the
box;
8. Invest more than 25% of its assets in any one industry or related group
of industries;
9. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
10. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
11. Borrow money in excess of 10% of its net assets for temporary
purposes;
12. Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except that the
Fund may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by any
state in which shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 10% of the Fund's assets, other than
for temporary emergency or administrative purposes. In addition, the Fund will
not make additional investments when its borrowings exceed 5% of total assets.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of foreign jurisdictions where the Fund intends to
offer or sell its shares.
INVESTMENT TECHNIQUES
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by a Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
Firm Commitments and When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
The Fund may enter into To Be Announced ("TBA") sale commitments wherein
the unit price and the estimated principal amount are established upon entering
into the contract, with the actual principal amount being within a specified
range of the estimate. A Fund will enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. Unsettled
TBA sale commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the Fund delivers securities under the commitment, the Fund
realizes a gain or loss from the sale of the securities, based upon the unit
price established at the date the commitment was entered into.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
Floating or Variable Rate Instruments. The Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by the Fund.
These bonds are more defensive than conventional long-term bonds (protecting to
some degree against a rise in interest rates), while providing greater
opportunity than comparable intermediate term bonds since the Fund may retain
the bond if interest rates decline. By acquiring these kinds of bonds, a Fund
obtains the contractual right to require the issuer of the security, or some
other person (other than a broker or dealer), to purchase the security at an
agreed upon price, which right is contained in the obligation itself rather than
in a separate agreement with the seller or some other person.
Futures Transactions - In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the
2
<PAGE>
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading opportunities or arbitrage possibilities not available in the United
States. Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that the Fund might
realize in trading could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes. Transactions on
foreign exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the 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 Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
GNMAS. The Fund may invest in U.S. Government Securities, which are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Obligations of the Government National Mortgage Association
(popularly called GNMAs or Ginnie Maes) are mortgage backed securities
representing part ownership of a pool of mortgage loans, in which the timely
payment of principal and interest is guaranteed by the full faith and credit of
the U.S. Government. GNMA may borrow U.S. Treasury funds to the extent needed to
make payments under the guarantee. The Fund may purchase "modified pass-through"
type GNMA Certificates for which principal and interest are guaranteed, rather
than the "straight pass through" Certificates for which such guarantee is not
available. The Fund also may purchase "variable rate" GNMA Certificates and
other types that may be used with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as the Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by
3
<PAGE>
dividing such payments by the purchase price paid for the GNMA Certificate
(which may be at a premium or a discount from the face value of the
Certificate). Unpredictable prepayments of principal, however, can greatly
change realized yields. In a period of declining interest rates it is more
likely that mortgages contained in GNMA pools will be prepaid, thus reducing the
effective yield. Moreover, any premium paid on the purchase of a GNMA
Certificate will be lost if the obligation is prepaid. In periods of falling
interest rates, this potential for prepayment may reduce the general upward
price increase of GNMA Certificates that might otherwise occur. As with other
debt instruments, the price of GNMA Certificates is likely to decrease in times
of rising interest rates. Price changes of the GNMA Certificates held by a Fund
have a direct impact on the net asset value per share of the Fund.
When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares.
High Yield Securities. The Fund may invest in lower-rated fixed income
securities to the extent described in the Prospectus. The lower ratings of
certain securities held by the Fund reflect a greater possibility that adverse
changes in the financial condition of the issuer or economic conditions in
general, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Fund more
volatile and could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities. In the absence
of a liquid trading market for the securities held by it, the Fund may be unable
at times to establish the fair value of such securities. The rating assigned to
a security by Moody's Investors Service, Inc. or S&P (or by any other nationally
recognized securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. See the Appendix for a description of a security.
Like those of other fixed income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. In addition, the values of such securities
are also affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities generally will not affect cash income derived from such securities,
but will effect a Fund's net asset value. The Fund will not necessarily dispose
of a security when its rating is reduced below its rating at the time of
purchase, although Northstar will monitor the investment to determine whether
its retention will assist in meeting the Fund's investment objective.
Certain securities held by the Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
the Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
Index Warrants. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer, based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Fund will
normally use index warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of index warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Strategic Income
Fund will normally invest only in exchange-listed warrants, index warrants are
not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
International Investing. The Fund may invest up to 25% of its net assets
in foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange. Investments in
foreign securities involve special risks, including currency fluctuations,
political or economic instability in the country of issue and the possible
imposition of exchange controls or other laws or restrictions. In addition,
securities prices in foreign markets are generally subject to different
economic,
4
<PAGE>
financial, political and social factors than are the prices of securities in
U.S. markets. With respect to some foreign countries there may be the
possibility of expropriation or confiscatory taxation, limitations on liquidity
of securities or political or economic developments which could affect the
foreign investments of the Fund. Moreover, securities of foreign issuers
generally will not be registered with the SEC, and such issuers will generally
not be subject to the SEC's reporting requirements. Accordingly, there is likely
to be less publicly available information concerning certain of the foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the U.S. Commission rates in
foreign countries, which are generally fixed rather than subject to negotiation
as in the U.S., are likely to be higher. These factors could make foreign
investments, especially those in developing countries, more volatile. All of the
above issues should be considered before investing in the Fund.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Loan Participations and Assignments. The Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
Options - In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
5
<PAGE>
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Privately Issued Collateralized Mortgage-Backed Obligations, Interest
Obligations and Principal Obligations. The Fund may invest up to 5% of its net
assets in Privately Issued Collateralized Mortgage-Backed Obligations ("CMOs"),
Interest Obligations ("IOs") and Principal Obligations ("POs") when Northstar
believes that such investments are consistent with the Fund's investment
objective. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
privately issued CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Privately issued CMOs are per se illiquid. Multi-class pass-through
securities are equity interest in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through securities. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, are the sources of
funds used to pay debt service on the CMOs or make scheduled distributions on
the multi-class pass-through securities.
On a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often 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. The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in innumerable ways. The Fund may
also invest in, among others, parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally call for payments of a specified amount of
principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS 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 banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class),
6
<PAGE>
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
Mortgage Assets, and a rapid rate of principal payments may have a material
adverse effect on such security's yield to maturity. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, a Fund may
fail to recoup fully its initial investment in these securities. The
determination of whether a particular government-issued IO or PO backed by
fixed-rate mortgage is liquid is made by Northstar under guidelines and
standards established by the Board of Trustees. Such a security may be deemed
liquid if it can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of net asset value per
share.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with such Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by the Fund may decline below the price at which
the Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
Small and Medium Companies. The Fund may invest a substantial portion of
its assets in small and medium companies. While small and medium companies
generally have the potential for rapid growth, investments in small and medium
companies often involve greater risks than investments in larger, more
established companies because small and medium companies may lack the management
experience, financial resources, product diversification, and competitive
strengths of larger companies. In addition, in many instances the securities of
small and medium companies are traded only OTC or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of small and
medium companies may be subject to greater and more abrupt price fluctuations.
When making large sales, the Fund may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales over an
extended period of time due to the trading volume of small and medium company
securities. Investors should be aware that, based on the foregoing factors, an
investment in the Fund may be subject to greater price fluctuations than an
investment in a Fund that invests primarily in larger, more established
companies. Northstar's research efforts may also play a greater role in
selecting securities for the Fund than in a Fund that invests in larger, more
established companies.
Zero Coupon Securities. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically. Zero
coupon securities are likely to respond to a greater degree to interest rate
changes than are non-zero coupon securities with similar maturity and credit
qualities. The Fund may invest a portion of its total assets in "zero coupon"
Treasury
7
<PAGE>
securities, which consist of Treasury bills or stripped interest or principal
components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Fund may also purchase
custodial receipts evidencing beneficial ownership of direct interests in
component parts of U.S. Treasury bonds or notes held by a bank in a custodian or
trust account.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage and
research services provided by the executing broker. Northstar seeks to obtain
fair commission rates from brokers. If the execution is satisfactory and if the
requested rate charged by a broker approximates rates currently being quoted by
the other brokers selected by Northstar, the rate is generally deemed by
Northstar to be reasonable. Some brokers may be paid higher rates of commission
if all or a portion of the securities involved in the transaction are positioned
by the broker, if the broker believes it has brought the Fund an unusually
favorable trading opportunity, or if the broker's research services have special
value and payment of such commissions is authorized by Northstar after the
transaction has been consummated. If Northstar more than occasionally differs
with the broker's appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. Northstar believes that the Fund
benefits with a securities industry comprised of many and diverse firms and that
the long term interest of shareholders of the Fund is best served by its
brokerage policies that include paying a fair commission, rather than seeking to
exploit its leverage to force the lowest possible commission rate.
Over-the-counter purchases and sales are transacted directly with market-makers,
except in those circumstances where, in the opinion of Northstar, better prices
and execution are available elsewhere.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
Northstar has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
Northstar allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount of
commission paid and was subject to best execution. In no case will Northstar
make binding commitments as to the level of brokerage commissions it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists
8
<PAGE>
primarily of dealer spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms.
A change in securities held in the portfolio of the Fund is known as
"Portfolio Turnover" and may involve the payment by the Fund of dealer mark-ups
or brokerage or underwriting commissions and other transaction costs on the sale
of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquistion were one year or less. A 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one year. The Fund cannot accurately predict its portfolio turnover rate, but
Northstar anticipates that the Fund's rate will exceed 150% under normal market
conditions. The Fund's portfolio turnover rate may be higher than that described
above if the Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the
Northstar Equity Trust (the "Trust") is responsible for furnishing continuous
investment supervision to the Fund and is responsible for the management of the
Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the Investment Advisory Agreement to the
Fund at an annual rate of 1.00% of the Fund's average daily net assets. This fee
is accrued daily and payable monthly.
The Investment Advisory Agreement for the Fund was originally approved by
the Trustees of the Trust on July 29, 1998, and by the sole Shareholder of the
Northstar Mid-Cap Growth Fund on July 31, 1998. The Investment Advisory
Agreement will continue in effect for a period of two years and annually
thereafter if specifically approved annually by (a) the Trustees, acting
separately on behalf of the Fund, including a majority of the Disinterested
Trustees, or (b) a majority of the outstanding voting securities of the Fund as
defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated, without
penalty and at any time, by a similar vote upon not more than 60 days nor less
than 30 days written notice by Northstar, the Trustees, or a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act. The
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the 1940 Act.
Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Fund. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreement, the custodian for the Fund under the
Custodian Agreement, the transfer agent for the Fund under the Transfer Agency
Agreement, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for monitoring
Northstar for compliance with requirements under applicable law and with the
investment policies and restrictions of the Fund. The Administrator is an
affiliate of Northstar. The
9
<PAGE>
address of the Administrator is: 300 First Stamford Place, Stamford,
Connecticut 06902.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Fund on July 29, 1998, and will continue in effect for a
period of two years and annually thereafter if such continuance is approved
annually by a majority of the Trustees of the Trust.
The Administrator's fee is accrued daily against the value of the Fund's
net assets and is payable by the Fund monthly at an annual rate of 0.10% of the
Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares of
the Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
NET ASSET VALUE
Equity securities are valued at the last sale price on the exchange or in
the principal OTC market in which such securities are being valued, or lacking
any sales, at the last available bid price. Prices of long-term debt securities
are valued on the basis of last reported sales price, or if no sales are
reported, the value is determined based upon the mean of representative quoted
bid or asked prices for such securities obtained from a quotation reporting
system or from established market makers, or at prices for securities of
comparable maturity, quality and type. Securities (including OTC options) for
which market quotations are not readily available and other assets are valued at
their fair value as determined by or under the direction of the Trustees. Such
fair value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of the Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B and Class C shares of the Fund will generally be lower than
that of the Class A shares because of the higher class specific expenses borne
by each of the Class B and Class C shares.
Under normal market conditions, daily prices for securities are obtained
from independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument. See "How Net Asset Value is
Determined" in the Prospectus.
PURCHASES AND REDEMPTIONS
Shares issued pursuant to the automatic reinvestment of income dividends
or capital gains distributions are not subject to a front-end or contingent
deferred sales load. There is no sales charge for qualified persons. "Qualified
Persons" are the following (a) active or retired Trustees, Directors, Officers,
Partners or Employees (including immediate family) of (i) Northstar or any of
its affiliated companies, (ii) the Fund or any Northstar affiliated investment
company or (iii) dealers having a sales agreement with the Underwriter, (b)
trustees or custodians of any qualified retirement plan or IRA established for
the benefit of a person in (a) above; (c) dealers, brokers or registered
investment advisers that have entered into an agreement with the Underwriter
providing for the use of shares of the Fund in particular investment products
such as "wrap accounts" or other similar managed accounts for the benefit of the
clients of such brokers, dealers and registered investment advisers, and (d)
pension, profit sharing or other benefit plans created pursuant to a plan
qualified under Section 401 of the Code or plans under Section 457 of the Code,
provided that such shares are purchased by an employer sponsored plan with at
least 50 eligible employees and (e) service providers of (i) Northstar or any of
its affiliated companies or (ii) the Fund or any Northstar affiliated investment
company and (f) Brandes employees, officers and partners. Class A shares of the
Fund may be purchased at net asset value, through a dealer, where the amount
invested represents redemption proceeds from another open-end fund sold with a
sales load and the same or similar investment objective, and provided the
following conditions are met: such redemption occurred no more than 60 days
prior to the purchase of shares of the Fund, the redeemed shares were held for
at least six months prior to redemption, and the proceeds of the redemption are
sent directly to Northstar or its agent, or maintained in cash or a money market
fund. No commissions will be paid to dealers in connection with such
10
<PAGE>
purchases. There is also no initial sales charge for "Purchasers" (defined
below) if the initial amount invested in the Fund is at least $1,000,000 or the
Purchaser signs a $1,000,000 Letter of Intent, as hereinafter defined.
Reduced Sales Charges on Class A Shares. Investors choosing the initial
sales alternative may under certain circumstances be entitled to pay reduced
sales charges. The sales charge varies with the size of the purchase and reduced
charges apply to the aggregate of purchases of the Fund made at one time by any
"Purchaser," which term includes (i) an individual and his/her spouse and their
children under the age of 21, (ii) a trustee or fiduciary purchasing for a
single trust, estate or single fiduciary account (including IRAs, pension,
profit-sharing or other employee benefit trusts created pursuant to a plan
qualified under Section 401 of the Code, a Simplified Employee Pension ("SEP"),
Salary Reduction and other Elective Simplified Employee Pension Accounts
("SARSEP")) and 403(b) and 457 plans, although more than one beneficiary or
participant is involved; and (iii) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company. The circumstances
under which "Purchasers" may pay reduced sales charges are described in the
Prospectus.
Redemptions. The right to redeem shares may be suspended and payment
therefore postponed during periods when the New York Stock Exchange is closed,
other than customary weekend and holiday closings, or, if permitted by rules of
the SEC, during periods when trading on the Exchange is restricted, or during
any emergency that makes it impracticable for the Fund to dispose of its
securities or to determine fairly the value of its net assets or during any
other period permitted by order of the SEC for the protection of investors.
Furthermore, the Transfer Agent will not mail redemption proceeds until checks
received for shares purchased have cleared, but payment will be forwarded
immediately upon the funds becoming available. Class B and Class C shareholders
will be subject to the applicable deferred sales charge, if any, for their
shares at the time of redemption.
Exchanges. The following conditions must be met for all exchanges among
the Fund, other Northstar funds and the Cash Management Fund and the Money
Market Portfolio: (i) the shares that will be acquired in the exchange (the
"Acquired Shares") are available for sale in the shareholder's state of
residence; (ii) the Acquired shares will be registered to the same shareholder
account as the shares to be surrendered (the "Exchanged Shares"); (iii) the
Exchanged Shares must have been held in the shareholder's account for at least
30 days prior to the exchange; (iv) except for exchanges into the Cash
Management Fund, the account value of the Fund whose shares are to be acquired
must equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
The Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
Conversion Feature. Class B shares of the Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, the Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains
11
<PAGE>
over long-term capital losses) for the taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair market
value, resulting in unrealized gains or losses being treated as though they were
realized.
Hedging transactions undertaken by the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by the Fund from the disposition of any market discount
bonds (I.E., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the
12
<PAGE>
accrued market discount on the bonds, unless the Fund elects to include the
market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its U.S.
Federal income tax liability, subject to limitations. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year. If the Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. 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 Fund 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 net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment
13
<PAGE>
company are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss realized on the disposition will be determined by
excluding from the tax basis of the shares all or a portion of the sales charge
incurred in acquiring those shares. This exclusion applies to the extent that
the otherwise applicable sales charge with respect to the newly acquired shares
is reduced as a result of the shareholder having incurred a sales charge paid
for the new shares. This rule may be applied to successive acquisitions of
shares of stock.
Distributions by a Fund reduce the net asset value of that Fund's shares.
Should a distribution reduce the net asset value of a share below a
shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who, to a Fund's
knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How the Fund Pays Distributions -- Distribution Options" section
of the Fund's current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of the Fund at net
asset value; or (b) income dividends and capital gain distributions both be paid
in cash), and the dividend/distribution checks cannot be delivered, or, if such
checks remain uncashed for six months, the Fund reserves the right to reinvest
the dividend or distribution in the shareholder's account at the then-current
net asset value and to convert the shareholder's election to automatic
reinvestment in shares of the Fund from which the distributions were made. The
Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to an Underwriting Agreement, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreement may be terminated at any time on not more than 60
days written notice, without payment of a penalty, by the Underwriter, by vote
of a majority of the outstanding class of voting securities of the Fund, or by
vote of a majority of the Trustees, who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements. The Underwriting Agreements will terminate
automatically in the event of their assignment.
In addition to the amount paid to dealers pursuant to the sales charge table in
the Prospectus, the Underwriter from time to time pays, from its own resources
or pursuant to the Plans, a bonus or other incentive to dealers (other than the
Underwriter) that employ a registered representative who sells a minimum dollar
amount of the shares of the Fund during a specific period of time. Dealers may
not use sales of any of the Fund's shares to qualify for or participate in such
programs to the extent such may be prohibited by a dealer's internal procedures
or by the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. Such bonuses or other incentives take
the form of payment for travel expenses, including lodging, incurred in
connection with trips taken by qualifying registered representatives and members
of their families to places within or outside the United States, or
14
<PAGE>
other bonuses such as certificates for airline tickets, dining establishments or
the cash equivalent of such bonuses. The Underwriter, from time to time,
reallows all or a portion of the sales charge on Class A shares, which it
normally reallows to individual selling dealers. However, such additional
reallowance generally will be made only when the selling dealer commits to
substantial marketing support such as internal wholesaling through dedicated
personnel, internal communications and mass mailings.
Each Fund has adopted separate distribution plans under Rule 12b-1 of the 1940
Act for each class of shares of the Fund (collectively the "Plans"). The Plans
permit each Fund to compensate the Underwriter in connection with activities
intended to promote the sale of shares of each class of shares of each Fund.
Pursuant to the Plan for Class A shares, each Fund may compensate the
Underwriter up to 0.30% of average daily net assets of such Fund's Class A
shares. Under the Plans for Class B and Class C shares, each Fund may compensate
the Underwriter up to 1.00% of the average daily net assets attributable to the
respective class of such Fund. Pursuant to the Plan for Class T shares, each
Fund compensates the Underwriter in an amount equal to 0.95% (in the case of
Growth Fund, Special Fund, and Strategic Income Fund), 0.75% (in the case of
Balance Sheet Opportunities Fund) and 0.65% (in the case of High Yield Fund and
Government Securities Fund) of annual average daily net assets of such Fund's
Class T shares. However, each of the Class T Plans provides for compensation of
up to 1.00% of annual average daily net assets. Expenditures by the Underwriter
under the Plans shall consist of: (i) commissions to sales personnel for selling
shares of the Funds (including underwriting fees and financing expenses incurred
in connection with the sale of Class B and Class C shares); (ii) compensation,
sales incentives and payments to sales, marketing and service personnel; (iii)
payments to broker-dealers and other financial institutions that have entered
into agreements with the Underwriter in the form of a Dealer Agreement for
Northstar Funds for services rendered in connection with the sale and
distribution of shares of the Funds; (iv) payment of expenses incurred in sales
and promotional activities, including advertising expenditures related to the
Funds; (v) the costs of preparing and distributing promotional materials; (vi)
the cost of printing the Funds' Prospectus and SAI for distribution to potential
investors; and (vii) other activities that are reasonably calculated to result
in the sale of shares of the Funds. With respect to each Class T Plan, it is
anticipated that all of the payments received by the Underwriter under the Plan
will be paid to Advest as compensation for its prior distribution related and
current shareholder servicing related activities in connection with the Class T
Shares.
A portion of the fees paid to the Underwriter pursuant to the 12b-1 plans not
exceeding 0.25% annually of the average daily net assets of each Fund's shares
may be paid as compensation for providing services to each Fund's shareholders,
including assistance in connection with inquiries related to shareholder
accounts (the "Service Fee"). In order to receive Service Fees under the Plans,
participants must meet such qualifications as are established in the sole
discretion of the Underwriter, such as services to each Fund's shareholders; or
services providing each Fund with more efficient methods of offering shares to
coherent groups of clients, members or prospects of a participant; or services
permitting purchases or sales of shares, or transmission of such purchases or
sales by computerized tape or other electronic equipment; or other processing.
The Plans are designed to be compensation plans and therefore amounts spent by
the distributor in excess of plan limits are not carried over from year to year
for reimbursement. The Plans do, however, contemplate that amounts paid to the
distributor may compensate it for past distribution efforts without regard to
any particular time period.
If the Plans are terminated in accordance with their terms, the obligations of a
Fund to compensate the Underwriter for distribution related services pursuant to
the Plans will cease; however, subject to approval by the Trustees, including a
majority of the independent Trustees, a Fund may continue to make payments past
the date on which each Plan terminates up to the annual limits set forth in each
Plan for the purpose of compensating the Underwriter for services that were
incurred during the term of the Plan.
The Trustees have concluded that there is a reasonable likelihood that the Plans
will benefit each Fund and its shareholders and that the Plans should result in
greater sales and/or fewer redemptions of Fund shares. On a quarterly basis, the
Trustees will review a report on expenditures under the Plans and the purposes
for which expenditures were made. The Trustees will conduct an additional, more
extensive review annually in determining whether the Plans shall be continued.
By their terms, continuation of the Plans from year to year is contingent on
annual approval by a majority of the Trustees acting separately on behalf of
each Fund and by a majority of the Trustees who are not "interested persons" (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plans or any related agreements (the "Plan Trustees").
The Plans provide that they may not be amended to increase materially the costs
that a Fund may bear pursuant to the applicable Plan without approval of the
shareholders of the affected Fund and that other material amendments to the
Plans must be approved by a majority of the Plan Trustees acting separately on
behalf of each Fund, by vote cast in person at a meeting called for the purpose
of considering such amendments. The Plans further provide that while each plan
is in effect, the selection and nomination of Trustees who are not "interested
persons" shall be committed to the discretion of the Trustees who are not
"interested persons." A Plan may be terminated at any time by vote of a majority
of the Plan Trustees or a majority of the outstanding class of shares of the
affected Fund to which the Plan relates.
15
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
PAUL S. DOHERTY, Trustee. Age: 63. President, Doherty, Wallace, Pillsbury and
Murphy, P.C., Attorneys. Director, Tambrands, Inc. Since October 1993, Trustee
of the Northstar affiliated investment companies.
ROBERT B. GOODE, JR., Trustee. Age: 67. Currently retired. From 1990 to 1991,
Chairman of The First Reinsurance Company of Hartford. From 1987 to 1989,
President and Director of American Skandia Life Assurance Company. Since October
1993, Trustee of the Northstar affiliated investment companies.
ALAN L. GOSULE, Trustee. Age: 57. Partner, Rogers & Wells. Director, F.L. Putnam
Investment Management Co., Inc.
*MARK L. LIPSON, Trustee and President. Age: 48. Director, Chairman and Chief
Executive Officer of Northstar and Northstar, Inc. Director and President of
Northstar Administrators Corporation and Director and Chairman of Northstar
Distributors, Inc., President and Trustee of the Northstar affiliated investment
companies since October 1993. Prior to August, 1993, Director, President and
Chief Executive Officer of National Securities & Research Corporation and
President and Director/Trustee of the National Affiliated Investment Companies
and certain of National's subsidiaries.
WALTER H. MAY, Trustee. Age: 61. Retired. Former Senior Executive for Piper
Jaffrey, Inc.
DAVID W.C. PUTNAM, Trustee. Age: 58. President, Clerk and Director of F.L.
Putnam Securities Company, Incorporated, F.L. Putnam Investment Management
Company, Incorporated, Interstate Power Company, Inc., Trust Realty Corp. and
Bow Ridge Mining Co.; Director of Anchor Investment Management Corporation;
President and Trustee of Anchor Capital Accumulation Trust, Anchor International
Bond Trust, Anchor Gold and Currency Trust, Anchor Resources and Commodities
Trust and Anchor Strategic Assets Trust.
JOHN R. SMITH, Trustee. Age: 74. From 1970-1991, Financial Vice President of
Boston College; President of New England Fiduciary Company (financial planning)
since 1991; Chairman of Massachusetts Educational Financing Authority since
1987; Vice Chairman of Massachusetts Health and Education Authority.
*JOHN G. TURNER, Trustee. Age: 58. Since May 1993, Chairman and CEO of ReliaStar
Financial Corporation and Northwestern NationalLife Insurance Co. and Chairman
of other ReliaStar Affiliated Insurance Companies since 1995. Since October
1993, Director of Northstar and affiliates. Prior to May 1993, President and CEO
of ReliaStar and Northwestern National.
DAVID W. WALLACE, Trustee. Age: 73. Chairman of Putnam Trust Company, Lone Star
Industries and FECO Engineered Systems, Inc. He is also President and Trustee of
Robert R. Young Foundation and Governor of the New York Hospital. Director of
UMC Electronics and Zurn Industries, Inc. Former Chairman and Chief Executive
Officer, Todd Shipyards and Bangor Punta Corporation, and former Chairman and
Chief Executive Officer of National Securities & Research Corporation. Since
October 1993, Trustee of the Northstar affiliated investment companies.
STEPHANIE L. BECKNER, Vice President and Secretary. Age: 30. Vice President,
Secretary and Counsel of Northstar. Northstar affiliated companies and Northstar
affiliated investment companies.
THOMAS OLE DIAL, Vice President. Age: 41. Executive Vice President and Chief
Investment Officer-Fixed Income of Northstar and Principal, T.D. & Associates,
Inc. From 1989 to August 1993, Executive Vice President and Chief Investment
Officer-Fixed Income of National Securities and Research Corporation, Vice
President of National Affiliated Investment Companies, and Vice President of NSR
Asset Management Corporation. From 1988 to 1989, President of Dial Capital
Management.
MARY LISANTI, Vice President. Age: 42. Executive Vice President and Chief
Investment Officer-Equities of Northstar. From September 1996 to May 1998,
Portfolio Manager with Strong Capital Management. From March 1993 to August
1996, Managing Director and Portfolio Manager with Bankers Trust Corporation.
AGNES MULLADY, Vice President and Treasurer. Age: 39. Senior Vice President and
Chief Financial Officer of Northstar; Senior Vice President, Treasurer and
President of Northstar Administrators Corporation; and Vice President and
Treasurer of Northstar Distributors, Inc. and Northstar affiliated investment
companies. From 1987 to 1993, Vice President and Treasurer of National
Securities & Research Corporation.
- ----------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Trust. All
Officers and Interested Trustees of the Trust are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $6,000 for their combined
services as Trustees to the Trust and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Trusts and the other Northstar retail funds. The Trust also
reimburses Trustees for expenses incurred by them in connection with such
meetings.
COMPENSATION TABLE
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION BENEFITS ESTIMATED ANNUAL FROM ALL FUNDS(17)
COMPENSATION ACCRUED AS PART OF BENEFITS UPON IN
FROM TRUST(a) FUND EXPENSES RETIREMENT NORTHSTAR COMPLEX(b)
------------ ------------- ---------- --------------------
<S> <C> <C> <C> <C>
Paul S. Doherty.......... (a)500 0 0 13,750
Robert B. Goode, Jr...... (a)500 0 0 15,000
Alan L. Gosule........... (a)500 0 0 15,500
Mark L. Lipson........... (a)500 0 0 --
Walter H. May............ (a)500 0 0 15,500
David W.C. Putnam........ (a)500 0 0 13,125
John R. Smith............ (a)500 0 0 15,500
John G. Turner........... (a)500 0 0 --
David W. Wallace......... (a)500 0 0 13,750
</TABLE>
(a) The Trust was established on June 12, 1998. The compensation amounts noted
are estimates for the period ending December 31, 1998.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Variable
Trust Funds and the remaining six funds, Northstar Growth, Special,
Balance Sheet Opportunities, High Yield, Strategic Income and Government
Securities Funds.
16
<PAGE>
OTHER INFORMATION
Independent Accountants. Coopers & Lybrand L.L.P. has been selected as the
independent accountants of the Northstar Equity Trust. Coopers & Lybrand L.L.P.
audits the Fund's annual financial statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, acts as custodian, and fund accounting agent for the Trust.
Transfer Agent. Pursuant to a Transfer Agency Agreement with the Fund,
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough, MA
01581-5120, acts as the transfer agent for the Fund.
Reports to Shareholders. The fiscal year of the Northstar Equity Trust
ends on December 31. The Fund will send financial statements to its shareholders
at least semiannually. An annual report containing financial statements audited
by the independent accountants will be sent to shareholders each year.
Organizational and Related Information. The Northstar Mid-Cap Growth Fund,
a series of the Trust, was organized in 1998.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Declaration of Trust
for the Fund contains provisions intended to limit such liability and to provide
indemnification out of Fund property of any shareholder charged or held
personally liable for obligations or liabilities of the Fund solely by reason of
being or having been a shareholder of the Fund and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Administrator and the Fund's other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Fund believes
these steps will be sufficient to avoid any material adverse impact on the Fund.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Administrator and the Fund's other service
providers at this time but could have a material adverse impact on the
operations of the Fund and the Adviser, Administrator and the Fund's other
service providers.
17
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Fund may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The Wall
Street Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B and Class C shares), and assume that all dividends and distributions
are reinvested when paid.
Yield. Quotations of yield for a specific class of shares of the Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = 2[(a-b + 1) to the power of 6 -1]
-----------------------------------------
cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
18
<PAGE>
The maximum offering price includes a maximum contingent deferred sales
load of 5% for Class B shares and 1% for Class C shares.
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Fund's distribution plan. Except as noted, the performance
results take the contingent deferred sales load into account.
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding the Fund's sales charge from a
total return calculation produces a higher total return figure.
The Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Fund in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, CDA
Investment Technologies, Inc, Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghue's, Money Fund Report, Ibbotson Associates, Inc.,
Investment Company Data, Inc., Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Mutual Fund Values, The New York
Times, Personal Investing News, Personal Investor, Success, USA Today, U.S. News
and World Report, The Wall Street Journal and Wiesenberger Investment Company
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. Government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
19
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 17, 1998
(star)NORTHSTAR MID-CAP GROWTH FUND
Institutional Class Shares
300 FIRST STAMFORD PLACE
STAMFORD, CONNECTICUT 06902
(203) 602-7950
(800) 595-7827
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the current Prospectus of the
Institutional Class Shares of the Fund dated August 17, 1998, as each may be
revised from time to time. To obtain a copy of the Fund's Prospectus, please
contact Northstar Investment Management Corporation at the address or phone
number listed above.
Northstar Investment Management Corporation ("Northstar" or the "Adviser")
serves as the Fund's investment adviser. Northstar Distributors, Inc. (the
"Underwriter") is the underwriter to the Fund. Northstar Administrators
Corporation (the "Administrator") is the Fund's administrator. The Underwriter
and the Administrator are affiliates of Northstar.
TABLE OF CONTENTS
INVESTMENT RESTRICTIONS.................................................. 2
INVESTMENT TECHNIQUES.................................................... --
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION.......................... --
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR.............................. --
NET ASSET VALUE.......................................................... --
PURCHASES AND REDEMPTIONS................................................ --
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................... --
UNDERWRITER AND DISTRIBUTION SERVICES.................................... --
TRUSTEES AND OFFICERS.................................................... --
OTHER INFORMATION........................................................ --
PERFORMANCE INFORMATION.................................................. --
FINANCIAL STATEMENTS..................................................... --
APPENDIX................................................................. A-1
<PAGE>
INVESTMENT RESTRICTIONS
Northstar Mid-Cap Growth Fund. The Fund has adopted investment
restrictions numbered 1 through 11 as fundamental policies. These restrictions
cannot be changed without approval by the holders of a majority (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
1. Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up to 10% of
its net assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions in
options, futures, and options on futures and other transactions not deemed to
involve the issuance of senior securities;
2. Underwrite the securities of others;
3. Purchase or sell real property, including real estate limited
partnerships (the Fund may purchase marketable securities of companies that deal
in real estate or interests therein, including real estate investment trusts);
4. Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
5. Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to brokers or
dealers or other financial institutions not affiliated with the Fund or
Northstar, subject to conditions established by Northstar (See "Lending
Portfolio Securities" in this SAI), and may purchase or hold participations in
loans, in accordance with the investment objectives and policies of the Fund, as
described in the current Prospectus and SAI of the Fund;
6. Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with futures
contracts will not be deemed to be purchases of securities on margin);
7. Sell short, except that the Fund may enter into short sales against the
box;
8. Invest more than 25% of its assets in any one industry or related group
of industries;
9. With respect to 75% of the Fund's assets, purchase a security (other
than U.S. Government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single issuer;
10. Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an issuer,
would be held by the Fund;
11. Borrow money in excess of 10% of its net assets for temporary
purposes;
12. Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except that the
Fund may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by any
state in which shares of the Fund are registered;
13. Make an investment for the purpose of exercising control over
management;
14. Invest more than 15% of its net assets in illiquid securities; or
15. Borrow any amount in excess of 10% of the Fund's assets, other than
for temporary emergency or administrative purposes. In addition, the Fund will
not make additional investments when its borrowings exceed 5% of total assets.
In addition to the restrictions described above, the Fund may, from time
to time, agree to additional investment restrictions for purposes of compliance
with the securities laws of foreign jurisdictions where the Fund intends to
offer or sell its shares.
INVESTMENT TECHNIQUES
Derivative Instruments. The Fund may invest in Derivative Instruments (as
defined in the Fund's Prospectus) for a variety of reasons, including to enhance
return, hedge certain market risks, or provide a substitute for purchasing or
selling particular securities. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, Northstar will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as it would
review the credit quality of a security to be purchased by a Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
Firm Commitments and When-Issued Securities. The Fund may enter into firm
commitment agreements to purchase securities at an agreed-upon price on a
specified future date. An amount of cash or short-term U.S. Government
Securities equal to the Fund's commitment will be deposited in a segregated
account at the Fund's custodian bank to secure the Fund's obligation. Although a
Fund will generally enter into firm commitments to purchase securities with the
intention of actually acquiring the securities for its portfolio (or for
delivery pursuant to options contracts it has entered into), the Fund may
dispose of a security prior to settlement if Northstar deems it advisable to do
so. A Fund entering into the forward commitment may realize short-term gains or
losses in connection with such sales.
The Fund may enter into To Be Announced ("TBA") sale commitments wherein
the unit price and the estimated principal amount are established upon entering
into the contract, with the actual principal amount being within a specified
range of the estimate. A Fund will enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns under delayed
delivery arrangements. Proceeds of TBA sale commitments are not received until
the contractual settlement date. During the time a TBA sale commitment is
outstanding, the Fund will maintain, in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price. Unsettled
TBA sale commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the acquisition of an
offsetting purchase commitment, the Fund realizes a gain or loss on the
commitment without regard to any unrealized gain or loss on the underlying
security. If the Fund delivers securities under the commitment, the Fund
realizes a gain or loss from the sale of the securities, based upon the unit
price established at the date the commitment was entered into.
The Fund may also purchase securities on a when-issued or delayed delivery
basis. In such transactions, the price is fixed at the time the commitment to
purchase is made, but delivery and payment for the securities take place at a
later date, normally within one month. The value of the security on the
settlement date may be more or less than the price paid as a result of, among
other things, changes in the level of interest rates or other market factors.
Accordingly, there is a risk of loss, which is in addition to the risk of
decline in the value of the Fund's other assets. The Fund will establish a
segregated account with its custodian in which it will maintain cash and
marketable securities equal in value to commitments for when-issued or delayed
delivery securities. While when-issued or delayed delivery securities may be
sold prior to the settlement date, it is intended that a Fund will purchase such
securities with the purpose of actually acquiring them, unless a sale appears
desirable for investment reasons.
Floating or Variable Rate Instruments. The Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by the Fund.
These bonds are more defensive than conventional long-term bonds (protecting to
some degree against a rise in interest rates), while providing greater
opportunity than comparable intermediate term bonds since the Fund may retain
the bond if interest rates decline. By acquiring these kinds of bonds, a Fund
obtains the contractual right to require the issuer of the security, or some
other person (other than a broker or dealer), to purchase the security at an
agreed upon price, which right is contained in the obligation itself rather than
in a separate agreement with the seller or some other person.
Futures Transactions - In General. The Fund may enter into futures
contracts in U.S. domestic markets, such as the Chicago Board of Trade and the
International Monetary Market of the Chicago Mercantile Exchange, or on
exchanges located outside the
2
<PAGE>
United States, such as the London International Financial Futures Exchange and
the Sydney Futures Exchange Limited. Foreign markets may offer advantages such
as trading opportunities or arbitrage possibilities not available in the United
States. Foreign markets, however, may have greater risk potential than domestic
markets. For example, some foreign exchanges are principal markets so that no
common clearing facility exists and an investor may look only to the broker for
performance of the contract. In addition, any profits that the Fund might
realize in trading could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes. Transactions on
foreign exchanges may include both commodities which are traded on domestic
exchanges and those which are not. Unlike trading on domestic commodity
exchanges, trading on foreign commodity exchanges is not regulated by the
Commodity Futures Trading Commission.
Engaging in these transactions involves risk of loss to the Fund which
could adversely affect the value of the Fund's net assets. Although the Fund
intends to purchase or sell futures contracts only if there is an active market
for such contracts, no assurance can be given that a liquid market will exist
for any particular contract at any particular time. Many futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single trading day. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that limit
or trading may be suspended for specified periods during the 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 Fund to substantial losses.
Successful use of futures by the Fund also is subject to the Manager's
ability to predict correctly movements in the direction of the relevant market,
and, to the extent the transaction is entered into for hedging purposes, to
ascertain the appropriate correlation between the transaction being hedged and
the price movements of the futures contract. For example, if the Fund uses
futures to hedge against the possibility of a decline in the market value of
securities held in its portfolio and the prices of such securities instead
increase, the Fund will lose part or all of the benefit of the increased value
of securities which it has hedged because it will have offsetting losses in its
futures positions. Furthermore, if in such circumstances the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. The Fund may have to sell such securities at a time when it may be
disadvantageous to do so.
Pursuant to regulations and/or published positions of the Securities and
Exchange Commission (the "SEC"), the Fund may be required to segregate cash or
high quality money market instruments in connection with its commodities
transactions in an amount generally equal to the value of the underlying
commodity. The segregation of such assets will have the effect of limiting the
Fund's ability otherwise to invest those assets.
Specific Futures Transactions. The Fund may purchase and sell stock index
futures contracts. A stock index future obligates the Fund to pay or receive an
amount of cash equal to a fixed dollar amount specified in the futures contract
multiplied by the difference between the settlement price of the contract on the
contract's last trading day and the value of the index based on the stock prices
of the securities that comprise it at the opening of trading in such securities
on the next business day.
The Fund may purchase and sell interest rate futures contracts. An
interest rate future obligates the Fund to purchase or sell an amount of a
specific debt security at a future date at a specific price.
The Fund may purchase and sell currency futures. A foreign currency future
obligates the Fund to purchase or sell an amount of a specific currency at a
future date at a specific price.
GNMAS. The Fund may invest in U.S. Government Securities, which are
obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Obligations of the Government National Mortgage Association
(popularly called GNMAs or Ginnie Maes) are mortgage backed securities
representing part ownership of a pool of mortgage loans, in which the timely
payment of principal and interest is guaranteed by the full faith and credit of
the U.S. Government. GNMA may borrow U.S. Treasury funds to the extent needed to
make payments under the guarantee. The Fund may purchase "modified pass-through"
type GNMA Certificates for which principal and interest are guaranteed, rather
than the "straight pass through" Certificates for which such guarantee is not
available. The Fund also may purchase "variable rate" GNMA Certificates and
other types that may be used with GNMA's guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or when foreclosure occurs, such principal payments are passed
through to the Certificate holders (such as the Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool, which will have maturities of
up to 30 years. Because of such variation in prepayment rights, it is not
possible to accurately predict the life of a particular GNMA Certificate.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal, less the GNMA and issuer's fees. The
portion of the monthly payment that represents a return of principal may be
reinvested by a Fund holding the GNMA in then-available GNMA obligations, which
may bear interest at a rate higher or lower than the obligation from which the
payment was received, or in a differing security. The actual yield to be earned
by the holder of a GNMA Certificate is calculated by
3
<PAGE>
dividing such payments by the purchase price paid for the GNMA Certificate
(which may be at a premium or a discount from the face value of the
Certificate). Unpredictable prepayments of principal, however, can greatly
change realized yields. In a period of declining interest rates it is more
likely that mortgages contained in GNMA pools will be prepaid, thus reducing the
effective yield. Moreover, any premium paid on the purchase of a GNMA
Certificate will be lost if the obligation is prepaid. In periods of falling
interest rates, this potential for prepayment may reduce the general upward
price increase of GNMA Certificates that might otherwise occur. As with other
debt instruments, the price of GNMA Certificates is likely to decrease in times
of rising interest rates. Price changes of the GNMA Certificates held by a Fund
have a direct impact on the net asset value per share of the Fund.
When interest rates rise, the value of a GNMA Certificate will generally
decline. Conversely, when rates fall, the GNMA Certificate value may rise,
although not as much as other debt issues, due to the prepayment feature. As a
result, the price per share the shareholder receives on redemption may be more
or less than the price paid for the shares.
High Yield Securities. The Fund may invest in lower-rated fixed income
securities to the extent described in the Prospectus. The lower ratings of
certain securities held by the Fund reflect a greater possibility that adverse
changes in the financial condition of the issuer or economic conditions in
general, or both, or an unanticipated rise in interest rates, may impair the
ability of the issuer to make payments of interest and principal. The inability
(or perceived inability) of issuers to make timely payment of interest and
principal would likely make the values of securities held by the Fund more
volatile and could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities. In the absence
of a liquid trading market for the securities held by it, the Fund may be unable
at times to establish the fair value of such securities. The rating assigned to
a security by Moody's Investors Service, Inc. or S&P (or by any other nationally
recognized securities rating organization) does not reflect an assessment of the
volatility of the security's market value or the liquidity of an investment in
the security. See the Appendix for a description of a security.
Like those of other fixed income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of a Fund's
assets. Conversely, during periods of rising interest rates, the value of a
Fund's assets will generally decline. In addition, the values of such securities
are also affected by changes in general economic conditions and business
conditions affecting the specific industries of their issuers. Changes by
recognized rating services in their ratings of any fixed income security and in
the ability of an issuer to make payments of interest and principal may also
affect the value of these investments. Changes in the value of portfolio
securities generally will not affect cash income derived from such securities,
but will effect a Fund's net asset value. The Fund will not necessarily dispose
of a security when its rating is reduced below its rating at the time of
purchase, although Northstar will monitor the investment to determine whether
its retention will assist in meeting the Fund's investment objective.
Certain securities held by the Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
the Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
Index Warrants. The Fund may purchase put warrants and call warrants whose
values vary depending on the change in the value of one or more specified
securities indices ("index warrants"). Index warrants are generally issued by
banks or other financial institutions and give the holder the right, at any time
during the term of the warrant, to receive upon exercise of the warrant a cash
payment from the issuer, based on the value of the underlying index at the time
of exercise. In general, if the value of the underlying index rises above the
exercise price of the index warrant, the holder of a call warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the value of the index and the exercise price of the warrant;
if the value of the underlying index falls, the holder of a put warrant will be
entitled to receive a cash payment from the issuer upon exercise, based on the
difference between the exercise price of the warrant and the value of the index.
The holder of a warrant would not be entitled to any payments from the issuer at
any time when, in the case of a call warrant, the exercise price is greater than
the value of the underlying index, or, in the case of a put warrant, the
exercise price is less than the value of the underlying index. If the Fund were
not to exercise an index warrant prior to its expiration, then the Fund would
lose the amount of the purchase price paid by it for the warrant. The Fund will
normally use index warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of index warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, index warrants
generally have longer terms than index options. Although the Strategic Income
Fund will normally invest only in exchange-listed warrants, index warrants are
not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of index warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
International Investing. The Fund may invest up to 25% of its net assets
in foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange. Investments in
foreign securities involve special risks, including currency fluctuations,
political or economic instability in the country of issue and the possible
imposition of exchange controls or other laws or restrictions. In addition,
securities prices in foreign markets are generally subject to different
economic,
4
<PAGE>
financial, political and social factors than are the prices of securities in
U.S. markets. With respect to some foreign countries there may be the
possibility of expropriation or confiscatory taxation, limitations on liquidity
of securities or political or economic developments which could affect the
foreign investments of the Fund. Moreover, securities of foreign issuers
generally will not be registered with the SEC, and such issuers will generally
not be subject to the SEC's reporting requirements. Accordingly, there is likely
to be less publicly available information concerning certain of the foreign
issuers of securities held by the Fund than is available concerning U.S.
companies. Foreign companies are also generally not subject to uniform
accounting, auditing and financial reporting standards or to practices and
requirements comparable to those applicable to U.S. companies. There may also be
less government supervision and regulation of foreign broker-dealers, financial
institutions and listed companies than exists in the U.S. Commission rates in
foreign countries, which are generally fixed rather than subject to negotiation
as in the U.S., are likely to be higher. These factors could make foreign
investments, especially those in developing countries, more volatile. All of the
above issues should be considered before investing in the Fund.
Lending Portfolio Securities. The Fund may lend portfolio securities to
broker-dealers and other financial institutions in an amount up to one-third of
the value of its total assets, provided that such loans are callable at any time
by the Fund and are at all times secured by collateral held by the Fund at least
equal to the market value, determined daily, of the loaned securities. The Fund
will continue to receive any income on the loaned securities, while
simultaneously earning interest on cash collateral (which will be invested in
short-term debt obligations) or a securities lending fee (in the case of
collateral in the form of U.S. Government Securities).
There may be risks of delay in recovery of the loaned securities and, in
some cases, loss of rights in the collateral should the borrower of the
securities fail financially. Loans of portfolio securities will only be made to
firms considered by Northstar to be creditworthy under guidelines adopted by the
Trustees.
Loan Participations and Assignments. The Fund may invest in loan
participations and loan assignments. A Fund's investment in loan participations
typically will result in the Fund having a contractual relationship only with
the Lender and not with the borrower. The Fund will have the right to receive
payments of principal, interest and any fees to which it is entitled only from
the Lender selling the Participations and only upon receipt by the Lender of the
payments from the borrower. In connection with purchasing Participations, the
Fund generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
Options - In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, the
underlying security or securities at the exercise price at any time during the
option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security or securities at the exercise price at any time during the
option period.
A covered call option written by a Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the transaction
by segregating cash or other securities. A put option written by a Fund is
covered when, among other things, cash or liquid securities having a value equal
to or greater than the exercise price of the option are placed in a segregated
account with the Fund's custodian to fulfill the obligation undertaken. The
principal reason for writing covered call and put options is to realize, through
the receipt of premiums, a greater return than would be realized on the
underlying securities alone. The Fund receives a premium from writing covered
call or put options which it retains whether or not the option is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of the
clearing facilities inadequate and resulted in the institution of special
5
<PAGE>
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options in respect of specific securities (or groups or "baskets" of specific
securities) or stock indices listed on national securities exchanges or traded
in the over-the-counter market. An option on a stock index is similar to an
option in respect of specific securities, except that settlement does not occur
by delivery of the securities comprising the index. Instead, the option holder
receives an amount of cash if the closing level of the stock index upon which
the option is based is greater than, in the case of a call, or less than, in the
case of a put, the exercise price of the option. Thus, the effectiveness of
purchasing or writing stock index options will depend upon price movements in
the level of the index rather than the price of a particular stock.
The Fund may purchase and sell call and put options on foreign currency.
These options convey the right to buy or sell the underlying currency at a price
which is expected to be lower or higher than the spot price of the currency at
the time the option is exercised or expires.
The Fund may purchase cash-settlement options on interest rate swaps,
interest rate swaps denominated in foreign currency and equity index swaps in
pursuit of its investment objective. Interest rate swaps involve the exchange by
the Fund with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating-rate payments for fixed-rate
payments) denominated in U.S. dollars or foreign currency. Equity index swaps
involve the exchange by the Fund with another party of cash flows based upon the
performance of an index or a portion of an index of securities which usually
includes dividends. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated transactions
from financial institutions, including securities brokerage firms.
Successful use by the Fund of options will be subject to the ability of
Northstar to predict correctly movements in the prices of individual stocks, the
stock market generally, foreign currencies or interest rates. To the extent the
Manager's predictions are incorrect, the Fund may incur losses.
Privately Issued Collateralized Mortgage-Backed Obligations, Interest
Obligations and Principal Obligations. The Fund may invest up to 5% of its net
assets in Privately Issued Collateralized Mortgage-Backed Obligations ("CMOs"),
Interest Obligations ("IOs") and Principal Obligations ("POs") when Northstar
believes that such investments are consistent with the Fund's investment
objective. Collateralized mortgage obligations or "CMOs" are debt obligations
collateralized by mortgage loans or mortgage pass-through securities. Typically,
privately issued CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Privately issued CMOs are per se illiquid. Multi-class pass-through
securities are equity interest in a trust composed of Mortgage Assets. Unless
the context indicates otherwise, all references herein to CMOs include
multi-class pass-through securities. Payments of principal of and interest on
the Mortgage Assets, and any reinvestment income thereon, are the sources of
funds used to pay debt service on the CMOs or make scheduled distributions on
the multi-class pass-through securities.
On a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, often 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. The principal of and interest on the Mortgage Assets may be allocated
among the several classes of a series of a CMO in innumerable ways. The Fund may
also invest in, among others, parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally call for payments of a specified amount of
principal on each payment date.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS 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 banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class),
6
<PAGE>
while the other class will receive all of the principal (the principal-only or
"PO" class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
Mortgage Assets, and a rapid rate of principal payments may have a material
adverse effect on such security's yield to maturity. If the underlying Mortgage
Assets experience greater than anticipated prepayments of principal, a Fund may
fail to recoup fully its initial investment in these securities. The
determination of whether a particular government-issued IO or PO backed by
fixed-rate mortgage is liquid is made by Northstar under guidelines and
standards established by the Board of Trustees. Such a security may be deemed
liquid if it can be disposed of promptly in the ordinary course of business at a
value reasonably close to that used in the calculation of net asset value per
share.
Repurchase Agreements. Repurchase agreements are agreements under which a
Fund buys a money market instrument and obtains a simultaneous commitment from
the seller to repurchase the instrument at a specified time and at an agreed
upon yield. Northstar will use standards set by the Fund's Trustees in reviewing
the creditworthiness of parties to repurchase agreements with such Fund. In
addition, no more than an aggregate of 15% of the Fund's net assets, at the time
of investment, will be invested in illiquid investments, including repurchase
agreements having maturities longer than seven days. In the event of failure of
the executing bank or broker-dealer, the Fund could experience some delay in
obtaining direct ownership of the underlying collateral and might incur a loss
if the value of the security should decline, as well as costs in disposing of
the security.
As an alternative to using repurchase agreements, the Fund may, from time
to time, invest up to 5% of its assets in money market investment companies
sponsored by a third party for short-term liquidity purposes. Such investments
are subject to the non-fundamental investment limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Agreements. The Fund may
enter into reverse repurchase agreements and dollar roll agreements. Under a
reverse repurchase agreement or a dollar roll agreement, a Fund sells securities
and agrees to repurchase them, or substantially similar securities in the case
of a dollar roll agreement, at a mutually agreed upon date and price. At the
time the Fund enters into a reverse repurchase or dollar roll agreement, it will
establish and maintain a segregated account with its custodian, containing cash,
U.S. Government Securities, or other liquid assets from its portfolio, having a
value not less than the repurchase price (including accrued interest). The Fund
does not account for dollar rolls as a borrowing.
These agreements may involve the risk that the market value of the
securities to be repurchased by the Fund may decline below the price at which
the Fund is obligated to repurchase. Also, in the event the buyer of securities
under a reverse repurchase agreement or a dollar roll agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement or the dollar roll agreement may effectively be
restricted pending such a decision.
Short Sales. The Fund may make short sales "against the box." A short-sale
is a transaction in which a party sells a security it does not own in
anticipation of decline in the market value of that security. A short sale is
"against the box" to the extent that the Fund contemporaneously owns or has the
right to obtain securities identical to those sold short. When the Fund makes a
short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
have to pay a fee to borrow particular securities, and is often obligated to pay
over any accrued interest on such borrowed securities.
Small and Medium Companies. The Fund may invest a substantial portion of
its assets in small and medium companies. While small and medium companies
generally have the potential for rapid growth, investments in small and medium
companies often involve greater risks than investments in larger, more
established companies because small and medium companies may lack the management
experience, financial resources, product diversification, and competitive
strengths of larger companies. In addition, in many instances the securities of
small and medium companies are traded only OTC or on a regional securities
exchange, and the frequency and volume of their trading is substantially less
than is typical of larger companies. Therefore, the securities of small and
medium companies may be subject to greater and more abrupt price fluctuations.
When making large sales, the Fund may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales over an
extended period of time due to the trading volume of small and medium company
securities. Investors should be aware that, based on the foregoing factors, an
investment in the Fund may be subject to greater price fluctuations than an
investment in a Fund that invests primarily in larger, more established
companies. Northstar's research efforts may also play a greater role in
selecting securities for the Fund than in a Fund that invests in larger, more
established companies.
Zero Coupon Securities. Zero coupon securities are fixed income securities
that have been stripped of their unmatured interest coupons. Zero coupon
securities are sold at a (usually substantial) discount and redeemed at face
value at their maturity date without interim cash payments of interest or
principal. The amount of this discount is accredited over the life of the
security, and the accretion constitutes the income earned on the security for
both accounting and tax purposes. Because of these features, the market prices
of zero coupon securities are generally more volatile than the market prices of
securities that have a similar maturity but that pay interest periodically. Zero
coupon securities are likely to respond to a greater degree to interest rate
changes than are non-zero coupon securities with similar maturity and credit
qualities. The Fund may invest a portion of its total assets in "zero coupon"
Treasury
7
<PAGE>
securities, which consist of Treasury bills or stripped interest or principal
components of U.S. Treasury bonds or notes.
Zero coupon Treasury bonds or notes consist of stripped interest or
principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. The Fund may also purchase
custodial receipts evidencing beneficial ownership of direct interests in
component parts of U.S. Treasury bonds or notes held by a bank in a custodian or
trust account.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
Northstar places orders for the purchase and sale of the Fund's
securities, supervises their execution and negotiates brokerage commissions on
behalf of the Fund. It is the practice of Northstar to seek the best prices and
best execution of orders and to negotiate brokerage commissions that in the
Adviser's opinion, are reasonable in relation to the value of the brokerage and
research services provided by the executing broker. Northstar seeks to obtain
fair commission rates from brokers. If the execution is satisfactory and if the
requested rate charged by a broker approximates rates currently being quoted by
the other brokers selected by Northstar, the rate is generally deemed by
Northstar to be reasonable. Some brokers may be paid higher rates of commission
if all or a portion of the securities involved in the transaction are positioned
by the broker, if the broker believes it has brought the Fund an unusually
favorable trading opportunity, or if the broker's research services have special
value and payment of such commissions is authorized by Northstar after the
transaction has been consummated. If Northstar more than occasionally differs
with the broker's appraisal of opportunity or value, the broker would not be
selected to execute trades in the future. Northstar believes that the Fund
benefits with a securities industry comprised of many and diverse firms and that
the long term interest of shareholders of the Fund is best served by its
brokerage policies that include paying a fair commission, rather than seeking to
exploit its leverage to force the lowest possible commission rate.
Over-the-counter purchases and sales are transacted directly with market-makers,
except in those circumstances where, in the opinion of Northstar, better prices
and execution are available elsewhere.
Section 28(e) of the Securities Exchange Act of 1934 ("Section 28(e)")
permits an investment adviser, under certain circumstances to cause an account
to pay a broker or dealer a commission for effecting a transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting the transaction in recognition of the value of the brokerage and
research services provided by the broker or dealer. Brokerage and research
services include (1) furnishing advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; (2)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts; and (3) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement, and custody).
Northstar has informal arrangements with various brokers whereby, in
consideration for providing research services and subject to Section 28(e),
Northstar allocates brokerage to those firms, provided that the value of any
research and brokerage services was reasonable in relationship to the amount of
commission paid and was subject to best execution. In no case will Northstar
make binding commitments as to the level of brokerage commissions it will
allocate to a broker, nor will it commit to pay cash if any informal targets are
not met.
In general terms, the nature of research services provided by brokers
encompasses statistical and background information, and forecasts and
interpretations with respect to U.S. and foreign economies, U.S. and foreign
money markets, fixed income markets and equity markets, specific industry groups
and individual issues. Research services will vary from firm to firm, with
broadest coverage generally from the large full-line firms. Smaller firms, in
general, tend to provide information and interpretations on a smaller scale,
frequently with a regional emphasis. In addition, several firms monitor federal,
state, local and foreign political developments; many of the brokers also
provide access to outside consultants. The outside research assistance is
particularly useful to the Adviser's staff, since the brokers, as a group, tend
to monitor a broader universe of securities and other matters than the Adviser's
staff can follow. In addition, the outside research provides Northstar with a
diverse perspective on financial markets. Research and investment information is
provided by these and other brokers at no cost to Northstar and is available for
the benefit of other accounts advised by Northstar and its affiliates; and not
all of this information will be used in connection with the Fund. While this
information may be useful in varying degrees and may tend to reduce the
Adviser's expenses, it is not possible to estimate its value, and, in the
opinion of Northstar, it does not reduce the Adviser's expenses by a
determinable amount. The extent to which Northstar makes use of statistical,
research and other services furnished by brokers is considered by Northstar in
the allocation of brokerage business, but there is no formula by which such
business is allocated. Northstar does so in accordance with its judgment of the
best interests of the Fund and its shareholders.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. The Fund will also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists
8
<PAGE>
primarily of dealer spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of the
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Northstar generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily pay the lowest spread or commission available.
The Fund may, under circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer that has
provided statistical or other research services to the Fund. By allocating
transactions in this manner, Northstar is able to supplement its research and
analysis with the views and information of other securities firms.
A change in securities held in the portfolio of the Fund is known as
"Portfolio Turnover" and may involve the payment by the Fund of dealer mark-ups
or brokerage or underwriting commissions and other transaction costs on the sale
of securities, as well as on the reinvestment of the proceeds in other
securities. Portfolio turnover rate for a fiscal year is the percentage
determined by dividing the lesser of the cost of purchases or proceeds from
sales of portfolio securities by the average of the value of portfolio
securities during such year, all excluding securities whose maturities at
acquistion were one year or less. A 100% annual turnover rate would occur, for
example, if all the securities in the portfolio were replaced once in a period
of one year. The Fund cannot accurately predict its portfolio turnover rate, but
Northstar anticipates that the Fund's rate will exceed 150% under normal market
conditions. The Fund's portfolio turnover rate may be higher than that described
above if the Fund finds it necessary to significantly change its portfolio to
adopt a temporary defensive position or respond to economic or market events. A
high turnover rate would increase commission expenses and may involve
realization of gains that would be taxable to shareholders.
The placement of portfolio transactions with broker-dealers who sell
shares of the Fund is subject to rules adopted by the National Association of
Securities Dealers, Inc. ("NASD").
SERVICES OF NORTHSTAR AND THE ADMINISTRATOR
Pursuant to an Investment Advisory Agreement with the Fund, Northstar
Investment Management Corporation acts as the Investment Adviser to the Fund. In
this capacity, Northstar, subject to the authority of the Trustees of the
Northstar Equity Trust (the "Trust") is responsible for furnishing continuous
investment supervision to the Fund and is responsible for the management of the
Fund's portfolio.
Northstar is an indirect, wholly-owned subsidiary of ReliaStar Financial
Corp. ("ReliaStar"). ReliaStar is a publicly traded holding company whose
subsidiaries specialize in the life insurance business. Through ReliaStar Life
Insurance Company ("ReliaStar Life") and other subsidiaries, ReliaStar issues
and distributes individual life insurance and annuities, group life and health
insurance and life and health reinsurance, and provides related investment
management services. The address of Northstar is 300 First Stamford Place,
Stamford, Connecticut 06902. The address of ReliaStar is 20 Washington Avenue
South, Minneapolis, Minnesota 55401.
Northstar charges a fee under the Investment Advisory Agreement to the
Fund at an annual rate of 1.00% of the Fund's average daily net assets. This fee
is accrued daily and payable monthly.
The Investment Advisory Agreement for the Fund was originally approved by
the Trustees of the Trust on July 29, 1998, and by the sole Shareholder of the
Northstar Mid-Cap Growth Fund on July 31, 1998. The Investment Advisory
Agreement will continue in effect for a period of two years and annually
thereafter if specifically approved annually by (a) the Trustees, acting
separately on behalf of the Fund, including a majority of the Disinterested
Trustees, or (b) a majority of the outstanding voting securities of the Fund as
defined in the 1940 Act.
The Fund's Investment Advisory Agreement may be terminated, without
penalty and at any time, by a similar vote upon not more than 60 days nor less
than 30 days written notice by Northstar, the Trustees, or a majority of the
outstanding voting securities of the Fund as defined in the 1940 Act. The
agreement will automatically terminate in the event of its assignment, as
defined in Section 2(a)(4) of the 1940 Act.
Northstar Administrators Corporation serves as administrator for the Fund,
pursuant to an Administrative Services Agreement with the Fund. Subject to the
supervision of the Board of Trustees, the Administrator provides the overall
business management and administrative services necessary to the proper conduct
of the Fund's business, except for those services performed by Northstar under
the Investment Advisory Agreement, the custodian for the Fund under the
Custodian Agreement, the transfer agent for the Fund under the Transfer Agency
Agreement, and such other service providers as may be retained by the Fund from
time to time. The Administrator acts as liaison among these service providers to
the Fund. The Administrator is also responsible for ensuring that the Fund
operates in compliance with applicable legal requirements and for monitoring
Northstar for compliance with requirements under applicable law and with the
investment policies and restrictions of the Fund. The Administrator is an
affiliate of Northstar. The
9
<PAGE>
address of the Administrator is: 300 First Stamford Place, Stamford,
Connecticut 06902.
The Administrative Services Agreement was approved by the Trustees of the
Trust on behalf of the Fund on July 29, 1998, and will continue in effect for a
period of two years and annually thereafter if such continuance is approved
annually by a majority of the Trustees of the Trust.
The Administrator's fee is accrued daily against the value of the Fund's
net assets and is payable by the Fund monthly at an annual rate of 0.10% of the
Fund's average daily net assets. In addition, the Administrator charges an
annual account fee of $5.00 for each account of beneficial owners of shares of
the Fund for providing certain shareholder services and assisting broker-dealer
shareholder accounts.
NET ASSET VALUE
Equity securities are valued at the last sale price on the exchange or in
the principal OTC market in which such securities are being valued, or lacking
any sales, at the last available bid price. Prices of long-term debt securities
are valued on the basis of last reported sales price, or if no sales are
reported, the value is determined based upon the mean of representative quoted
bid or asked prices for such securities obtained from a quotation reporting
system or from established market makers, or at prices for securities of
comparable maturity, quality and type. Securities (including OTC options) for
which market quotations are not readily available and other assets are valued at
their fair value as determined by or under the direction of the Trustees. Such
fair value may be determined by various methods, including utilizing information
furnished by pricing services that determine calculations for such securities
using methods based, among other things, upon market transactions for comparable
securities and various relationships between securities that are generally
recognized as relevant.
The net asset value of the Fund's shares fluctuates and is determined
separately for each class as of the close of regular trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern Time), on each business day that the
Exchange is open. Net asset value per share is computed by determining the value
of the Fund's assets (securities held plus cash and other assets, including
dividend and interest accrued but not received) less all liabilities of the Fund
(including accrued expenses other than class specific expenses), and dividing
the result by the total number of shares outstanding at such time. The specific
expenses borne by each class of shares will be deducted from that class and will
result in different net asset values and dividends. The net asset value per
share of the Class B and Class C shares of the Fund will generally be lower than
that of the Class A or Class I shares because of the higher class specific
expenses borne by each of the Class B and Class C shares.
Under normal market conditions, daily prices for securities are obtained
from independent pricing services, determined by them in accordance with the
registration statement for the Fund. Securities are valued at market value or,
if a market quotation is not readily available, at their fair value, determined
in good faith under procedures established by and under the supervision of the
Trustees. Money market instruments maturing within 60 days are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument. See "How Net Asset Value is
Determined" in the Prospectus.
REDEMPTIONS
10
<PAGE>
The right to redeem shares may be suspended and payment therefore
postponed during periods when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or, if permitted by rules of the SEC,
during periods when trading on the Exchange is restricted, or during any
emergency that makes it impracticable for the Fund to dispose of its securities
or to determine fairly the value of its net assets or during any other period
permitted by order of the SEC for the protection of investors. Furthermore, the
Transfer Agent will not mail redemption proceeds until checks received for
shares purchased have cleared, but payment will be forwarded immediately upon
the funds becoming available.
Exchanges. The following conditions must be met for all exchanges among
the Fund, other Northstar funds and the Cash Management Fund and the Money
Market Portfolio: (i) the shares that will be acquired in the exchange (the
"Acquired Shares") are available for sale in the shareholder's state of
residence; (ii) the Acquired shares will be registered to the same shareholder
account as the shares to be surrendered (the "Exchanged Shares"); (iii) the
Exchanged Shares must have been held in the shareholder's account for at least
30 days prior to the exchange; (iv) except for exchanges into the Cash
Management Fund, the account value of the Fund whose shares are to be acquired
must equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
The Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. The Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Northstar
to discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Northstar generally restricts shareholders to a maximum of six exchanges
across the Northstar Fund complex each calendar year. If a shareholder exceeds
this limit, future exchange requests may be denied.
Conversion Feature. Class B shares of the Fund will automatically convert
to Class A shares without a sales charge at the relative net asset values of
each of the classes after eight years from the acquisition of the Class B
shares, and as a result, will thereafter be subject to the lower distribution
fee (but same service fee) under the Class A Rule 12b-1 plan for the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code (the "Code"). In order to so
qualify, the Fund must, among other things, (i) derive each taxable year at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale of securities or foreign
currencies, or other income (including but not limited to gains from options,
futures or forward contracts) derived with respect to its business of investing
in stock, securities or currencies; (ii) derive less than 30% of its gross
income each taxable year from the sale or other disposition of certain assets,
including securities, held for less than three months (the "30% Limitation");
and (iii) at the end of each quarter of the taxable year maintain at least 50%
of the value of its total assets in cash, government securities, securities of
other regulated investment companies, and other securities of issuers that
represent, with respect to each issuer, no more than 5% the value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer, and
with no more than 25% of its assets invested in the securities (other than those
of the U.S. Government or other regulated investment companies) of any one
issuer or of two or more issuers that the Fund controls and that are engaged in
the same, similar or related trades and businesses. As a regulated investment
company, the Fund generally will not be subject to federal income tax on its
income and gains that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes dividends, interest and the
excess of any short-term capital gains
11
<PAGE>
over long-term capital losses) for the taxable year is distributed.
An excise tax at the rate of 4% will be imposed on the excess, if any, of
the Fund's "required distribution" over actual distributions in any calendar
year. Generally, the "required distribution" is 98% of a Fund's ordinary income
for the calendar year plus 98% of its capital gain net income recognized during
the one-year period ending on October 31 plus undistributed amounts from prior
years. The Fund intends to make distributions sufficient to avoid imposition of
the excise tax. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund during October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable as if
received on December 31 in the year they are declared by the Fund, rather than
the year in which they are received.
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by a Fund for selling a put or call option is not included in income at
the time of receipt. If the option expires, the premium is a short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is a
short-term capital gain or loss. If a call option written by a Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by a Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining the gain or loss.
Certain options, futures contracts and forward contracts in which the Fund
may invest are "section 1256 contracts." Gains or losses on section 1256
contracts are generally considered 60% long-term and 40% short-term capital
gains or losses ("60/40 gains or losses"); however, foreign currency gains or
losses (as discussed below) arising from certain section 1256 contracts may be
treated as ordinary income or loss. Also, section 1256 contracts held by a Fund
at the end of each taxable year (and, generally, for purposes of the 4% excise
tax, on October 31 of each year) are treated as sold on such date at fair market
value, resulting in unrealized gains or losses being treated as though they were
realized.
Hedging transactions undertaken by the Fund may result in straddles for
U.S. federal income tax purposes. The straddle rules may accelerate income to a
Fund, defer losses to a Fund, and affect the character of gains (or losses)
realized by a Fund. Hedging transactions may increase the amount of short-term
capital gains realized by a Fund that is taxed as ordinary income when
distributed to shareholders. A Fund may make one or more of the various
elections available under the Code with respect to hedging transactions. If the
Fund makes any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected positions will be determined
under rules that vary according to the elections made.
Under the Code, gains or losses attributable to fluctuations in exchange
rates that occur between the time a Fund accrues interest or other receivables,
or accrues expenses or other liabilities, denominated in a foreign currency and
the time the Fund actually collects such receivables, or pays such liabilities,
generally are treated as ordinary income or ordinary loss. Similarly, on
disposition of debt securities denominated in a foreign currency and certain
options, futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
A Fund will not realize a gain or loss on a short sale of a security until
it closes the transaction by delivering the borrowed security to the lender. All
or a portion of any gain arising from a short sale may be treated as short-term
capital gain, regardless of the period for which the Fund held the security used
to close the short sale. In addition, the Fund's holding period for any security
that is substantially identical to that which is sold short may be reduced or
eliminated as a result of the short sale.
Investments by the Fund in zero coupon securities will result in income to
the Fund equal to a portion of the excess of the face value of the securities
over their issue price (the "original issue discount") each year that the
securities are held, even though the Fund receives no cash interest payments.
This income is included in determining the amount of income that the Fund must
distribute to maintain its status as a regulated investment company and to avoid
the payment of federal income tax and the 4% excise tax. If the Fund invests in
certain high yield original issue discount obligations issued by corporations, a
portion of the original issue discount accruing on the obligations may be
eligible for the deduction for dividends received by corporations. In such
event, a portion of the dividends of investment company taxable income received
from the Fund by its corporate shareholders may be eligible for this deduction.
Gains derived by the Fund from the disposition of any market discount
bonds (I.E., bonds purchased other than at original issue, where the face value
of the bonds exceeds their purchase price) held by the Fund will be taxed as
ordinary income to the extent of the
12
<PAGE>
accrued market discount on the bonds, unless the Fund elects to include the
market discount in income as it accrues.
If the Fund invests in stock of certain foreign corporations that generate
largely passive investment-type income, or which hold a significant percentage
of assets that generate such income (referred to as "passive foreign investment
companies" or "PFICs"), these investments would be subject to special tax rules
designed to prevent deferral of U.S. taxation of the Fund's share of the PFIC's
earnings. In the absence of certain elections to report these earnings on a
current basis, regardless of whether the Fund actually receives any
distributions from the PFIC, investors in the Fund would be required to report
certain "excess distributions" from, and any gains from the disposition of stock
of, the PFIC as ordinary income. This ordinary income would be allocated ratably
to the Fund's holding period for the stock. Any amounts allocated to prior years
would be taxable at the highest rate of tax applicable in that year, increased
by an interest charge determined as though the amounts were underpayments of
tax.
Income received by the Fund from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. If more than
50% of the value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible and
may elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to dividends actually received)
its pro rata share of the foreign taxes paid by the Fund, and may be entitled
either to deduct its pro rata share of the foreign taxes in computing its
taxable income or to use the amount as a foreign tax credit against its U.S.
Federal income tax liability, subject to limitations. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will "pass through" for that year. If the Fund is
not eligible to make the election to "pass through" to its shareholders its
foreign taxes, the foreign taxes it pays will reduce its investment company
taxable income and distributions by the Fund will be treated as U.S. source
income.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to its foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, and
options, futures and forward transactions, will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income (as defined for purposes of the
foreign tax credit), including the foreign source passive income passed through
by the Fund.
The current position of the Internal Revenue Service (the "IRS") generally
is to treat a regulated investment company as owning its proportionate share of
the income and assets of any partnership in which it is a partner, in applying
the 90% qualifying income requirement, the 30% Limitation and the asset
diversification requirements that, as described above, the Fund must satisfy to
qualify as a regulated investment company under the Code. These requirements may
limit the extent to which the Fund may invest in limited partnerships,
especially in the case of limited partnerships that do not primarily invest in a
diversified portfolio of stocks and securities.
Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. If a portion of the Fund's
income consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate dividends-received
deduction. Distributions of net capital gains (the excess of net long-term
capital gains over net short-term capital losses), if any, designated as capital
gain dividends are taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, and are not eligible for the
dividends-received deduction. Shareholders receiving distributions in the form
of additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. A distribution of an amount in excess of the Fund's current
and accumulated earnings and profits will be treated by a shareholder as a
return of capital that is applied against and reduces the shareholder's basis in
his or her shares. To the extent that the amount of any such distribution
exceeds the shareholder's basis in his or her shares, the excess will be treated
by the shareholder as a gain from a sale or exchange of the shares. Shareholders
will be notified annually as to the U.S. federal tax status of distributions,
and shareholders receiving distributions in the form of additional shares will
receive a report as to the net asset value of those shares.
Upon the sale or other disposition of shares of the Fund, a shareholder
may realize a capital gain or loss that will be long-term or short-term,
generally depending upon the shareholder's holding period for the shares. 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 Fund 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 net capital gains received by the
shareholder with respect to such shares.
Under certain circumstances, the sales charge incurred in acquiring shares
of a Fund may not be taken into account in determining the gain or loss on the
disposition of those shares. This rule applies where shares of a Fund originally
acquired with a sales charge are disposed of within 90 days after the date on
which they were acquired and new shares of a regulated investment
13
<PAGE>
company are acquired without a sales charge or at a reduced sales charge. In
that case, the gain or loss realized on the disposition will be determined by
excluding from the tax basis of the shares all or a portion of the sales charge
incurred in acquiring those shares. This exclusion applies to the extent that
the otherwise applicable sales charge with respect to the newly acquired shares
is reduced as a result of the shareholder having incurred a sales charge paid
for the new shares. This rule may be applied to successive acquisitions of
shares of stock.
Distributions by a Fund reduce the net asset value of that Fund's shares.
Should a distribution reduce the net asset value of a share below a
shareholder's cost for the share, such a distribution nevertheless generally
would be taxable to the shareholder as ordinary income or long-term capital
gains, even though, from an investment standpoint, it may constitute a partial
return of capital. In particular, investors should be careful to consider the
tax implications of buying shares just prior to a distribution by a Fund. The
price of shares purchased at that time may include the amount of the forthcoming
distribution, but the distribution generally would be taxable to them.
Some shareholders may be subject to withholding of Federal income tax on
dividends and redemption payments from a Fund ("backup withholding") at the rate
of 31%. Corporate shareholders and certain other shareholders specified in the
Code generally are exempt from such backup withholding. Generally, shareholders
subject to backup withholding will be (i) those for whom a certified taxpayer
identification number is not on file with a Fund, (ii) those about whom
notification has been received (either by the shareholder or by a Fund) from the
IRS that they are subject to backup withholding or (iii) those who, to a Fund's
knowledge, have furnished an incorrect taxpayer identification number.
Generally, to avoid backup withholding, an investor must, at the time an account
is opened, certify under penalties of perjury that the taxpayer identification
number furnished is correct and that he or she is not subject to backup
withholding.
The foregoing discussion relates solely to U.S. Federal income tax law.
Dividends and distributions also may be subject to state, local and foreign
taxes. Dividends paid by the Fund from income attributable to interest on
obligations of the U.S. Government and certain of its agencies and
instrumentalities may be exempt from state and local taxes in certain states.
Shareholders should consult their tax advisers regarding the possible exclusion
of this portion of their dividends for state and local tax purposes. Non-U.S.
investors also should consult their tax advisers concerning the tax consequences
of ownership of shares of the Fund, including the possibility that distributions
may be subject to a 30% U.S. withholding tax (or a reduced rate of withholding
provided by treaty).
Shareholders of Class A, Class B and Class C shares may direct that income
dividends and capital gain distributions be paid to them through various options
listed in the "How the Fund Pays Distributions -- Distribution Options" section
of the Fund's current Prospectus. If a shareholder selects either of two such
options (that: (a) income dividends be paid in cash and capital gain
distributions be paid in additional shares of the same class of the Fund at net
asset value; or (b) income dividends and capital gain distributions both be paid
in cash), and the dividend/distribution checks cannot be delivered, or, if such
checks remain uncashed for six months, the Fund reserves the right to reinvest
the dividend or distribution in the shareholder's account at the then-current
net asset value and to convert the shareholder's election to automatic
reinvestment in shares of the Fund from which the distributions were made. The
Fund has received from the IRS, rulings to the effect that (i) the
implementation of the multiple class purchase arrangement will not result in the
Fund's dividends or distributions constituting "preferential dividends" under
the Code, and (ii) that any conversion feature associated with a class of shares
does not constitute a taxable event under federal income tax law.
UNDERWRITER AND DISTRIBUTION SERVICES
Pursuant to Underwriting Agreements, Northstar Distributors, Inc. is the
Underwriter for the Fund and as such conducts a continuous offering pursuant to
a "best efforts" arrangement requiring it to take and pay for only such
securities as may be sold to the public. The Underwriter is an affiliate of the
Adviser and the Administrator.
The Underwriting Agreements may be terminated at any time on not more than 60
days written notice, without payment of a penalty, by the Underwriter, by vote
of a majority of the outstanding class of voting securities of the Fund, or by
vote of a majority of the Trustees, who are not "interested persons" of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements. The Underwriting Agreements will terminate
automatically in the event of their assignment.
14
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and principal Officers of the Trust and their business
affiliations for the past five years are set forth below. Unless otherwise
noted, the mailing address of the Trustees and Officers is 300 First Stamford
Place, Stamford, Connecticut 06902.
PAUL S. DOHERTY, Trustee. Age: 63. President, Doherty, Wallace, Pillsbury and
Murphy, P.C., Attorneys. Director, Tambrands, Inc. Since October 1993, Trustee
of the Northstar affiliated investment companies.
ROBERT B. GOODE, JR., Trustee. Age: 67. Currently retired. From 1990 to 1991,
Chairman of The First Reinsurance Company of Hartford. From 1987 to 1989,
President and Director of American Skandia Life Assurance Company. Since October
1993, Trustee of the Northstar affiliated investment companies.
ALAN L. GOSULE, Trustee. Age: 57. Partner, Rogers & Wells. Director, F.L. Putnam
Investment Management Co., Inc.
*MARK L. LIPSON, Trustee and President. Age: 48. Director, Chairman and Chief
Executive Officer of Northstar and Northstar, Inc. Director and President of
Northstar Administrators Corporation and Director and Chairman of Northstar
Distributors, Inc., President and Trustee of the Northstar affiliated investment
companies since October 1993. Prior to August, 1993, Director, President and
Chief Executive Officer of National Securities & Research Corporation and
President and Director/Trustee of the National Affiliated Investment Companies
and certain of National's subsidiaries.
WALTER H. MAY, Trustee. Age: 61. Retired. Former Senior Executive for Piper
Jaffrey, Inc.
DAVID W.C. PUTNAM, Trustee. Age: 58. President, Clerk and Director of F.L.
Putnam Securities Company, Incorporated, F.L. Putnam Investment Management
Company, Incorporated, Interstate Power Company, Inc., Trust Realty Corp. and
Bow Ridge Mining Co.; Director of Anchor Investment Management Corporation;
President and Trustee of Anchor Capital Accumulation Trust, Anchor International
Bond Trust, Anchor Gold and Currency Trust, Anchor Resources and Commodities
Trust and Anchor Strategic Assets Trust.
JOHN R. SMITH, Trustee. Age: 74. From 1970-1991, Financial Vice President of
Boston College; President of New England Fiduciary Company (financial planning)
since 1991; Chairman of Massachusetts Educational Financing Authority since
1987; Vice Chairman of Massachusetts Health and Education Authority.
*JOHN G. TURNER, Trustee. Age: 58. Since May 1993, Chairman and CEO of ReliaStar
Financial Corporation and Northwestern NationalLife Insurance Co. and Chairman
of other ReliaStar Affiliated Insurance Companies since 1995. Since October
1993, Director of Northstar and affiliates. Prior to May 1993, President and CEO
of ReliaStar and Northwestern National.
DAVID W. WALLACE, Trustee. Age: 73. Chairman of Putnam Trust Company, Lone Star
Industries and FECO Engineered Systems, Inc. He is also President and Trustee of
Robert R. Young Foundation and Governor of the New York Hospital. Director of
UMC Electronics and Zurn Industries, Inc. Former Chairman and Chief Executive
Officer, Todd Shipyards and Bangor Punta Corporation, and former Chairman and
Chief Executive Officer of National Securities & Research Corporation. Since
October 1993, Trustee of the Northstar affiliated investment companies.
STEPHANIE L. BECKNER, Vice President and Secretary. Age: 30. Vice President,
Secretary and Counsel of Northstar. Northstar affiliated companies and Northstar
affiliated investment companies.
THOMAS OLE DIAL, Vice President. Age: 41. Executive Vice President and Chief
Investment Officer-Fixed Income of Northstar and Principal, T.D. & Associates,
Inc. From 1989 to August 1993, Executive Vice President and Chief Investment
Officer-Fixed Income of National Securities and Research Corporation, Vice
President of National Affiliated Investment Companies, and Vice President of NSR
Asset Management Corporation. From 1988 to 1989, President of Dial Capital
Management.
MARY LISANTI, Vice President. Age: 42. Executive Vice President and Chief
Investment Officer-Equities of Northstar. From September 1996 to May 1998,
Portfolio Manager with Strong Capital Management from March 1993 to August 1996,
Managing Director and Portfolio Manager with Bankers Trust Corporation.
AGNES MULLADY, Vice President and Treasurer. Age: 39. Senior Vice President and
Chief Financial Officer of Northstar; Senior Vice President, Treasurer and
President of Northstar Administrators Corporation; and Vice President and
Treasurer of Northstar Distributors, Inc. and Northstar affiliated investment
companies. From 1987 to 1993, Vice President and Treasurer of National
Securities & Research Corporation.
- ----------
*Deemed to be an "interested person" of the Trust, as defined by the 1940 Act.
Northstar and Northstar Administrators Corporation make their personnel
available to serve as Officers and "Interested Trustees" of the Trust. All
Officers and Interested Trustees of the Trust are compensated by Northstar or
Northstar Administrators Corporation. Trustees who are not "interested persons"
of the Adviser are paid an annual retainer fee of $6,000 for their combined
services as Trustees to the Trust and to retail funds sponsored or advised by
the Adviser, and a per meeting fee of $1,500 for attendance at each joint
meeting of the Trusts and the other Northstar retail funds. The Trust also
reimburses Trustees for expenses incurred by them in connection with such
meetings.
COMPENSATION TABLE
PERIOD ENDING DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION BENEFITS ESTIMATED ANNUAL FROM ALL FUNDS(17)
COMPENSATION ACCRUED AS PART OF BENEFITS UPON IN
FROM TRUST(a) FUND EXPENSES RETIREMENT NORTHSTAR COMPLEX(b)
------------- ------------- ---------- --------------------
<S> <C> <C> <C> <C>
Paul S. Doherty.......... (a)500 0 0 13,750
Robert B. Goode, Jr...... (a)500 0 0 15,000
Alan L. Gosule........... (a)500 0 0 15,500
Mark L. Lipson........... (a)500 0 0 --
Walter H. May............ (a)500 0 0 15,500
David W.C. Putnam........ (a)500 0 0 13,125
John R. Smith............ (a)500 0 0 15,500
John G. Turner........... (a)500 0 0 --
David W. Wallace......... (a)500 0 0 13,750
</TABLE>
(a) The Trust was established on June 12, 1998. The compensation amounts noted
are estimates for the period ending December 31, 1998.
(b) Compensation paid by the Northstar Trust Funds, the Northstar Variable
Trust Funds and the remaining six funds, Northstar Growth, Special,
Balance Sheet Opportunities, High Yield, Strategic Income and Government
Securities Funds.
15
<PAGE>
OTHER INFORMATION
Independent Accountants. Coopers & Lybrand L.L.P. has been selected as the
independent accountants of the Northstar Equity Trust. Coopers & Lybrand L.L.P.
audits the Fund's annual financial statements and expresses an opinion thereon.
Custodian. State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110, acts as custodian, and fund accounting agent for the Trust.
Transfer Agent. Pursuant to a Transfer Agency Agreement with the Fund,
First Data Investor Services Group, Inc., 4400 Computer Drive, Westborough, MA
01581-5120, acts as transfer agent for the Fund.
Reports to Shareholders. The fiscal year of the Northstar Equity Trust
ends on December 31. The Fund will send financial statements to its shareholders
at least semiannually. An annual report containing financial statements audited
by the independent accountants will be sent to shareholders each year.
Organizational and Related Information. The Northstar Mid-Cap Growth Fund,
a series of the Trust, was organized in 1998.
The shares of the Fund, when issued, will be fully paid and
non-assessable, have no preference, preemptive, or similar rights, and will be
freely transferable. There will normally be no meetings of shareholders for the
purpose of electing Trustees unless and until such time as less than a majority
of the Trustees holding office have been elected by shareholders, at which time
the Trustees then in office will call a shareholders' meeting for the election
of Trustees. Shareholders may, in accordance with the Declaration of Trust,
cause a meeting of shareholders to be held for the purpose of voting on the
removal of Trustees. Meetings of the shareholders will be called upon written
request of shareholders holding in the aggregate not less than 10% of the
outstanding shares of the Fund or class having voting rights. Except as set
forth above and subject to the 1940 Act, the Trustees will continue to hold
office and appoint successor Trustees.
Under Massachusetts law, there is a remote possibility that shareholders
of a business trust could, under certain circumstances, be held personally
liable as partners for the obligations of such trust. The Declaration of Trust
for the Fund contains provisions intended to limit such liability and to provide
indemnification out of Fund property of any shareholder charged or held
personally liable for obligations or liabilities of the Fund solely by reason of
being or having been a shareholder of the Fund and not because of such
shareholder's acts or omissions or for some other reason. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Year 2000 Compliance. The services provided to the Fund by the Adviser,
the Administrator and the Fund's other service providers are dependent on those
service providers' computer systems. Many computer software and hardware systems
in use today cannot distinguish between the year 2000 and the year 1900 because
of the way dates are encoded and calculated (the "Year 2000 Issue"). The failure
to make this distinction could have a negative implication on handling
securities trades, pricing and account services. The Adviser, the Administrator
and the Fund's other service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Issue with respect to the computer
systems that they use. Although there can be no assurances, the Fund believes
these steps will be sufficient to avoid any material adverse impact on the Fund.
The costs or consequences of incomplete or untimely resolution of the Year 2000
Issue are unknown to the Adviser, Administrator and the Fund's other service
providers at this time but could have a material adverse impact on the
operations of the Fund and the Adviser, Administrator and the Fund's other
service providers.
16
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Fund may be compared in reports and
promotional literature to (1) the S&P 500, Dow Jones Industrial Average
("DJIA"), or other unmanaged indices, so that investors may compare the Fund's
results to those of a group of unmanaged securities that are widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of mutual funds tracked by Lipper Analytical Services, Inc., a widely
used independent research firm that ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications or persons who rank mutual funds on overall performance or other
criteria; (iii) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Fund; and (iv) well known
monitoring sources of certificates of deposit performance rates, such as Solomon
Brothers, Federal Reserve Bulletin, American Bankers and Tower Data/The Wall
Street Journal. Unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. Performance rankings are based on historical information and are not
intended to indicate future performance.
In addition, the Fund may, from time to time, include various measures of
the Fund's performance, including the current yield, the tax equivalent yield
and the average annual total return of shares of the Fund in advertisements,
promotional literature or reports to shareholders or prospective investors. Such
materials may occasionally cite statistics to reflect the Fund's volatility
risk.
Average Annual Total Return. Standardized quotations of average annual
total return ("Standardized Return") for each class of shares will be expressed
in terms of the average annual compounded rate of return for a hypothetical
investment in such class of shares over periods of 1, 5 and 10 years or up to
the life of the class of shares, calculated for each class separately pursuant
to the following formula:
P(1+T) to the power of n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = the average annual total return
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period.
All total return figures reflect the deduction of a proportional share of
each class's expenses (on an annual basis), the deduction of the maximum initial
sales load (in the case of Class A shares) and the maximum contingent deferred
sales charge applicable to a complete redemption of the investment (in the case
of Class B and Class C shares), and assume that all dividends and distributions
are reinvested when paid.
Yield. Quotations of yield for a specific class of shares of the Fund will
be based on all investment income attributable to that class earned during a
particular 30-day (or one month) period (including dividends and interest), less
expenses accrued during the period ("net investment income"), and will be
computed by dividing the net investment income per share of that class earned
during the period by the maximum offering price per share on the last day of the
month, according to the following formula:
Yield = 2[(a-b + 1) to the power of 6 -1]
-----------------------------------------
cd
Where:
a = dividends and interest earned during the period attributable to a
specific class of shares
b = expenses accrued for the period attributable to that class (net of
reimbursements)
c = the average daily number of shares of that class outstanding during
the period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period
17
<PAGE>
All accrued expenses are taken into account as follows. Accrued expenses
include all recurring expenses that are charged to all shareholder accounts in
proportion to the length of the base period, including but not limited to
expenses under the Fund's distribution plan. Except as noted, the performance
results take the contingent deferred sales load into account.
Non-Standardized Return. In addition to the performance information
described above, the Fund may provide total return information that is not
calculated according to the formula set forth above ("Non-Standardized Return").
Neither initial nor contingent deferred sales charges are taken into account in
calculating Non-Standardized Return. Excluding the Fund's sales charge from a
total return calculation produces a higher total return figure.
The Fund may quote its performance in various ways, using various types of
comparisons to market indices, other funds or investment alternatives, or to
general increases in the cost of living. All performance information supplied by
the Fund in advertising is historical and is not intended to indicate future
returns. The Fund's share prices and total returns fluctuate in response to
market conditions and other factors, and the value of the Fund's shares when
redeemed may be more or less than their original cost.
Evaluations of Fund performance made by independent sources may also be
used in advertisements concerning the Fund, including reprints of, or selections
from, editorials or articles about the Fund. These editorials or articles may
include quotations of performance from other sources, such as Lipper or
Morningstar. Sources for Fund performance information and articles about the
Fund may include the following: Banxquote, Barron's, Business Week, CDA
Investment Technologies, Inc, Changing Times, Consumer Digest, Financial World,
Forbes, Fortune, IBC/Donoghue's, Money Fund Report, Ibbotson Associates, Inc.,
Investment Company Data, Inc., Investor's Daily, Lipper Analytical Services,
Inc.'s Mutual Fund Performance Analysis, Money, Mutual Fund Values, The New York
Times, Personal Investing News, Personal Investor, Success, USA Today, U.S. News
and World Report, The Wall Street Journal and Wiesenberger Investment Company
Services.
When comparing yield, total return and investment risk of shares of the
Fund with other investments, investors should understand that certain other
investments have different risk characteristics than an investment in shares of
the Fund. For example, certificates of deposit may have fixed rates of return
and may be insured as to principal and interest by the FDIC, while the Fund's
returns will fluctuate and its share values and returns are not guaranteed.
Money market accounts offered by banks also may be insured by the FDIC and may
offer stability of principal. U.S. Treasury securities are guaranteed as to
principal and interest by the full faith and credit of the U.S. Government.
Money market mutual funds may seek to offer a fixed price per share.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representative of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest, and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
18
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE BOND
RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which made the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's may apply numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S ("S&P") CORPORATE DEBT RATINGS
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than for debt in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest
A-1
<PAGE>
degree of speculation and C the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
A-2
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust*
(b) By-Laws*
(c) N/A
(d) Investment Advisory Agreement*
(e) Underwriting Agreements*
(f) N/A
(g) Form of Custody Agreement
(g)(l) Form of Amendment to Custody Agreement
(h)(1) Form of Transfer Agency Agreement
(2) Administrative Services Agreement*
(i) Opinion of Counsel**
(j) N/A
(k) N/A
(l) Initial Capital Agreement**
(m) Plans of Distribution pursuant to
Rule 12b-1*
(n) N/A
(o) Multiple Class Plan Pursuant to
Rule 18f-3
(p) Power of Attorney**
- ---------------------------
* Previously filed with the initial registration statement on June 15, 1998.
** To be filed by Amendment.
Item 24. Persons Controlled by or under Common Control with Registrant
There are no persons controlled by or under common control with Registrant.
Item 25. Indemnification
Section 4.3 of Registrant's Declaration of Trust provides the following: (a)
Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law
against all liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
C-1
<PAGE>
incurred by him in the settlement thereof; and
(ii) the word "claim", "action", "suit" or "proceeding" shall apply to all
claims, actions or suits or proceedings (civil, criminal, administrative
or other including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorneys
fees, costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought or that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his
action was in the best interest of the Trust; and
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b) (i) or (b) (ii) resulting
in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon the review of readily available facts (as opposed to
full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser
See "MANAGEMENT OF THE FUNDS" in the Prospectus and "Services of Northstar and
the Administrator" and "Trustees and Officers" in the Statement of Additional
Information, each of which is included in the Registration Statement. Set forth
is a list of each officer and director of the Adviser indicating each business,
profession, vocation or employment of a substantial nature in which each such
person has been engaged since January 31, 1994.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
- ---- ------- ----------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar
Financial Corp. and affiliates;
Director of Northstar Affiliates;
Trustee and Chairman, Northstar
Affiliated Investment Companies.
John Flittie Director President, ReliaStar Financial Corp.
and affiliates; Director, Northstar
Affiliates.
Mark L. Lipson Chairman/CEO Director and Officer of Northstar
Director Distributors, Inc., Northstar
Administrators Corp. and Northstar,
Inc. Trustee and President, Northstar
Affiliated Investment Companies.
Robert J. Adler Executive President, Northstar Distributors, Inc.
Vice
President,
Sales &
Marketing
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Jeffrey Aurigemma Vice Vice President - Northstar Affiliated
President - Investment Companies
Investments and Portfolio Manager
Stephanie L. Beckner Vice President, Vice President & Secretary of
Secretary and Counsel Northstar Affiliates and the Northstar
Affiliated Investment Companies
Jeffrey Bernstein Vice President - Vice President, Northstar
Investments Affiliated Investment Companies
and Portfolio Manager, Former
Portfolio Manager with Strong Capital
Management, Former Assistant Portfolio Manager
with Bankers Trust Corporation
Thomas Ole Dial Executive Vice President, Northstar Affiliated
Vice President Investment Companies, and
Chief Investment Officer - Principal, TD Associates Inc.
Fixed Income
Michael Graves Vice Vice President - Northstar Affiliated
President Investment Companies
Investments
Mary Lisanti Executive Vice President, Northstar Affiliated
Vice President Investment Companies, Former
Chief Investment Officer - Portfolio Manager with Strong Capital
Equities Management, Former Managing Director and
Portfolio Manager with Bankers Trust Corporation
Agnes Mullady Sr. Vice President, Northstar Administrators Corporation,
President Vice President & Treasurer of
and CFO Northstar Affiliates and the Northstar
Affiliated Investment Companies
Mark Sfarra Vice Vice President - Northstar
President - Distributors, Inc.
Marketing
Stephen Vondrak Vice Vice President - Northstar
President - Distributors, Inc., Former Regional
Sales & Marketing Marketing Manager with Roger
Engemann and Associates from
1991-1994.
Geoffrey Wadsworth Vice President- Vice President - Northstar Affiliated
Investments Investment Companies and Portfolio
Manager
</TABLE>
Item 27. Principal Underwriter
C-4
<PAGE>
(a) See "HOW THE FUNDS ARE ORGANIZED AND MANAGED", "MEET THE PORTFOLIO MANAGERS"
and "YOUR GUIDE TO BUYING, SELLING AND EXCHANGING SHARES OF NORTHSTAR FUNDS" in
the Prospectus and "Underwriter and Distribution Services" in the Statement of
Additional Information, both of which are included in this Post-Effective
Amendment to the Registration Statement. Unless otherwise indicated, the
principal business address for each person is c/o Northstar, 300 First Stamford
Place, Stamford,CT 06902.
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------- ---------------- ---------------
John Turner Director Trustee, Chairman
20 Washington Ave. South
Minneapolis, MN
John Flittie Director None
20 Washington Ave. South
Minneapolis, MN
Mark L. Lipson Chairman & Director Trustee and President
Robert J. Adler President None
Mark Blinder Reg. Vice President None
Mike Brescia Reg. Vice President None
Jennifer Byrne Reg. Vice President None
Eugene Carlin Reg. Vice President None
Charles Dolce Reg. Vice President None
Chris Erbeck Reg. Vice President None
Neil Gargiulo Reg. Vice President None
Justin Gross Reg. Vice President None
Edward Ittner Reg. Vice President None
Nancy Lavin Reg. Vice President None
David Linton Senior Vice President &
National Sales Manager None
Stephen O'Brien Reg. Vice President None
Greg Ratto Reg. Vice President None
C-5
<PAGE>
Don Rhodes Reg. Vice President None
Gregg Smyth Reg. Vice President None
Rich Westlund Reg. Vice President None
Mark Sfarra Vice President None
Stephen Vondrak Vice President None
Stephanie L. Beckner Vice President, Vice President
Secretary & Counsel & Secretary
Agnes Mullady Vice President Vice President
& Treasurer & Treasurer
Item 28. Location of Accounts and Records
State Street Bank and Trust Co. maintains the following records at 1776 Heritage
Drive, North Quinicy, MA 02171 as Custodian and Fund Accounting Agent for the
Registrant:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical
possession, securities owned and securities loaned; and
(4) Fund Accounting Records.
First Data Investor Services Group, ("First Data") maintains the following
records at One Exchange Place, 11th Floor, Boston, MA 02109, as Transfer Agent
and Blue Sky Administrator for the Registrant.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates, number of shares
and share prices of each account;
(3) Fund Accounting Records; and
(4) State Securities Registration Records.
All other records required by item 30(a) are maintained at the office of the
Administrator, 300 First Stamford Place, Stamford, CT 06902.
Item 29. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees
when requested in writing to do so by the holders of at least 10% of the
Trusts' outstanding shares of beneficial interest and in connection with
such meeting to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report
to shareholders, upon request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Stamford and the State of Connecticut on the 27th day of July, 1998.
Northstar Equity Trust
By: /s/ Mark L. Lipson
----------------------
Mark L. Lipson, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURES TITLE DATE
/s/ Mark L. Lipson Trustee July 27, 1998
Mark L. Lipson
/s/ Agnes Mullady Principal Financial July 27, 1998
Agnes Mullady and Accounting Officer
C-7
<PAGE>
Index to Exhibits
Northstar Equity Trust
Exhibit No. Under
Part C of Form N1-A Name of Exhibit Page Number Herein
- ------------------- --------------- ------------------
(g) Form of Custody Agreement
(g)(1) Form of Amendment to Custody
Agreement
(o) Multiple Class Plan Pursuant
to Rule 18f-3
C-8
CUSTODIAN CONTRACT
Between
NORTHSTAR TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It.......................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States...3
2.1 Holding Securities...............................3
2.2 Delivery of Securities...........................3
2.3 Registration of Securities.......................8
2.4 Bank Accounts....................................9
2.5 Availability of Federal Funds...................10
2.6 Collection of Income............................10
2.7 Payment of Fund Monies..........................11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased.................14
2.9 Appointment of Agents...........................15
2.10 Deposit of Fund Assets in Securities System.....15
2.10A Fund Assets Held in the Custodian's Direct
Paper System....................................18
2.11 Segregated Account..............................20
2.12 Ownership Certificates for Tax Purposes.........21
2.13 Proxies.........................................22
2.14 Communications Relating to Portfolio
Securities......................................22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States..............23
3.1 Appointment of Foreign Sub-Custodians...........23
3.2 Assets to be Held...............................23
3.3 Foreign Securities Depositories.................24
3.4 Agreements with Foreign Banking Institutions....24
3.5 Access of Independent Accountants of the Fund...25
3.6 Reports by Custodian............................25
3.7 Transactions in Foreign Custody Account.........26
3.8 Liability of Foreign Sub-Custodians.............27
3.9 Liability of Custodian..........................27
3.10 Reimbursement for Advances......................28
3.11 Monitoring Responsibilities.....................29
3.12 Branches of U.S. Banks..........................29
3.13 Tax Law.........................................30
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund..................................31
5. Proper Instructions....................................32
6. Actions Permitted Without Express Authority............33
7. Evidence of Authority..................................33
8. Duties of Custodian With Respect to the
Books of Account and Calculation of Net
Asset Value and Net Income.............................34
9. Records................................................34
10. Opinion of Fund's Independent Accountants..............35
11. Reports to Fund by Independent Public Accountants......35
12. Compensation of Custodian..............................36
13. Responsibility of Custodian............................36
14. Effective Period, Termination and Amendment............38
15. Successor Custodian....................................40
16. Interpretive and Additional Provisions.................41
17. Additional Funds.......................................42
18. Massachusetts Law to Apply.............................42
19. Prior Contracts........................................42
20. Shareholder Communications Election....................42
<PAGE>
CUSTODIAN CONTRACT
This Contract between Northstar/NWNL Trust, a business trust organized
and existing under the laws of Massachusetts, having its principal place of
business at Two Pickwick Plaza, Greenwich, Connecticut 06830 hereinafter called
the "Fund", and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in four series,
Northstar Growth Fund, Northstar Income and Growth Fund, Northstar Multi-Sector
Bond Fund and Northstar High Yield Bond Fund (such series together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic
<PAGE>
securities") and securities it desires to be held outside the United States
("foreign securities") pursuant to the provisions of the Declaration of Trust.
The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all
securities and cash of the Portfolios, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios, ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which is deposited and/or maintained in the Direct
Paper System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Portfolio;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.10 hereof;
4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
5) 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 the Custodian;
6) To the issuer thereof, or its agent, for transfer into
the name of the Portfolio or into the name of any
nominee or nominees of the Custodian or into the name or
nominee name of any agent appointed pursuant to Section
2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds, certificates
or other evidence representing the same aggregate face
amount or number of units; provided that, in any such
case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against
a receipt, for examination in accordance with "street
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities
prior to receiving payment for such securities except as
may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of interim
receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities
made by the Portfolio, but only against receipt of
adequate collateral as agreed upon from time to time by
the Custodian and the Fund on behalf of the Portfolio,
which may be in the form of cash or obligations issued
by the United States government, its agencies or
instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the delivery
of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund on behalf of the Portfolio
requiring a pledge of assets by the Fund on behalf of
the Portfolio, but only against receipt of amounts
borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and
a member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any
similar organization or organizations, regarding escrow
or other arrangements in connection with transactions by
the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar
organization or organizations, regarding account
deposits in connection with transactions by the
Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from
time to time in the currently effective prospectus and
statement of additional information of the Fund, related
to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions from the
Fund on behalf of the applicable Portfolio, a certified
copy of a resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund
in arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options,
futures contracts or options on futures contracts for
the account of the Portfolio but only (a) against the
delivery of such securities or evidence of title to such
options, futures contracts or options on futures
contracts to the Custodian (or any bank, banking firm or
trust company doing business in the United States or
abroad which is qualified under the Investment Company
Act of 1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or in
the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b)
in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in
Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with
the conditions set forth in Section 2.10A; (d) in the
case of repurchase agreements entered into between the
Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of
NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities owned
by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities
from the Portfolio or (e) for transfer to a time deposit
account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt
of a confirmation from a broker and/or the applicable
bank pursuant to Proper Instructions from the Fund as
defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in
Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by
the Portfolio, including but not limited to the
following payments for the account of the Portfolio:
interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the
Portfolio declared pursuant to the governing documents
of the Fund;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on
behalf of the Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee of the Fund signed by an officer of the Fund
and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is
to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian
in the Securities System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities
of the Portfolio which are maintained in a Securities
System shall identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from
the Securities System that such securities have been
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio.
The Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from
the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making
of an entry on the records of the Custodian to reflect
such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities
System of transfers of securities for the account of the
Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian
shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of
the Portfolio in the form of a written advice or notice
and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of
the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio
with any report obtained by the Custodian on the
Securities System's accounting system, internal
accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on
behalf of the Portfolio the initial or annual
certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Fund for the benefit of the Portfolio for any loss or
damage to the Portfolio resulting from use of the
Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the
Securities System; at the election of the Fund, it shall
be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the
Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not
been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of Proper
Instructions from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in
the Direct Paper System only if such securities are
represented in an account ("Account") of the Custodian
in the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities
of the Portfolio which are maintained in the Direct
Paper System shall identify by book-entry those
securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such payment and
transfer of securities to the account of the Portfolio.
The Custodian shall transfer securities sold for the
account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer
and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written
advice or notice, of Direct Paper on the next business
day following such transfer and shall furnish to the
Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in
the Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Portfolio such proxies, all
proxy soliciting materials and all notices relating to such
securities.
2.14 Communications Relating to Portfolio Securities
Subject to the provisions of Section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all written information
(including, without limitation, pendency of calls and maturities of
domestic securities and expirations of rights in connection therewith
and notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Portfolio shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Portfolio's securities and other assets
maintained outside the United States the foreign banking institutions
and foreign securities depositories designated on Schedule A hereto
("foreign sub-custodians"). Upon receipt of "Proper Instructions", as
defined in Section 5 of this Contract, together with a certified
resolution of the Fund's Board of Trustees, the Custodian and the Fund
may agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities
depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the
employment of any one or more such sub-custodians for maintaining
custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets as
belonging to each applicable Portfolio; (d) officers of or auditors
employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.7 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.7,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside
the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.9, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolios assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.12 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract. (b) Cash held for each
Portfolio of the Fund in the United Kingdom shall be maintained in an
interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd.
or both.
<PAGE>
3.13 Tax Law
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as otherwise
directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
<PAGE>
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended and
that the Custodian shall not with respect to a Portfolio act under Section 2.10A
hereof in the absence of receipt of an initial certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has approved the initial use
of the Direct Paper System by such Portfolio; provided further, however, that
the Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Northstar Growth Fund, Northstar Income and Growth Fund, Northstar
Multi-Sector Bond Fund and Northstar High Yield Bond Fund with respect to which
it desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ ] The Custodian is not authorized to release the
Fund's name, address, and share positions.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of , 1994.
ATTEST NORTHSTAR/NWNL TRUST
By
- ------------------------- -------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ------------------------- --------------------------------
Executive Vice President
<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Northstar/NWNL Trust
for use as sub-custodians for the Fund's securities and other assets:
(Insert banks and securities depositories)
Certified:
- ------------------------------
Fund's Authorized Officer
Date:_________________________
<PAGE>
Exhibit 1
SUBCUSTODIAN AGREEMENT
AGREEMENT made this ______________________________; between State Street
Bank and Trust Company, A Massachusetts Trust Company (hereinafter referred to
as the "Custodian"), having its principal place of business at 225 Franklin
Street, Boston, MA, and ______________________________________ (hereinafter
referred to as the "Subcustodian"), a bank organized under the laws of
___________________________ and having its registered office at
- -------------------------------------------------------------------
- --------------------------------------------------------------------------.
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities an monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Accounts (the "Accounts") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Accounts and to hold and
maintain all property in the Accounts in accordance with the terms and
conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account
Custodian hereby requests that Subcustodian establish for each client of
the Custodian an Account which shall be composed of:
1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined)
from time to time received by Subcustodian therefor.
B. Use of the Account
The Account shall be used exclusively to hold, acquire, transfer or
otherwise care for, on behalf of Custodian as custodian and the customers of
Custodian and not for Custodian's own interest, Securities, and such Cash or
cash equivalents as are transferred to Subcustodian or as are received in
payment of any transfer of, or as payment on, or interest on, or dividend from,
any such Securities (herein collectively called "Cash").
C. Transfer of Property in the Account
Beneficial ownership of the Securities and Cash in the Account shall be
freely transferable without payment of money or value other than for safe
custody and administration.
D. Ownership and Segregation of Property in Account The ownership of the
property in the Account, whether Securities, Cash or
both, and whether any such property is held by Subcustodian in an Eligible
Depository, shall be clearly recorded on Subcustodian's books as belonging to
Custodian on behalf of Custodian's customers, and not for Custodian's own
interest and, to the extent that Securities are physically held in the Account,
such Securities shall also be physically segregated from the general assets of
Subcustodian, the assets of Custodian in its individual capacity and the assets
of Subcustodian's other customers. In addition, Subcustodian shall maintain such
other records as may be necessary to identify the property hereunder as
belonging to each Account.
E. Registration of Securities in the Account
Securities which are eligible for deposit in a depository as provided for
in Paragraph III may be maintained with the depository in an account for
Subcustodian's customers. Securities which are not held in a depository and that
are ordinarily held in registered form will be registered in the name of the
Sub-custodian or in the name of Sub-custodian's nominee, unless alternate
Instructions are furnished by Custodian.
II. Services to be Provided by the Subcustodian
The Services Subcustodian will provide to Custodian and the manner in
which such services will be performed will be as set forth below in this
Agreement.
A. Services Performed Pursuant to Instructions
All transactions involving the Securities and Cash in the Account shall be
executed solely in accordance with Custodian's Instructions as that term is
defined in Paragraph IV hereof, except those described in Paragraph B below.
B. Services to be Performed without Instructions
Subcustodian will, unless it receives Instructions from Custodian to the
contrary:
1. Collect Cash
Promptly collect and receive all dividends, income, principal, proceeds
from transfer and other payments with respect to property held in the Account,
and present for payment all Securities held in the Account which are called,
redeemed or retired or otherwise become payable and all coupons and other income
items which call for payment upon presentation, and credit Cash receipts
therefrom to the Deposit Account.
2. Exchange Securities
Promptly exchange Securities where the exchange is purely ministerial
including, without limitation, the exchange of temporary Securities for those in
definitive form and the exchange of warrants, or other documents of entitlement
to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests
Whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is received for the
Account and such rights entitlement or fractional interest bears an expiration
date, Subcustodian will promptly endeavor to obtain Custodian's Instructions,
but should these not be received in time for Subcustodian to take timely action,
Subcustodian is authorized to sell such rights entitlement or fractional
interest and to credit the Account.
4. Execute Certificates
Execute in Custodian's name for the Account, whenever Subcustodian deems
it appropriate, such ownership and other certificates as may be required to
obtain the payment of income from the Securities held in the Account.
5. Pay Taxes and Receive Refunds
To pay or cause to be paid from the Account any and all taxes and levies
in the nature of taxes imposed on the property in the Account by any
governmental authority, and to take all steps necessary to obtain all tax
exemptions, privileges or other benefits, including reclaiming and recovering
any withholding tax, relating to the Account and to execute any declarations,
affidavits, or certificates of ownership which may be necessary in connection
therewith.
6. Prevent Losses
Take such steps as may be reasonably necessary to secure, or otherwise
prevent the loss of, entitlements attached to or otherwise relating to property
held in the Account.
C. Additional Services
1. Transmission of Notices of Corporate Action
By such means as will permit Custodian to take timely action with respect
thereto, Subcustodian will promptly notify Custodian upon receiving notices or
reports, or otherwise becoming aware, of corporate actions affecting Securities
held in the Account (including, but not limited to, calls for redemption,
mergers, consolidations, reorganizations, recapitalizations, tender offers,
rights offerings, exchanges, subscriptions and other offerings) and dividend,
interest and other income payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements
Upon request by Custodian, Subcustodian will promptly deliver, or cause any
Eligible Depository authorized and acting hereunder to deliver, to Custodian all
notices, proxies, proxy soliciting materials and other communications that call
for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting instruments
to be executed by the registered holder of the Securities, but without
indicating the manner in which such Securities are to be voted.
3. Monitor Financial Service
In furtherance of its obligations under this Agreement, Subcustodian
will monitor a leading financial service with respect to announcements and other
information respecting property held in the Account, including announcements and
other information with respect to corporate actions and dividend, interest and
other income payments.
III. Use of Securities Depository
Subcustodian may, with the prior written approval of Custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in
________________ or (b) a transnational system for the central handling of
securities or equivalent book entries (herein called "Eligible Depository"),
provided however, that , while so maintained, such Securities shall be subject
only to the directions of Subcustodian, and that Subcustodian duties,
obligations and responsibilities with regard to such Securities shall be the
same as if such Securities were held by Subcustodian on its premises.
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in favor
of Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment by Subcustodian for such
property's safe custody or administration in accordance with the terms of this
Agreement. Subcustodian will immediately notify Custodian of any attempt by any
party to assert any Charge against the property held in the Account and shall
take all lawful actions to protect such property from such Charges until
Custodian has had reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian Represents and Warrants That:
(A) It is a branch of a "qualified U.S. bank" or it is an "eligible
foreign custodian" as those terms are defined in Rule 17f-5 of the Investment
Company Act of 1940, a copy of which is attached hereto as Attachment A (the
"Rule"), and Subcustodian shall immediately notify Custodian, in writing or by
other authorized means, in the event that there appears to be a substantial
likelihood that Subcustodian will cease to qualify under the Rule as currently
in effect or as hereafter amended, or
(b) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of
this section, Custodian may terminate this Agreement immediately without prior
notice to Subcustodian.
VI. Definitions
A. Instructions
The term "Instructions" means
1. instructions in writing signed by authorized individuals designated
as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be
agreed upon by Custodian and Subcustodian, which Subcustodian believes in good
faith to have been given by Custodian or which are transmitted with proper
testing or authentication pursuant to terms and conditions which custodian may
specify.
Unless otherwise expressly provided, all Instructions shall continue in
full force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practices.
B. Account
The term "Account" means collectively the Custody Account, and the Deposit
Account.
C. Securities
The term "Securities" includes, without limitation, stocks, shares, bonds,
debentures, debt securities (convertible or non-convertible), notes, or other
obligations or securities and any certificates, receipts, futures contracts,
foreign exchange contracts, options, warrants, scrip or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in any
property or assets.
VII Miscellaneous Provisions
A. Statements Regarding the Account
Subcustodian will supply Custodian with such statements regarding the
Account as Custodian may request, including the identity and location of any
Eligible Depository authorized and acting hereunder. In addition, Subcustodian
will supply custodian an advice or notification of any transfers of Securities
to or from the Account indicating, as to Securities acquired for the Account, if
applicable, the Eligible Depository having physical possession of such
securities.
B. Examination of Books and Records
Subcustodian agrees that its books and records relating to the Account and
Sub-custodian's actions under this agreement shall be open to the physical,
on-premises inspection and audit at reasonable times by officers of, auditors
employed by, or other representatives of Custodian including (to the extent
permitted under the laws of ____________________________) the independent public
accountants for any customer of Custodian whose property is being held
hereunder) and such books and records shall be retained for such period as shall
be agreed upon by Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.
C. Standard of Care
In holding, maintaining, servicing and disposing of Property under this
Agreement and in fulfilling any other obligations hereunder, Subcustodian shall
exercise the same standard of care that it exercises over its own assets,
provided that Subcustodian shall exercise at least the degree of care and
maintain adequate insurance as expected of a prudent professional Subcustodian
for hire and shall assume the burden of proving that it has exercised such care
in its maintenance of Property held by Subcustodian in its Accounts. The
maintenance of the Property in an Eligible Depository shall not affect
Subcustodian's standard of care, and Subcustodian will remain as fully
responsible for any loss or damage to such securities as if it had itself
retained physical possession of them. Subcustodian shall indemnify and hold
harmless Custodian and each of Custodian's customers from and against any loss,
damage, cost, expense, liability or claim (including reasonable attorney's fees)
arising out of or in connection with the improper or negligent performance or
the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the
laws of ______________________________, or any other law, applicable to
Subcustodian in connection with its duties hereunder, including (but not limited
to) the payment of all transfer taxes or other taxes and compliance with any
currency restrictions and securities laws in connection with its duties as
Subcustodian.
D. Loss of Cash or Securities
Subcustodian agrees that, in the event of any loss of Securities or Cash
in the Account, Subcustodian will use its best efforts to ascertain the
circumstances relating to such loss and will promptly report the same to
Custodian and shall use every legal means available to it to effect the quickest
possible recovery.
E. Compensation of Subcustodian
Custodian agrees to pay to Subcustodian from timet to time such
compensation for its services and such out-of-pocket or incidental expenses of
Subcustodian pursuant to this Agreement as may be mutually agreed upon in
writing from time to time.
F. Operating Requirements
The Subcustodian agrees to follow such Operating Requirements as the
Custodian may establish from time to time. A copy of the current Custodian
Operating Requirements is attached as Attachment B to this Agreement.
G. Termination
This Agreement may be terminated by Subcustodian or Custodian on 60 days'
written notice to the other party, sent by registered mail, provided that any
such notice, whether given by Subcustodian or Custodian, shall be followed
within 60 days by Instructions specifying the name of the persons to whom
Subcustodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If within 60 days following the giving of such notice
of termination, Subcustodian does not receive such instructions, Subcustodian
shall continue to hold such Securities and Cash subject to this Agreement until
such Instructions are given. The obligations of the parties under this Agreement
shall survive the termination of this Agreement.
H. Notices
Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to such
other address as either party hereto may from time to time designate by notice
duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, Massachusetts 02105
I. Confidentiality
Subcustodian and Custodian shall each use its best efforts to maintain the
confidentiality of the property in the Account and the beneficial owners
thereof, subject, however, to the provisions of any laws requiring disclosure.
In addition, Subcustodian shall safeguard any test keys, identification codes or
other security devices which Custodian shall make available to it. The
Subcustodian further agrees it will not disclose the existence of this Agreement
or any current business relationship unless compelled by applicable law or
regulation or unless it has secured the Custodian's written consent.
J. Assignment
This Agreement shall not be assignable by either party but shall bind any
successor in interest of Custodian and Subcustodian respectively.
K. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of ___________________________________________. To the extent inconsistent
with this Agreement or Custodian's Operating Requirements as attached hereto,
Subcustodian's rules and conditions regarding accounts generally or custody
accounts specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By:_______________________________
Date:_____________________________
AGREED TO BY CUSTODIAN:
By:______________________________ ______________________________
Date:_____________________________
AMENDMENT TO CUSTODIAN CONTRACT
This Amendment to the Custodian Contract is made as of February 28,
1998 by and between each entity set forth on Attachment I (as such Attachment I
may be amended from time to time) to the Custodian Contract referred to below
(each such entity shall be referred to as the "Fund") and State Street Bank and
Trust Company (the "Custodian"). Capitalized terms used in this Amendment
without definition shall have the respective meanings given to such terms in the
Custodian Contract referred to below.
WHEREAS, the Fund and the Custodian entered into a Custodian Contract
dated as of June 27, 1994 (as amended and in effect from time to time, the
"Contract"); and
WHEREAS, certain of the Funds may be authorized to issue shares in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets, and the Fund has made the series set
forth on Attachment I to the Custodian Contract from time to time subject to the
Contract (each such series, together with all other series subsequently
established by the Fund and made subject to the Contract in accordance with the
terms thereof, shall be referred to as a "Portfolio", and, collectively, the
"Portfolios"); and
WHEREAS, the terms "Fund" and "Portfolio" will be used interchangeably
for those entities set forth on Attachment I to the Custodian Contract which are
not authorized to issue shares in separate series; and
WHEREAS, the Fund and the Custodian desire to amend certain provisions
of the Contract to reflect revisions to Rule 17f-5 ("Rule 17f-5") promulgated
under the Investment Company Act of 1940, as amended; and
WHEREAS, the Fund and the Custodian desire to amend and restate certain
other provisions of the Contract relating to the custody of assets of each of
the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereby agree to
amend the Contract, pursuant to the terms thereof, as follows:
I. Article 3 of the Contract is hereby deleted, and Articles 4 through 17
of the Contract are hereby renumbered, as of the effective date of this
Amendment, as Articles 5 through 18, respectively.
II. New Articles 3 and 4 of the Contract are hereby added, as of the
effective date of this Amendment, as set forth below.
<PAGE>
3. The Custodian as Foreign Custody Manager.
----------------------------------------
3.1. Definitions.
------------
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule
17f-5, except that the term does not include Mandatory Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments (including foreign
currencies) for which the primary market is outside the United States and such
cash and cash equivalents as are reasonably necessary to effect the Portfolios'
transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of
Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund determines to place Foreign Assets in a country outside the United States
(i) because required by law or regulation; (ii) because securities cannot be
withdrawn from such foreign securities depository or clearing agency; or (iii)
because maintaining or effecting trades in securities outside the foreign
securities depository or clearing agency is not consistent with prevailing or
developing custodial or market practices.
3.2. Delegation to the Custodian as Foreign Custody Manager.
-------------------------------------------------------
The Fund, by resolution adopted by its Board of Trustees or Directors, as
applicable (the "Board"), hereby delegates to the Custodian, subject to Section
(b) of Rule 17f-5, the responsibilities set forth in this Article 3 with respect
to Foreign Assets held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager of each Portfolio.
3.3. Countries Covered.
------------------
The Foreign Custody Manager shall be responsible for performing the delegated
responsibilities defined below only with respect to the countries and custody
2
<PAGE>
arrangements for each such country listed on Schedule A to this Contract, which
may be amended from time to time by the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of each
Portfolio. Mandatory Securities Depositories are listed on Schedule B to this
Contract, which Schedule B may be amended from time to time by the Foreign
Custody Manager. The Foreign Custody Manager will provide amended versions of
Schedules A and B in accordance with Section 3.7 of this Article 3.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open
an account, or to place or maintain Foreign Assets, in a country listed on
Schedule A, and the fulfillment by the Fund of the applicable account opening
requirements for such country, the Foreign Custody Manager shall be deemed to
have been delegated by the Board responsibility as Foreign Custody Manager with
respect to that country and to have accepted such delegation. Following the
receipt of Proper Instructions directing the Foreign Custody Manager to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
Foreign Custody Manager in a designated country, the delegation by the Board to
the Custodian as Foreign Custody Manager for that country shall be deemed to
have been withdrawn and the Custodian shall immediately cease to be the Foreign
Custody Manager of the Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to a Portfolio with respect
to the country as to which the Custodian's acceptance of delegation is
withdrawn.
3.4. Scope of Delegated Responsibilities.
------------------------------------
3.4.1. Selection of Eligible Foreign Custodians.
-----------------------------------------
Subject to the provisions of this Article 3, the Foreign Custody Manager may
place and maintain the Foreign Assets in the care of the Eligible Foreign
Custodian selected by the Foreign Custody Manager in each country listed on
Schedule A, as amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to place
or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation:
3
<PAGE>
(i) the Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical
protections available for certificated securities (if
applicable), its methods of keeping custodial records, and its
security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the financial
strength to provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and
standing and, in the case of a foreign securities depository
or clearing agency which is not a Mandatory Securities
Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in
the foreign securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such
as by virtue of the existence of any offices of the Eligible
Foreign Custodian in the United States or the Eligible Foreign
Custodian's consent to service of process in the United
States.
3.4.2. Contracts With Eligible Foreign Custodians.
-------------------------------------------
The Foreign Custody Manager shall determine that the contract (or the rules or
established practices or procedures in the case of an Eligible Foreign Custodian
that is a foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian selected by
the Foreign Custody Manager will provide reasonable care for the Foreign Assets
held by that Eligible Foreign Custodian based on the standards applicable to
custodians in the particular country. Each such contract shall include
provisions that provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Fund will be
adequately protected against the risk of loss of the Foreign
Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right,
security interest, or lien or claim of any kind in favor of
the Eligible Foreign Custodian or its creditors except a claim
of payment for their safe custody or administration or, in the
case of cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than
for safe custody or administration;
4
<PAGE>
(iv) that adequate records will be maintained identifying the
Foreign Assets as belonging to the Fund or as being held by a
third party for the benefit of the Fund;
(v) that the Fund's independent public accountants will be given
access to those records or confirmation of the contents of
those records; and
(vi) that the Fund will receive periodic reports with respect to
the safekeeping of the Foreign Assets, including, but not
limited to, notification of any transfer of the Foreign Assets
to or from the account of the Portfolio or a third party
account containing the Foreign Assets held for the benefit of
the Portfolio,
or, in lieu of any or all of the provisions set forth in (i) through (vi) above,
such other provisions that the Foreign Custody Manager determines will provide,
in their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through (vi) above in their
entirety.
3.4.3. Monitoring.
-----------
In each case in which the Foreign Custody Manager maintains Foreign Assets with
an Eligible Foreign Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to monitor (i) the
appropriateness of maintaining the Foreign Assets with such Eligible Foreign
Custodian and (ii) the contract governing the custody arrangements established
by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event
the Foreign Custody Manager determines that the custody arrangements with an
Eligible Foreign Custodian it has selected are no longer appropriate, the
Foreign Custody Manager shall notify the Board in accordance with Section 3.7
hereunder.
3.5. Guidelines for the Exercise of Delegated Authority.
---------------------------------------------------
For purposes of this Article 3, the Fund shall be deemed to have considered and
determined to accept such Country Risk as is incurred by placing and maintaining
the Foreign Assets in each country for which the Custodian is serving as Foreign
Custody Manager of a Portfolio, and the Fund's investment advisor (or a delegate
thereof) shall be deemed to be monitoring on a continuing basis such Country
Risk to the extent that the Board considers necessary or appropriate. The Fund,
on behalf of the Portfolios, and the Custodian each expressly acknowledge that
the Foreign Custody Manager shall not be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories.
5
<PAGE>
3.6. Standard of Care as Foreign Custody Manager of a Portfolio.
-----------------------------------------------------------
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the Investment Company Act of 1940, as amended, would
exercise.
3.7. Reporting Requirements.
-----------------------
The Foreign Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of such Foreign Assets with
another Eligible Foreign Custodian by providing to the Board amended Schedules A
or B at the end of the calendar quarter in which an amendment to either Schedule
has occurred. The Foreign Custody Manager shall make written reports notifying
the Board of any other material change in the foreign custody arrangements of a
Portfolio described in this Article 3 after the occurrence of the material
change.
3.8. Representations with Respect to Rule 17f-5.
-------------------------------------------
The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as
defined in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined that it is
reasonable for the Board to rely on the Custodian to perform the
responsibilities delegated pursuant to this Contract to the Custodian as the
Foreign Custody Manager of each Portfolio.
3.9. Effective Date and Termination of the Custodian as Foreign Custody
------------------------------------------------------------------
Manager.
--------
The Board's delegation to the Custodian as Foreign Custody Manager of a
Portfolio shall be effective as of the date of execution of this Amendment and
shall remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty days after receipt by the non-terminating party of such
notice. The provisions of Section 3.3 of this Article 3 shall govern the
delegation to and termination of the Custodian as Foreign Custody Manager of the
Fund with respect to designated countries.
4. Duties of the Custodian with Respect to Property of a Portfolio Held
--------------------------------------------------------------------
Outside the United States.
--------------------------
4.1 Definitions.
------------
Capitalized terms in this Article 4 shall have the following meanings:
6
<PAGE>
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian or a Permissible Foreign Custodian.
"Permissible Foreign Custodian" means any person with whom property of a
Portfolio may be placed and maintained outside of the United States under (i)
section 17(f) or 26(a) of the Investment Company Act of 1940, as amended,
without regard to Rule 17f-5 or (ii) an order of the U.S. Securities and
Exchange Commission.
4.2. Holding Securities.
-------------------
The Custodian shall identify on its books as belonging to a Portfolio the
foreign securities held by each Foreign Sub-Custodian or Foreign Securities
System. The Custodian may hold foreign securities for all of its customers,
including the Portfolio, with any Foreign Sub-Custodian in an account that is
identified as belonging to the Custodian for the benefit of its customers,
provided however, that (i) the records of the Custodian with respect to foreign
securities of the Portfolio which are maintained in such account shall identify
those securities as belonging to the Portfolio and (ii) the Custodian shall
require that securities so held by the Foreign Sub-Custodian be held separately
from any assets of such Foreign Sub-Custodian or of other customers of such
Foreign Sub-Custodian.
4.3. Foreign Securities Systems.
---------------------------
Foreign securities shall be maintained in a Foreign Securities System in a
designated country only through arrangements implemented by the Foreign
Sub-Custodian in such country pursuant to the terms of this Contract.
4.4. Holding of Foreign Assets With Permissible Foreign Custodians.
--------------------------------------------------------------
Subject to the requirements of Sections 17(f) and 26(a) of the Investment
Company Act of 1940, as amended (and any other applicable law or order), the
Custodian may place and maintain Foreign Assets in the care of any Permissible
Foreign Custodian. Article 3 (other than the definitions in Section 3.1) of this
Contract shall not apply to placement of Foreign Assets by the Custodian with a
Permissible Custodian.
4.5. Transactions in Foreign Custody Account.
----------------------------------------
4.5.1. Delivery of Foreign Securities.
-------------------------------
The Custodian or a Foreign Sub-Custodian shall release and deliver foreign
securities of a Portfolio held by such Foreign Sub-Custodian, or in a Foreign
Securities System account,
7
<PAGE>
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with reasonable market practice in the country
where such foreign securities are held or traded, including,
without limitation: (A) delivery against expectation of
receiving later payment; or (B) in the case of a sale effected
through a Foreign Securities System, in accordance with the
rules governing the operation of the Foreign Securities
System;
(ii) in connection with any repurchase agreement related to
foreign securities;
(iii) to the depository agent in connection with tender or other
similar offers for foreign securities of the Portfolio;
(iv) to the issuer thereof or its agent when such foreign
securities are called, redeemed, retired or otherwise become
payable;
(v) to the issuer thereof, or its agent, for transfer into the
name of the Custodian (or the name of the respective Foreign
Sub-Custodian or of any nominee of the Custodian or such
Foreign Sub-Custodian) or for exchange for a different number
of bonds, certificates or other evidence representing the same
aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for
examination or trade execution in accordance with market
custom; provided that in any such case the Foreign
Sub-Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from
the Foreign Sub- Custodian's own negligence or willful
misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities,
the surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts or
temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by
the Fund requiring a pledge of assets by the Portfolio;
8
<PAGE>
(x) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions, a copy of a resolution of the
Board or of an Executive Committee of the Board so authorized
by the Board, signed by an officer of the Fund and certified
by its Secretary or an Assistant Secretary that the resolution
was duly adopted and is in full force and effect (a "Certified
Resolution"), specifying the foreign securities to be
delivered, setting forth the purpose for which such delivery
is to be made, declaring such purpose to be a proper trust or
corporate purpose, as applicable, and naming the person or
persons to whom delivery of such securities shall be made.
4.5.2. Payment of Portfolio Monies.
----------------------------
Upon receipt of Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out, or direct the
respective Foreign Sub-Custodian or the respective Foreign Securities System to
pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio,
unless otherwise directed by Proper Instructions, by (A)
delivering money to the seller thereof or to a dealer therefor
(or an agent for such seller or dealer) against expectation of
receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities
System, in accordance with the rules governing the operation
of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of
foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio
including but not limited to the following payments: interest,
taxes, investment advisory fees, transfer agency fees, fees
under this Contract, legal fees, accounting fees, and other
operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign
exchange contracts for the Portfolio, including transactions
executed with or through the Custodian or its Foreign
Sub-Custodians;
(v) in connection with trading in options and futures contracts,
including delivery as original margin and variation margin;
9
<PAGE>
(vi) in connection with the borrowing/lending of foreign
securities; and
(vii) for any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a Certified Resolution
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring such
purpose to be a proper trust or corporate purpose, as
applicable, and naming the person or persons to whom such
payment is to be made.
4.5.3. Market Conditions.
------------------
Notwithstanding any provision of this Contract to the contrary, settlement and
payment for Foreign Assets received for the account of a Portfolio and delivery
of Foreign Assets maintained for the account of a Portfolio may be effected in
accordance with the customary established securities trading or processing
practices and procedures in the country or market in which the transaction
occurs, including, without limitation, delivering Foreign Assets to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser or
dealer) with the expectation of receiving later payment for such Foreign Assets
from such purchaser or dealer.
4.6. Registration of Foreign Securities.
-----------------------------------
The foreign securities maintained in the custody of a Foreign Custodian (other
than bearer securities) shall be registered in the name of the Fund (on behalf
of the applicable Portfolio) or in the name of the Custodian or in the name of
any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and
the Fund agrees to hold any such nominee harmless from any liability as a holder
of record of such foreign securities. The Custodian or a Foreign Sub-Custodian
shall not be obligated to accept securities on behalf of the Fund (on behalf of
the applicable Portfolio) under the terms of this Contract unless the form of
such securities and the manner in which they are delivered are in accordance
with reasonable market practice.
4.7. Bank Accounts.
--------------
A bank account or bank accounts opened and maintained outside the United States
on behalf of a Portfolio with a Foreign Sub-Custodian shall be subject only to
draft or order by the Custodian or such Foreign Sub-Custodian, acting pursuant
to the terms of this Contract to hold cash received by or from or for the
account of the Portfolio.
4.8. Collection of Income.
---------------------
The Custodian shall use reasonable endeavors to collect all income and other
payments in due course with respect to the Foreign Assets held hereunder to
which a Portfolio shall be entitled and shall credit such income, as collected,
to the Portfolio. In the event that
10
<PAGE>
extraordinary measures are required to collect such income, the Fund and the
Custodian shall consult as to such measures and as to the compensation and
expenses of the Custodian relating to such measures.
4.9. Proxies.
--------
The Custodian will generally with respect to the foreign securities held under
this Article 4 use its reasonable endeavors to facilitate the exercise of voting
and other shareholder proxy rights, subject always to the laws, regulations and
practical constraints that may exist in the country where such securities are
issued. The Fund acknowledges that local conditions, including lack of
regulation, onerous procedural obligations, lack of notice and other factors may
have the effect of severely limiting the ability of the Fund to exercise
shareholder rights.
4.10. Communications Relating to Foreign Securities.
----------------------------------------------
The Custodian shall transmit promptly to the Fund written information
(including, without limitation, pendency of calls and maturities of foreign
securities and expirations of rights in connection therewith) received by the
Custodian via the Foreign Sub- Custodians from issuers of the foreign securities
being held for the account of a Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund written information so
received by the Custodian from issuers of the foreign securities whose tender or
exchange is sought or from the party (or its agents) making the tender or
exchange offer. The Custodian shall not be liable for any untimely exercise of
any tender, exchange or other right or power in connection with foreign
securities or other property of the Portfolio at any time held by it unless (i)
the Custodian or the respective Foreign Sub-Custodian is in actual possession of
such foreign securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least three business days prior to the date on which such
right or power is to be exercised.
4.11. Liability of Foreign Sub-Custodians and Foreign Securities Systems.
-------------------------------------------------------------------
Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian
shall, to the extent possible, require the Foreign Sub-Custodian to exercise
reasonable care in the performance of its duties and, to the extent possible, to
indemnify, and hold harmless, the Custodian from and against any loss, damage,
cost, expense, liability or claim arising out of or in connection with such
Foreign Sub-Custodian's performance of such obligations. At the election of the
Fund, the Fund shall be entitled to be subrogated to the rights of the Custodian
with respect to any claims against a Foreign Sub-Custodian as a consequence of
any such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund and any applicable Portfolio has not been made whole for any such
loss, damage, cost, expense, liability or claim.
11
<PAGE>
4.12. Tax Law.
--------
The Custodian shall have no responsibility or liability for any obligations now
or hereafter imposed on the Fund or the Custodian as custodian of the Portfolios
by the tax law of the United States or of any state or political subdivision
thereof. It shall be the responsibility of the Fund to notify the Custodian of
the obligations imposed on the Fund with respect to the Portfolios or the
Custodian as custodian of such Portfolios by the tax law of countries other than
those mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of countries for which
the Fund has provided such information.
4.13. Liability of Custodian.
-----------------------
Except as may arise from the Custodian's own negligence or willful misconduct or
the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be
without liability to the Fund for any loss, liability, claim or expense
resulting from or caused by anything which is (A) part of Country Risk or (B)
part of the "prevailing country risk" of the Fund and the Portfolios, as such
term is used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as such
term or other similar terms are now or in the future interpreted by the U.S.
Securities and Exchange Commission or by the staff of the Division of Investment
Management of such Securities and Exchange Commission.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian to the same extent as set forth with respect to sub-custodians
generally in the Contract and, regardless of whether assets are maintained in
the custody of a Foreign Sub-Custodian or a Foreign Securities Depository, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency restrictions, or
acts of war or terrorism, or any other loss where the Sub-Custodian has
otherwise acted with reasonable care.
III. Except as specifically superseded or modified herein, the terms and
provisions of the Contract shall continue to apply with full force and
effect. In the event of any conflict between the terms of the Contract
prior to this Amendment and this Amendment, the terms of this Amendment
shall prevail. If the Custodian is delegated the responsibilities of
Foreign Custody Manager pursuant to the terms of Article 3 hereof, in
the event of any conflict between the provisions of Articles 3 and 4
hereof, the provisions of Article 3 shall prevail.
12
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST
COMPANY
(Signature of Glenn Ciotti)
____________________________
Glenn Ciotti By: (Signature of Ronald E. Logue)
______________________________
VP & Assoc. Counsel Name: Ronald E. Logue
Title: Executive Vice President
WITNESSED BY: EACH OF THE ENTITIES SET FORTH ON
ATTACHMENT I TO THE CUSTODIAN
CONTRACT
/s/ Stephanie L. Beckner By:/s/ Mark L. Lipson
- ------------------------- -------------------
Stephanie L. Beckner Name: Mark L. Lipson
Title: Director and President
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C> <C>
Country Subcustodian Non-Mandatory Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der oesterreichischen --
Sparkasen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Ltd. --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan Securities Depository
The Fuji Bank, Limited Center;
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking --
Corporation Limited
Latvia Hansabank --
Lebanon The British Bank of the Middle East Custodian and Clearing Center of Financial
(as delegate of the Hongkong and Instruments for Lebanon (MIDCLEAR) S.A.L.;
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Slovak Republic Ceskoslovenska Obchodna --
Banka A.S.
Slovenia Banka Creditanstalt d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
</TABLE>
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
<TABLE>
<CAPTION>
<S> <C>
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots et
de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil - Camara de Liquidacao de Sao Paulo, (Calispa);
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao Financeira
de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Bulgaria - Central Depository AD
Canada -The Canadian Depository
for Securities Limited; West Canada
Depository Trust Company [depositories
linked]
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing
Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych
papiru(degree) ;
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing, Settlement,
and Central Depository
Estonia - Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository Corporation
Latvia - The Latvian Central Depository
Lebanon -The Central Bank of Lebanon
Lithuania - The Central Securities Depository of Lithuania
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
Systems
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Mauritius -The Central Depository & Settlement
Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
The Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF");
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko
Sentral ng Pilipinas;
-The Registry of Scripless Securities of the
Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Romania -National Securities Clearing, Settlement an
Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pvt.)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia - Klirinsko Depotna Bruzba
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
</TABLE>
Exhibit 99(h)(1)
TRANSFER AGENCY AND SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 4th day of December, 1994, is by and
between NORTHSTAR ADVANTAGE TRUST (the "Fund"), organized under the laws of
Massachusetts and having its principal place of business at Two Pickwick Plaza,
Greenwich, Connecticut 06830 and THE SHAREHOLDER SERVICES GROUP, INC. (the
"Transfer Agent"), a Massachusetts corporation with principal offices at One
Exchange Place, 53 State Street, Boston, Massachusetts 02109.
WITNESSETH
WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund initially intends to offer shares in those Portfolios
identified in the attached Exhibit 1, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Section 16;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint the
Transfer Agent as its transfer agent, dividend disbursing agent and agent in
connection with certain other activities and the Transfer Agent desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and the Transfer Agent agree as follows:
Article 1 Definitions
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to the Transfer Agent from time to time.
(c) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(d) "Commission" shall mean the Securities and Exchange
Commission.
<PAGE>
(e) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(f) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(g) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by the Transfer Agent from a
person reasonably believed by the Transfer Agent to be an Authorized
Person.
(h) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interest in a separate portfolio of
securities and other assets.
(i) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the
Securities Act of 1933 and the 1940 Act.
(j) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(k) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(l) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by the Transfer Agent to be an
Authorized Person and actually received by the Transfer Agent. Written
Instructions shall include manually executed originals and authorized
electronic transmissions, including telefacsimile of a manually
executed original or other process.
Article 2 Appointment of the Transfer Agent
2.1 The Fund, on behalf of the Portfolios, hereby appoints and
constitutes the Transfer Agent as transfer agent and dividend disbursing agent
for Shares of each respective Portfolio of the Fund and as shareholder servicing
agent for the Fund and the Transfer Agent hereby accepts such appointments and
agrees to perform the duties hereinafter set forth.
Article 3 Duties of the Transfer Agent
3.1 The Transfer Agent shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; service agent in connection with dividend and
distribution functions; and for
2
<PAGE>
performing shareholder account and administrative agent functions in
connection with the issuance, transfer and redemption or repurchase
(including coordination with the Custodian) of Shares of each
Portfolio, as more fully described in the written schedule of Duties
of the Transfer Agent annexed hereto as Schedule A and incorporated
herein, and in accordance with the terms of the Prospectus of the Fund
on behalf of the applicable Portfolio, applicable law and the
procedures established from time to time between the Transfer Agent
and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to SEC Rule 17Ad-10(e) a record of the total number of Shares of each
Portfolio which are authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Transfer Agent shall provide the
Fund on a regular basis with the total number of Shares of each
Portfolio which are authorized ad issued and outstanding and shall have
no obligation, when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any laws relating to
the issue or sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(c) Notwithstanding any of the foregoing provisions of this
Agreement, the Transfer Agent shall be under no duty or obligation to
inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares or the sufficiency of the amount to be
received therefor; (ii) the legality of the redemption of any Shares,
or the propriety of the amount to be paid therefor; (iii) the legality
of the declaration of any dividend by the Board of Directors, or the
legality of the issuance of any Shares in payment of any dividend; or
(iv) the legality of any recapitalization or readjustment of the
Shares.
3.2 In addition, the Fund shall (i) identify to the Transfer Agent in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Transfer Agent for the Fund's
blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
resorting of such transactions to the Fund as provided above.
3.3 In addition to the duties set forth herein, the Transfer Agent
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and the Transfer Agent.
Article 4 Recordkeeping and Other Information
4.1 The Transfer Agent shall create and maintain all records required
of it pursuant to its duties hereunder and as set forth in Schedule A in
accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. All records shall be available during
regular business hours for inspection and use by the Fund. Where applicable,
such records shall be maintained by the Transfer Agent for the periods and in
the places required by Rule 31a-2 under the 1940 Act.
3
<PAGE>
4.2 To the extent required by Section 31 of the 1940 Act, the Transfer
Agent agrees that all such records prepared or maintained by the Transfer Agent
relating to the services to be performed by the Transfer Agent hereunder are the
property of the Fund and will be preserved, maintained and made available in
accordance with such section, and will be surrendered promptly to the Fund on
and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund of such request and secure Written Instructions as to the handling of such
request. The Transfer Agent reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be held liable of the failure to comply with such request.
4.4 Upon reasonable notice by the Fund, the Transfer Agent shall make
available during regular business hours such of its facilities and premises
employed in connection with the performance of its duties under this Agreement
for reasonable visitation by the Fund, or any person retained by the Fund as may
be necessary for the Fund to evaluate the quality of the services performed by
the Transfer Agent pursuant hereto.
Article 5 Fund Instructions
5.1 The Transfer Agent will have no liability when acting upon Written
or Oral Instructions believed to have been executed or orally communicated by an
Authorized Person and will not be held to have any notice of any change of
authority of any person until receipt of a Written Instruction thereof from the
Fund. The Transfer Agent will also have no liability when processing Share
certificates which it reasonably believes to bear the proper manual or facsimile
signatures of the officers of the Fund and the proper countersignature of the
Transfer Agent.
5.2 At any time, the Transfer Agent may request Written Instructions
from the Fund and may seek advice from legal counsel for the Fund, or its own
legal counsel, with respect to any matter arising in connection with this
Agreement, and it shall not be liable for any action taken or not taken or
suffered by it is good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for the Transfer Agent.
Written Instructions requested by the Transfer Agent will be provided by the
Fund within a reasonable period of time.
5.3 The Transfer Agent, its officers, agents or employees, shall accept
Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect the Transfer Agent's right
to rely on Oral Instructions.
4
<PAGE>
Article 6 Compensation
6.1 The Fund on behalf of each of the Portfolios will compensate the
Transfer Agent for the performance of its obligations hereunder in accordance
with the fees set forth in the written Fee Schedule annexed hereto as Schedule B
and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses incurred by the Transfer Agent in the performance of
its duties hereunder. Out-of-pocket expenses shall include, but shall not be
limited to, the items specified in the written schedule of out-of-pocket charges
annexed hereto as Schedule C and incorporated herein. Schedule B may be modified
by written agreement between the parties. Unspecified out-of-pocket expenses
shall be limited to those out-of-pocket expenses reasonably incurred by the
Transfer Agent in the performance of its obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios agrees to pay all fees
and out-of-pocket expenses within fifteen (15) days following the receipt of the
respective invoice.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule B, a revised Fee Schedule executed and dated by
the parties hereto.
Article 7 Documents
7.1 In connection with the appointment of the Transfer Agent, the Fund
shall, on or before the date this Agreement goes into effect, but in any case
within a reasonable period of time for the Transfer Agent to prepare to perform
its duties hereunder, deliver or caused to be delivered to the Transfer Agent
the documents set forth in the written schedule of Fund Documents annexed hereto
as Schedule D.
Article 8 Transfer Agent System
8.1 The Transfer Agent shall retain title to and ownership of any and
all data bases, computer programs, screen formats, report formats, interactive
design techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by the Transfer Agent in connection with
the services provided by the Transfer Agent to the Fund herein (the "Transfer
Agent System").
8.2 The Transfer Agent hereby grants to the Fund a limited license to
the Transfer Agent System for the sole and limited purpose of having the
Transfer Agent provide the services contemplated hereunder and nothing contained
in this Agreement shall be construed or interpreted otherwise and such license
shall immediately terminate with the termination of this Agreement.
5
<PAGE>
Article 9 Representations and Warranties of the Transfer Agent
9.1 The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(b) It is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) All requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) It is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement;
(e) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
Article 11 Representations and Warranties of the Fund
11.1 The Fund represents and warrants to the Transfer Agent that:
(a) It is duly organized and existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) It is empowered under applicable laws and by its Articles
of Incorporation and By-Laws and applicable laws to enter into this
Agreement;
(c) All corporate proceedings required by said Articles of
Incorporation, By-Laws and applicable laws have been taken to authorize
it to enter into this Agreement;
(d) A registration statement under the Securities Act of 1933,
as amended on behalf of each of the Portfolios is currently effective
and will remain effective, and all appropriate state securities law
filings have been made and will continue to be made, with respect to
all Shares of the Fund being offered for sale;
(e) All outstanding Shares are validly issued, fully paid and
non-assessable. When Shares are hereafter issued in accordance with the
terms of the Fund's Articles of Incorporation and its Prospectus with
respect to each Portfolio, such Shares shall be validly issued, fully
paid and non-assessable; and
Article 12 Indemnification
6
<PAGE>
12.1 The Transfer Agent shall not be responsible for and the Fund on
behalf of each Portfolio shall indemnify and hold the Transfer Agent harmless
from and against any and all claims, costs, expenses (including reasonable
attorneys' fees), losses, damages, charges, payments and liabilities of any sort
or kind which may be asserted against the Transfer Agent or for which the
Transfer Agent may be held to be liable (a "Claim") arising out of or
attributable to any of the following:
(a) Any actions of the Transfer Agent required to be taken
pursuant to this Agreement unless such Claim resulted from a negligent
act or omission to act or bad faith by the Transfer Agent in the
performance of its duties hereunder.
(b) The Transfer Agent's reasonable reliance on, or reasonable
use of information, data, records and documents (including but not
limited to magnetic tapes, computer printouts, hardcopies and microfilm
copies) received by the Transfer Agent from the Fund, or any authorized
third party acting on behalf of the Fund, including but not limited to
the prior transfer agent for the Fund, in the performance of the
Transfer Agent's duties and obligations hereunder.
(c) The reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio.
(d) The offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state.
(e) The Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
12.2 In any case in which the Fund may be asked to indemnify or hold
the Transfer Agent harmless, the Transfer Agent will notify the Fund promptly
after identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Fund although the failure to do
so shall not prevent recovery by the Transfer Agent and shall keep the Fund
advised with respect to all developments concerning such situation. The Fund
shall have the option to defend the Transfer Agent against any Claim which may
be the subject of this indemnification, and, in the event that the Fund so
elects, such defense shall be conducted by counsel chosen by the Fund and
satisfactory to the Transfer Agent, and thereupon the Fund shall take over
complete defense of the Claim and the Transfer Agent shall sustain no further
legal or other expenses in respect of such Claim. The Transfer Agent will not
confess any Claim or make any compromise in any case in which the Fund will be
asked to provide indemnification, except with the Fund's prior written consent.
The obligations of the parties hereto under this Section shall survive the
termination of this Agreement.
Article 13 Standard of Care
7
<PAGE>
13.1 The Transfer Agent shall at all times act in good faith and agrees
to use its best efforts within commercially reasonable limits to ensure the
accuracy of all services performed under this Agreement, but assume no
responsibility for loss or damage to the Fund unless said errors are caused by
the Transfer Agent's own negligence, bad faith or willful misconduct or that of
its employees.
13.2 Notwithstanding the foregoing Section 12(a) or anything else
contained in this Agreement to the contrary, the Transfer Agent's entire
liability to the Fund for any loss or damage, direct or indirect for any cause
whatsoever (including but not limited to those arising out of this Agreement),
and regardless of the form of action, shall be limited to one million dollars
($1,000,000) per Portfolio (maximum three Portfolios).
Article 14 Consequential Damages
14.1 In no event and under no circumstances shall either party to this
Agreement be liable to the other party for consequential or indirect loss of
profits, reputation or business or any other special damages under any provision
of this Agreement or for any act or failure to act hereunder.
Article 15 Term and Termination
15.1 This Agreement shall be effective on the date first written above
and shall continue for a period of five (5) years (the "Initial Term"), unless
earlier terminated pursuant to the terms of this Agreement. Thereafter, this
Agreement shall automatically be renewed for successive terms of three (3) years
("Renewal Terms") each.
15.2 Either party may terminate this Agreement at the end of the
Initial Term or any subsequent Renewal Term upon not less than ninety (90) days
or more than one-hundred eighty (180) days prior written notice to the other
party.
15.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor transfer agent will be borne by the Fund.
15.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If the Transfer Agent is the Non-Defaulting Party, its
termination of this Agreement shall not constitute a waiver of any other rights
or remedies of the Transfer Agent with respect to services performed prior to
such termination or rights of the Transfer Agent to be reimbursed for
out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party
8
<PAGE>
shall not constitute a waiver by the Non-Defaulting Party or any other rights it
might have under this Agreement or otherwise against the Defaulting Party.
Article 16 Additional Portfolios
16.1 In the event that the Fund establishes and/or advises one or more
Portfolios in addition to those identified in Exhibit 1, with respect to which
the Fund desires to have the Transfer Agent render services as transfer agent
under the terms hereof, the Fund shall so notify the Transfer Agent in writing,
and if the Transfer Agent agrees in writing to provide such services, Exhibit 1
shall be amended to include such additional Portfolios.
Article 17 Confidentiality
17.1 In connection with the services provided by the Transfer
Agent hereunder, certain confidential and proprietary information
regarding the Transfer Agent and the Fund may be disclosed
to the other. In connection therewith, the parties agree as follows:
(a) Confidential Information disclosed under this Agreement shall mean:
(i) any data or information that is competitively sensitive material,
and not generally known to the public, including, but not limited to,
information about product plans, marketing strategies, finance,
operations, customer relationships, customer profiles, sales estimates,
business plans, and internal performance results relating to the past,
present or future business activities of the Transfer Agent or the
Fund, their respective parent corporation, their respective
subsidiaries and affiliated companies and the customers, clients and
suppliers of any of the foregoing;
(ii) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Transfer Agent
or the Fund a competitive advantage over its competitors; and
(iii) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow
charts, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable or copyrightable.
(b) Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment,
prototypes and models, and any other tangible manifestation of the
foregoing which now exist or come into the control or possession of the
party.
17.2 Except as expressly authorized by prior written consent of the disclosing
party ("Discloser"), the party receiving Confidential Information ("Recipient")
shall:
(a) limit access to Discloser's Confidential Information to Recipient's
employees who have a need-to-know in connection with the subject matter
thereof;
9
<PAGE>
(b) advise those employees who have access to the Confidential
Information of the proprietary nature thereof and of the obligations
set forth in this Confidentiality Agreement;
(c) take appropriate action by instruction or agreement with the
employees having access to Discloser's Confidential Information to
fulfill Recipient's obligations under this Confidentiality Agreement;
(d) safeguard all of Discloser's Confidential Information by using a
reasonable degree of care, but not less than that degree of care used
by Recipient in safeguarding its own similar information or material;
(e) use all of Discloser's Confidential Information solely for purposes
that it was intended;
(f) not disclose any of Discloser's Confidential Information to third
parties; and
(g) not disclose the existence of the discussions to any third party.
17.3 Upon Discloser's request, Recipient shall surrender to Discloser
all memoranda, notes, records, drawings, manuals, records, and other documents
or materials (and all copies of same) relating to or containing Discloser's
Confidential Information. When Recipient returns the materials, Recipient shall
certify in writing that it has returned all materials containing or relating to
the Confidential Information.
17.4 The obligations of confidentiality and restriction on use in this
Article 16 shall not apply to any Confidential Information that Recipient
proves:
(a) Was in the public domain prior to the date of this Agreement or
subsequently came into the public domain through no fault of the
Recipient; or
(b) Was lawfully received by Recipient from a third party free of any
obligation of confidence to the third party; or
(c) Was already in Recipient's possession prior to receipt from
Discloser; or
(d) Is required to be disclosed in a judicial or administrative
proceeding after all reasonable legal remedies for maintaining such
information in confidence have been exhausted including, but not
limited to, giving Discloser as much advance notice as practical of the
possibility of disclosure to allow Discloser to stop such discloser or
obtain a protective order concerning such disclosure; or
(e) Is subsequently and independently developed by Recipient's
employees, consultants or agents without reference to Confidential
Information.
10
<PAGE>
17.5 The Fund and the Transfer Agent agree that money damages would not
be a sufficient remedy for breach of this Section 17. Accordingly, in addition
to all other remedies that either party may have, a party shall be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any breach of this Agreement. The parties agree to waive any requirement for a
bond in connection with any such injunctive or other equitable relief.
Article 18 Force Majeure
18.1 In the event either party is unable to perform its obligations
under the terms of this Agreement because of acts of God, strikes, labor
difficulties, mechanical breakdowns, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
Article 19 Amendments
19.1 This Agreement may only be amended or modified by a written
instrument executed by both parties.
Article 20 Subcontracting
20.1 The Fund agrees that the Transfer Agent may, in its discretion,
subcontract for certain of the services described under this Agreement or the
Schedules hereto; provided that the appointment of any such Transfer Agent shall
not relieve the Transfer Agent of its responsibilities hereunder.
Article 21 Arbitration
21.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in Boston, Massachusetts in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
21.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
21.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Section 20.
Article 22 Notice
11
<PAGE>
22.1 Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Fund or the Transfer Agent, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Northstar Advantage Trust
Two Pickwick Plaza
Greenwich, Connecticut 06830
Attention: Mr. Mark Lipson, President
To the Transfer Agent:
The Shareholder Services Group, Inc.
One Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: President
with a copy to the Transfer Agent's General Counsel
Article 23 Successors
23.1 This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns, provided, however,
that this Agreement shall not be assigned to any person other than a person
controlling, controlled by or under common control with the assignor without the
written consent of the other party, which consent shall not be unreasonably
withheld.
Article 24 Governing Law
24.1 This Agreement shall be governed exclusively by the laws of the
Commonwealth of Massachusetts without reference to the choice of law provisions
thereof. Each party hereto hereby (i) consents to the personal jurisdiction of
the Commonwealth of Massachusetts courts over the parties hereto, hereby waiving
any defense of lack of personal jurisdiction; and (iii) appoints the person to
whom notices hereunder are to be sent as agent for service of process.
Article 25 Counterparts
25.1 this Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original; but such counterparts shall,
together, constitute only one instrument.
12
<PAGE>
Article 26 Captions
26.1 The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 27 Use of Transfer Agent/Fund Name
27.1 The Fund shall not use the name of the Transfer Agent in any
Prospectus, Statement of Additional Information, Shareholder's report, sales
literature or other material relating to the Fund in a manner not approved prior
thereto in writing; provided, that the Transfer Agent need only receive notice
of all reasonable uses of its name which merely refer in accurate terms to its
appointment hereunder or which are required by any government agency or
applicable law or rule.
27.2 The Transfer Agent shall not use the name of the Fund or material
relating to the Fund on any documents or forms for other than internal use in a
manner not approved prior thereto in writing; provided, that the Fund need only
receive notice of all reasonable uses of its name which merely refer in accurate
terms to the appointment of the Transfer Agent or which are required by any
government agency or applicable law or rule.
Article 28 Relationship of Parties
28.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 29 Entire Agreement; Severability
29.1 This Agreement and the Schedules attached hereto constitute the
entire agreement of the parties hereto relating to the matters covered hereby
and supersede any previous agreements. If any provision is held to be illegal,
unenforceable or invalid for any reason, the remaining provisions shall not be
affected or impaired thereby.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
NORTHSTAR ADVANTAGE TRUST:
By:______________________________
Title:_____________________________
THE SHAREHOLDER SERVICES GROUP, INC.:
By:______________________________
Title:_____________________________
14
<PAGE>
EXHIBIT 1
Northstar Advantage Income and Growth Fund (A, B, C)
Northstar Advantage Multi-Sector Bond Fund (A, B, C)
Northstar Advantage High Total Return Fund (A, B, C)
15
<PAGE>
SCHEDULE A
DUTIES OF THE TRANSFER AGENT
1. Shareholder Information. The Transfer Agent shall maintain a record
of the number of Shares held by each Shareholder of record which shall include
name, address, taxpayer identification and which shall indicate whether such
Shares are held in certificates or uncertificated form.
2. Shareholder Services. The Transfer Agent shall respond as
appropriate to all inquiries and communications from Shareholders relating to
Shareholder accounts with respect to its duties hereunder and as may be from
time to time mutually agreed upon between the Transfer Agent and the Fund.
3. Share Certificates.
(a) At the expense of the Fund, the Fund shall supply the
Transfer Agent with an adequate supply of blank share certificates to meet the
Transfer Agent requirements therefor. Such Share certificates shall be properly
signed by facsimile. The Fund agrees that, notwithstanding the death,
resignation, or removal of any officer of the Fund whose signature appears on
such certificates, the Transfer Agent or its agent may continue to countersign
certificates which bear such signatures until otherwise directed by Written
Instructions.
(b) The Transfer Agent shall issue replacement Share
certificates in lieu of certificates which have been lost, stolen or destroyed,
upon receipt by the Transfer Agent of properly executed affidavits and lost
certificate bonds, in form satisfactory to the Transfer Agent, with the Fund and
the Transfer Agent as obligees under the bond.
(c) The Transfer Agent shall also maintain a record of each
certificate issued, the number of Shares represented thereby and the Shareholder
of Record. With respect to Shares held in open accounts or uncertificated form
(i.e., no certificate being issued with respect thereto) the Transfer Agent
shall maintain comparable records of the Shareholders thereof, including their
names, addresses and taxpayer identification. The Transfer Agent shall further
maintain a stop transfer record on lost and/or replaced certificates.
4. Mailing Communications to Shareholders; Proxy Materials. The
Transfer Agent will address and mail to Shareholders of the Fund, all reports to
Shareholders, dividend and distribution notices and proxy material for the
Fund's meetings of Shareholders. In connection with meetings of Shareholders,
the Transfer Agent will prepare Shareholder lists, mail and certify as to the
mailing of proxy materials, process and tabulate returned proxy cards, report on
proxies voted prior to meetings, act as inspector of election at meetings and
certify Shares voted at meetings.
16
<PAGE>
5. Sales of Shares
(a) The Transfer Agent shall not be required to issue any
Shares of the Fund where it has received a Written Instruction from the Fund or
official notice from any appropriate authority that the sale of the Shares of
the Fund has been suspended or discontinued. The existence of such Written
Instructions or such official notice shall be conclusive evidence of the right
of the Transfer Agent to rely on such Written Instructions or official notice.
(b) In the event that any check or other order for the payment
of money is returned unpaid for any reason, the Transfer Agent will endeavor to:
(i) give prompt notice of such return to the Fund or its disignee; (ii) place a
stop transfer order against all Shares issued as a result of such check or
order; and (iii) take such actions as the Transfer Agent may from time to time
deem appropriate.
6. Transfer and Repurchase
(a) The Transfer Agent shall process all requests to transfer
or redeem Shares in accordance with the transfer or repurchase procedures set
forth in the Fund's Prospectus.
(b) The Transfer Agent will transfer or repurchase Shares upon
receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus
and Share certificates, if any, properly endorsed for transfer or redemption,
accompanied by such documents as the Transfer Agent reasonably may deem
necessary.
(c) The Transfer Agent reserves the right to refuse to
transfer or repurchase Shares until it is satisfied that the endorsement on the
instructions is valid and genuine. The Transfer Agent also reserves the right to
refuse to transfer or repurchase Shares until it is satisfied that the requested
transfer or repurchase is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or repurchases which the
Transfer Agent, in its good judgment, deems improper or unauthorized, or until
it is reasonably satisfied that there is no basis to any claims adverse to such
transfer or repurchase.
(d) When Shares are redeemed, the Transfer Agent shall, upon
receipt of the instructions and documents in proper form, deliver to the
Custodian and the Fund or its designee a notification setting forth the number
of Shares to be repurchased. Such repurchased shares shall be reflected on
appropriate accounts maintained by the Transfer Agent reflecting outstanding
Shares of the Fund and Shares attributed to individual accounts.
(e) The Transfer Agent, upon receipt of the monies paid to it
by the Custodian for the repurchase of Shares, pay such monies as are received
from the Custodian, all in accordance with the procedures described in the
written instruction received by the Transfer Agent from the Fund.
17
<PAGE>
(f) The Transfer Agent shall not process or effect any
repurchase with respect to Shares of the Fund after receipt by the Transfer
Agent or its agent of notification of the suspension of the determination of the
net asset value of the Fund.
7. Dividends
(a) Upon the declaration of each dividend and each capital
gains distribution by the Board of Directors of the Fund with respect to Shares
of the Fund, the Fund shall furnish or cause to be furnished to the Transfer
Agent Written Instructions setting forth the date of the declaration of such
dividend or distribution, the ex-dividend date, the date of payment thereof, the
record date as of which Shareholders entitled to payment shall be determined,
the amount payable per Share to the Shareholders of record as of that date, the
total amount payable to the Transfer Agent on the payment date and whether such
dividend or distribution is to be paid in Shares at net asset value.
(b) On or before the payment date specified in such resolution
of the Board of Directors, the Fund will pay to the Transfer Agent sufficient
cash to make payment to the Shareholders of record as of such payment date.
(c) If the Transfer Agent does not receive sufficient cash
from the Fund to make total dividend and/or distribution payments to all
Shareholders of the Fund as of the record date, the Transfer Agent will, upon
notifying the Fund, withhold payment to all Shareholders of record as of the
record date until sufficient cash is provided to the Transfer Agent.
8. In addition to and neither in lieu nor in contravention of the
services set forth above, the Transfer Agent shall: (i) perform all the
customary services of a transfer agent, registrar, dividend disbursing agent and
agent of the dividend reinvestment and cash purchase plan as described herein
consistent with those requirements in effect as at the date of this Agreement.
The detailed definition, frequency, limitations and associated costs (if any)
set out in the attached fee schedule, include but are not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting lists,
mailing proxies, tabulating proxies, mailing Shareholder reports to current
Shareholders, withholding taxes on U.S. resident and non-resident alien accounts
where applicable, preparing and filing U.S. Treasury Department Forms 1099 and
other appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders.
18
<PAGE>
SCHEDULE B
FEE SCHEDULE
The fees set forth herein shall apply jointly to each of the mutual funds
sponsored, managed or advised by Northstar Investment Management Corporation or
its affiliates (collectively, the "Funds") that have appointed The Shareholder
Services Group, Inc. ("TSSG") as transfer agent.
I. Fees
Class A, B, C
With respect to Class A, B, and C Shares, the Funds shall jointly pay TSSG an
annualized fee as detailed below.
ASSET LEVEL NETWORK LEVEL III ASSETS NON-NETWORKED ASSETS
1st 500 million 12.5 b.p. 15.0 b.p.
Next 500 million 11.0 b.p. 13.5 b.p.
Next 500 million 9.5 b.p. 12.0 b.p.
Over 1.5 billion 8.0 b.p. 10.5 b.p.
TSSG's fees will be discounted to a rate of 12.0 b.p. on all assets until
12/3/95.
After 12/3/95, asset based breakpoints will be applied specifically to each
asset category (re: networked vs. non-networked).
TSSG's fees shall be billed by TSSG monthly in arrears on a prorated basis of
1/12 of the annualized fee based on average net assets for the month in each
category (i.e. networked vs. non-networked).
Class T
With respect to Class T shares, the Funds shall jointly pay TSSG an annualized
fee as detailed below.
o Actual fees will be determined based on final approval of TSSG's Fees
by the Funds' board. The Funds will provide TSSG with the portion of
the minutes of the board meeting applicable to the fee discussion.
However, in no instance will fees fall below the current level of:
Strategic Income $8.00
Government Securities $8.00
High Yield Bond $8.00
19
<PAGE>
Income Fund $6.75
Growth Fund $6.75
Special Fund $6.75
o A separate Sub Transfer Agency agreement will be executed between TSSG
and Advest Transfer Services, Inc. TSSG will pay Advest Transfer
Services, Inc. $3.00 per internal account and $6.00 per external
account, payable annually for each position held by them.
o TSSG's fees shall be billed by TSSG monthly in arrears on a prorated
basis of 1/12 of the annualized fee based on number of open accounts
per Fund.
II. Retirement Plan Fees
o The Funds shall also pay TSSG an annual per account charge for each
retirement account maintained by TSSG at a rate of $10.00 per account
number. Specifically, if a shareowner maintains a retirement account
with the same account number across multiple Funds, TSSG will be paid
$10.00
III. Start-up Costs
o TSSG will provide a reconciliation of the remaining start-up costs
(total cost $253,000) by December 11, 1995.
o Since Funds have moved their fund accounting business to TSSG, TSSG
will forgive $75,000 of the $253,000 conversion costs.
o The reconciliation will reflect actual revenues generated in year one
(12/4/94-12/3/95) as a result of two increases to the basis point
agreement as noted below:
1. 7.5 b.p. to 10 b.p. (Offset start-up costs)
2. 10 b.p. to 12 b.p. (Cover conversion payment)
o If the Funds (excluding Class T shares) collectively achieve an average
asset balance of $350 M for year one (12/4/94-12/3/95), TSSG will
forgive up to a maximum of 25% of the remaining start-up costs.
o If the Funds (excluding Class T shares) collectively achieve an average
asset balance of less than $350 M for year one (12/4/94-12/3/95), TSSG
will forgive a pro rata portion of the year one maximum forgiveness.
o The Funds will have a one-time option, exercisable by December 15,
1995, to split the remaining start-up costs evenly with TSSG. Payment
must be made in full by December 29, 1995.
20
<PAGE>
o In the event the Funds elect not to exercise the one-time option, the
remaining start-up costs will be amortized equally over the next three
years. Reimbursement will be forgiven on each anniversary date of
conversion, if the Funds collectively achieve the following average
asset balances for the prior year (excluding Class T asset balances):
December 4, 1996 500m
December 4, 1997 750m
December 4, 1998 1,000m
The forgiveness in any year will not exceed 25% of the remaining start-up costs.
In any year that target asset levels are not achieved, a pro rata portion of the
maximum forgiveness will be applied.
An example of the reconciliation is attached as part of this Schedule B Fee
Schedule.
21
<PAGE>
RECONCILIATION EXAMPLE
NORTHSTAR START-UP COSTS
Conversion Cost $203,500
Conversion Payment 49,500
--------
Total $253,000
Fund Accounting Credit ($75,000) Converted by 12/4/95
*2.5 BP (First Year) ($60,500) (Estimated Flat Assets)
*2.0 BP (First Year) ($48,400) (Estimated Flat Assets)
---------
$69,100 Remaining
* To be recalculated based on actual revenue/assets on 12/4/95.
ASSUMPTIONS EXAMPLE 1
- - Assume balance remaining of $60,000 as of 12/4/95.
- - Assume Average Assets in Year One exceed $350M.
- - TSSG would forgive 25% of start-up costs ($15,000) per original Agreement.
- - Leaving balance of $45,000, which Northstar could either:
1. Pay 1/2 ($22,400) prior to 12/29/95 as payment in full, or
2. Defer remainder of reimbursement based on future year asset
targets.
EXAMPLE 1
Remaining Balance $60,000
Average Assets Year One >$350M
Forgiveness ($15,000)
Balance Due $45,000
One-time Split Option $22,500
Note: Actual reimbursement will be based on actual results from 12/4/94 through
12/3/95.
22
<PAGE>
ASSUMPTIONS EXAMPLE 2
- - Assume balance remaining of $60,000 as of 12/4/95.
- - Assume Average Assets in Year One do not exceed $350M target.
- - Assume aggregate assets are $325M.
- - TSSG would forgive 92.8% of 1/4 of start-up costs.
- - Leaving balance of $46,080, which Northstar could either:
1. Pay 1/2 ($23,040) prior to 12/29/95 as payment in full, or
2. Pay difference between Year One maximum forgiveness and pro
rata forgiveness based on asset levels achieved. Then defer
remainder of reimbursement based on future year asset level
targets.
EXAMPLE 1
Remaining Balance $60,000
Average Assets Year One $325M (<$350)
Year One Forgiveness ($13,920) (92.8% of $15,000)
Balance Due $46,080
One-time Split Option $23,040
or
Year One Payment $1,080 (15,000 - 13,920)
Note: Actual reimbursement will be based on actual results from 12/4/94 through
12/3/95.
23
<PAGE>
SCHEDULE C
OUT-OF-POCKET EXPENSES
The Fund shall reimburse the Transfer Agent monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and
stationery
- Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct
pass though to the Fund
- Due diligence mailings
- Telephone and telecommunication costs, including all lease,
maintenance and line costs
- Ad hoc reports
- Proxy solicitations, mailings and tabulations
- Daily & Distribution advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end form production and mailings
- Terminals, communication lines, printers and other equipment and
any expenses incurred in connection with such terminals and lines
- Duplicating services
- Courier services
- Incoming and outgoing wire charges
- Federal Reserve charges for check clearance
- Overtime, as approved by the Fund
- Temporary staff, as approved by the Fund
- Travel and entertainment, as approved by the Fund
- Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
- Third party audit reviews
- All conversion costs: including System start up costs
- All Systems enhancements after the conversion at the rate of $95.00
per hour
- Insurance
- Such other miscellaneous expenses reasonably incurred
by the Transfer Agent in performing its duties an
responsibilities under this Agreement.
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agree with the Transfer Agent. In addition, the
Fund will promptly reimburse the Transfer Agent for any other unscheduled
expenses incurred by the Transfer Agent whenever the Fund and the Transfer Agent
mutually agree that such expenses are not otherwise properly borne by the
Transfer Agent as part of its duties and obligations under the Agreement.
24
<PAGE>
SCHEDULE D
FUND DOCUMENTS
- Certified copy of the Articles of Incorporation of the Fund,
as amended
- Certified copy of the By-laws of the Fund, as amended
- Copy of the resolution of the Board of Directors authorizing
the execution and delivery of this Agreement
- Specimens of the certificates for Shares of the Fund, if
applicable, in the form approved by the Board of Directors of
the Fund, with a certificate of the Secretary of the Fund as
to such approval
- All account application forms and other documents relating to
Shareholder accounts or to any plan, program or service
offered by the Fund
- Certified list of Shareholders of the Fund with the name,
address and taxpayer identification number of each
Shareholder, and the number of Shares of the Fund held by
each, certificate numbers and denominations (if any
certificates have been issued), lists of any accounts against
which stop transfer orders have been placed, together with the
reasons therefore, and the number of Shares redeemed by the
Fund
- All notices issued by the Fund with respect to the Shares in
accordance with and pursuant to the Articles of Incorporation
or By-laws of the Fund or as required by law and shall perform
such other specific duties as are set forth in the Articles of
Incorporation including the giving of notice of any special or
annual meetings of shareholders and any other notices required
thereby.
25
AMENDED AND RESTATED
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
FOR
NORTHSTAR FUNDS
NORTHSTAR TRUST
AND
NORTHSTAR EQUITY TRUST
I. INTRODUCTION
The Northstar Funds and the Northstar Trust hereby adopt this Multiple
Class Plan (the "Plan") pursuant to Rule 18f-3 under the Investment
Company Act of 1940 (the "1940 Act") on behalf of the current series of
The Northstar Funds: Northstar Special Fund, Northstar Growth Fund,
Northstar Balance Sheet Opportunities Fund, Northstar Government
Securities Fund, Northstar Strategic Income Fund, and Northstar High Yield
Fund; the current series of the Northstar Trust: Northstar Income and
Growth Fund, Northstar High Total Return Fund, Northstar High Total Return
Fund II, Northstar Growth + Value Fund, Northstar International Fund, and
Northstar Emerging Markets Fund; the current series of Northstar Equity
Trust: Northstar Mid-Cap Growth Fund; and any series that may be
established in the future (referred to herein collectively as the "Funds"
and individually as a "Fund").
II. MULTIPLE CLASS STRUCTURE
Each of the Funds continuously offers three classes of shares: "Class A
Shares," "Class B Shares" and "Class C Shares." Northstar Growth Fund,
Northstar Special Fund and Northstar Mid-Cap Growth Fund also offer a
fourth class of shares designated "Class I Shares." In addition, prior to
June 5, 1995, the Northstar Special Fund, Northstar Growth Fund, Northstar
Balance Sheet Opportunities Fund, Northstar Government Securities Fund,
Northstar Strategic Income Fund and Northstar High Yield Fund each offered
only one class of shares, which is currently designated as "Class T
shares." Class T shares are no longer offered for sale by the Funds,
except in connection with reinvestment of dividends and other
distributions, upon exchanges of Class T shares of another Fund, and upon
exchange of shares from the Class T Account of The Cash Management Fund of
Salomon Brothers Investment Series (the "Money Market Portfolio").
Shares of each class of a Fund shall represent an equal pro rata interest
in such Fund and, generally, shall have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a)
each class shall have a different designation; (b) each class shall bear
any Class Expenses, as defined in Section C below; and (c) each class
shall have exclusive voting rights on any matter submitted to shareholders
that relates solely to its distribution arrangement and each class shall
have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other
class. In addition, Class A, Class B, Class C, Class I and Class T shares
shall have the features described below.
A. Sales Charge Structure
(1) Class A Shares. Class A shares of a Fund shall be offered at
net asset value plus an initial sales charge. The front-end
sales charge shall be in such amount as is disclosed in the
Funds' prospectus or supplements thereto and shall be subject
to reductions for larger purchases and such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto. Class A shares generally shall not be
subject to a contingent deferred sales charge; however, a
contingent deferred sales charge in such amount as may be
described in the Funds' prospectus or supplements thereto may
be imposed on redemptions of Class A shares acquired in a
purchase of over a million dollars that are redeemed within 18
months of their purchase. Additional contingent deferred sales
charges may be imposed in such other cases as the Board may
approve and as are disclosed in the Funds' prospectus or
supplements thereto.
(2) Class B Shares. Class B shares of a Fund shall be offered at
net asset value without the imposition of an initial sales
charge. A contingent deferred sales charge in such amount as
is described in the Funds' prospectus or supplements thereto
shall be imposed on Class B shares, subject to such waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto.
(3) Class C Shares. Class C shares of a Fund shall be offered at
net asset value without the imposition of a sales charge at
the time of purchase. A contingent deferred sales charge in
such amount as is described in the Funds' prospectus or
supplements thereto shall be imposed on redemptions of Class C
shares made within one year from the first day of the month
after purchase, subject to waivers or reductions as are
disclosed in the Funds' prospectus or supplements thereto.
(4) Class I Shares. Class I shares are offered to certain
institutional investors without the imposition of an initial
sales charge or a contingent deferred sales charge.
(4) Class T Shares. Class T shares are no longer offered for sale
by the Funds but may be obtained pursuant to the methods
described above. A contingent deferred sales charge in such
amount as is described in the Funds' prospectus or supplements
thereto shall be imposed on redemptions of Class T shares made
within four years after their purchase, subject to waivers or
reductions as are disclosed in the Funds' prospectus or
supplements thereto.
B. Service and Distribution Plans
Each Fund has adopted a 12b-1 plan for each class of shares of that
Fund (other than Class I Shares of the Northstar Growth Fund) with
the following terms:
(1) Class A Shares. Class A shares of each Fund, shall pay
Northstar Distributors, Inc. (the "Underwriter") 0.25%
annually of the average daily net assets of each Fund's Class
A shares for service activities, as defined in the rules of
the National Association of Securities Dealers, and 0.05%
annually of the average daily net assets of each Fund's Class
A shares for distribution activities.
(2) Class B Shares. Class B shares of each Fund, shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class B shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class B shares for distribution activities.
(3) Class C Shares. Class C shares of each Fund shall pay the
Underwriter 0.25% annually of the average daily net assets of
each Fund's Class C shares for service activities, as defined
in the rules of the National Association of Securities
Dealers, and 0.75% annually of the average daily net assets of
each Fund's Class C shares for distribution activities.
(4) Class I Shares. Class I shares of each Fund pay no service or
distribution fees.
(5) Class T Shares. Class T shares of the Northstar Growth Fund,
Northstar Special Fund and Northstar Strategic Income Fund
shall pay the Underwriter 0.95% annually of the average daily
net assets of those Funds' Class T shares; Class T shares of
the Northstar Balance Sheet Fund shall pay the Underwriter
0.75% annually of the average daily net assets of that Fund's
Class T shares; and the Northstar Government Securities Fund
and Northstar High Yield Fund shall pay 0.65% of the average
daily net assets of those Funds' Class T shares. In each case,
0.25% of the average daily net assets of each Fund's Class T
shares, which is paid annually to the Underwriter pursuant to
the 12b-1 plans, shall be allocated to pay for service
activities, as defined in the rules of the National
Association of Securities Dealers, with the remainder
allocated toward payment for distribution activities.
C. Allocation of Income and Expenses
(1) The gross income of each Fund shall, generally, be allocated
to each class on the basis of net assets. To the extent
practicable, certain expenses (other than Class Expenses as
defined below which shall be allocated more specifically)
shall be subtracted from the gross income on the basis of the
net assets of each class of each Fund.
These expenses include:
(a) Expenses incurred by each Trust (for example, fees of
Trustees, auditors and legal counsel) not attributable
to a particular Fund or to a particular class of shares
of a Fund ("Trust Expenses"); and
(b) Expenses incurred by a Fund not attributable to any
particular class of the Fund's shares (for example,
advisory fees, custodial fees, or other expenses
relating to the management of the Fund's assets) ("Fund
Expenses").
(2) Expenses attributable to a particular class ("Class Expenses")
shall be limited to: (i) payments made pursuant to a 12b-1
plan; (ii) transfer agency fees and expenses, including any
expenses of broker-dealers and other third parties providing
shareholder services to shareholders of a specific class;
(iii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders of a specific
class; (iv) Blue Sky registration fees incurred by a class;
(v) SEC registration fees incurred by a class; (vi) the
expense of administrative personnel and services to support
the shareholders of a specific class; (vii) litigation or
other legal expenses relating solely to one class; and (viii)
Trustees' fees incurred as a result of issues relating to one
class. Expenses in category (i) and (ii) above must be
allocated to the class for which such expenses are incurred.
All other "Class Expenses" listed in categories (iii)-(viii)
above may be allocated to a class but only if the President
and Treasurer have determined, subject to Board approval or
ratification, which of such categories of expenses will be
treated as Class Expenses, consistent with applicable legal
principles under the Act and the Internal Revenue Code of
1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each
class of shares depending on the nature of the expense item.
Trust Expenses and Fund Expenses will be allocated among the
classes of shares based on their relative net asset values.
Approved Class Expenses shall be allocated to the particular
class to which they are attributable.
In the event a particular expense is no longer reasonably
allocable by class or to a particular class, it shall be
treated as a Trust Expense or Fund Expense, and in the event a
Trust Expense or Fund Expense becomes allocable at a different
level, including as a Class Expense, it shall be so allocated,
subject to compliance with Rule 18f-3 and to approval or
ratification by the Board of Trustees.
The initial determination of expenses that will be allocated
as Class Expenses and any subsequent changes thereto shall be
reviewed by the Board of Trustees and approved by such Board
and by a majority of the Trustees who are not "interested
persons," as defined in the 1940 Act.
D. Exchange Privileges. Shareholders may exchange shares of a Fund for
the same class of shares of another Fund or for shares of the Money
Market Portfolio except that Class I Shares of the Growth Fund do
not provide for any exchange privileges.
Shareholders of a class who exchange shares of a Fund for shares of
the Money Market Portfolio may only exchange shares of the Money
Market Portfolio for shares of another Fund in the same class as the
shareholder originally held. Exchanges are effected at net asset
value per share next computed following receipt of a properly
executed exchange request, without a sales charge, provided,
however, that in the case of a exchanges into Class A shares of a
Fund after a direct purchase into the Money Market Portfolio, the
applicable sales charge shall be imposed. Collection of the
contingent deferred sales charge shall be deferred on shares subject
to a charge that are exchanged for shares of the same class of
another Fund, or converted to shares of the Money Market Portfolio.
Under these circumstances, the combined holding period of shares in
each Fund or in a Fund and the Money Market Portfolio, shall be used
to calculate the conversion period discussed below, if applicable,
and to determine the deferred sales charge due upon redemption. Each
Fund reserves the right to terminate or modify its exchange
privileges at any time.
E. Conversion Features. Class B and Class T shares automatically
convert to Class A shares after eight years from purchase in the
case of Class B shares, and on the later of May 31, 1998 or eight
years after purchase in the case of Class T shares.
For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and distributions paid in
respect of Class B or Class T shares in a shareholder's Fund account
will be considered to be held in a separate subaccount. Each time
any Class B or Class T shares in the shareholder's Fund account
(other than those in the subaccount) convert to Class A, an equal
pro rata portion of the Class B or Class T shares in the subaccount
will also convert to Class A.
Shares shall be converted at the relative net asset values of the
two classes without the imposition of a sales charge, fee or other
charge. If the amount of Class A 12b-1 expenses of any Fund is
increased materially without the approval of the Class B and Class T
shareholders, any conversion will only take place in a manner
permitted by Rule 18f-3.
F. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser, by the Underwriter or any other provider
of services to the Funds without the prior approval of the Board of
Trustees.
III. BOARD REVIEW
A. Initial Approval
The Board of Trustees, including a majority of the Trustees who are
not "interested persons" of the Funds and the Trusts as defined in
the 1940 Act, initially approved the Plan, with regard to the Funds
and classes thereof that were offered at the time, on October 29,
1996, and approved this amended and restated Plan on July 29, 1998.
These approvals were based on a determination that the Plan,
including the expense allocation, is in the best interests of each
class and Fund individually and of the Trusts. Their determination
was based on their review of information furnished to them which
they deemed reasonably necessary and sufficient to evaluate the
Plan.
B. Approval of Amendments
The Plan may not be amended materially unless the Board of Trustees,
including a majority of the Trustees who are not "interested
persons" of the Funds and the Trusts as defined in the 1940 Act,
have found that the proposed amendment, including any proposed
related expense allocation, is in the best interests of each class
and Fund individually and of the Trusts. Such finding shall be based
on information requested by the Board and furnished to them which
the Board deems reasonably necessary to evaluate the proposed
amendment.
C. Periodic Review
The Board shall review reports of expense allocations and such other
information as they request at such times, or pursuant to such
schedule, as they may determine consistent with applicable legal
requirements.
IV. MISCELLANEOUS
A. Limitation of Liability
The Board of Trustees and the shareholders of each Fund shall not be
liable for any obligations of the Trusts or any Fund under this
Plan, and the Underwriter or any other person, in asserting any
rights or claims under this Plan, shall look only to the assets and
property of the Trusts or such Funds in settlement of such right or
claim, and not to such Trustees or shareholders.
IN WITNESS WHEREOF, the Trusts, on behalf of the Funds, have adopted this
amended and restated Multiple Class Plan as of the ____ day of _________, 1998.
NORTHSTAR FUNDS
NORTHSTAR TRUST
NORTHSTAR EQUITY TRUST
By:
------------------------------
Title: Vice President and
Treasurer
