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NORTHSTAR
EQUITY TRUST
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1998
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NORTHSTAR EQUITY TRUST
ANNUAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
---------
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MARK L. LIPSON
Dear Shareholders:
We are pleased to provide you with the annual report of the Northstar Equity
Trust for the year ended December 31, 1998. We are gratified with your decision
to entrust your assets to the Northstar Equity Trust and are confident that we
can assist you in reaching your financial objectives. Our goal is to provide
you with long term consistent and superior results through fundamental
research, analysis, and traditional investment disciplines. Following this
letter is a summary of the results of the Northstar Mid-Cap Growth Fund by Mary
Lisanti, Chief Investment Officer -- Equities and co-manager of the Fund. We
hope you will find this informative.
The past year saw significant turmoil in the financial markets. While the U.S.
equity market started off the year strongly, it experienced its most
significant correction since 1990 in the late summer/ early fall as the
default of Russia, worries about passage of a Japanese banking reform bill, and
concern over the possible impeachment of the U.S. President weighed heavily on
investor psychology. The bond market also experienced significant dislocations
as the global uncertainty caused a flight to quality and Treasury bonds rallied
strongly while high yield debt dropped sharply. A continued drop in commodity
prices combined with continued decline in the Asian economies and excess
productive capacity there gave rise to fears of the worst of economic scenarios
- -- a global economic slowdown combined with a downward deflationary spiral. The
overleverage at Long Term Capital and other hedge funds led to a severe
liquidity crunch and shook confidence in the stability of our banks. The
aggressive Fed easing in the wake of the Long Term Capital bailout reversed
investor psychology early in the fourth quarter and stocks staged a strong
rally. The S&P 500 returned 28.6% for the year, its fourth year of over 21%
gains -- a phenomenon last experienced in the 1950s -- while the NASDAQ
returned 39.7% for the year.
Fears of the worst of all economic scenarios proved to be unfounded in 1998.
The turmoil in Asia had minimal impact on our exports and was of great benefit
to the consumer, as we are a big importer of Asian goods. As a result, U.S. GDP
continued to grow strongly in 1998, advancing at about a 3% rate, while
inflation continues at a low level -- about 1.5% -- and employment continues
to be strong. However, the impact of the continuing slowdown in Asia began to
be seen on global economic growth and corporate profits in the second half of
the year. While the S&P 500 experienced a double-digit correction, many other
asset classes, such as smaller and mid-capitalization equity issues and high
yield issues, experienced corrections much more severe in size and scope as
investors sought safe havens. While we saw a rebound in the equity classes in
the fourth quarter, many smaller and mid-capitalization issues still stand at
significant valuation discounts to the larger S&P 500 equities, and the same
holds true for corporate and high-yield bond spreads relative to Treasury
bonds.
We believe the investment environment may continue to be volatile in 1999.
While concerns remain that the U.S. economy may slow as we move through 1999,
since the default of Russia at the end of August we have seen 68 interest rate
cuts globally as central banks' policies have shifted from containing inflation
to fostering economic growth. It appears that while Asian economies are
stabilizing, South America appears to be at some risk of economic turmoil as
Brazil devalues. Since South America is one of our biggest trading partners,
accounting for approximately 21% of our trade, a sharp slowdown in that part of
the world might have a negative impact on our economic growth in 1999. The
advent of the Euro and the accelerating deregulation in Europe, while it
creates great opportunity, also creates some uncertainty as it is the first
time that Europe has attempted a unified currency. Domestically, we began the
first impeachment trial of a sitting President in over 130 years. While
concerns over profit growth remain, the global slowdown we have experienced
over the past year has led to declining operating profits from the S&P 500
companies and a new round of layoffs and cost-cutting -- indeed, in 1998
layoffs were at record levels. This implies that we will see a bottom in profit
growth for the S&P 500 sometime in the next several quarters. Certain sectors
of the economy, such as technology, appear to have already seen the trough in
profits.
Although volatility may continue to be higher than average, we believe the
worst of the liquidity crisis may be behind us. The longer-term investment
environment continues to be favorable. Although valuations remain at high
levels, they are supported by very strong fundamentals. All throughout this
decade, U.S. corporations have improved their efficiency and profitability by
strategic investments in productivity improving technology, and that trend has
continued as we look to 1999. The replacement of human labor with technology
appears to be mildly deflationary, which implies we can have strong economic
growth coexist with low inflation, low unemployment and low interest rates.
These trends appear to be secular, not cyclical, and imply a positive
investment environment for financial markets. We expect to see broader
participation among the higher-risk asset classes as we move through 1999;
historically, those asset classes have responded well to Fed easing, and, to a
reacceleration in corporate profits.
We note with great conviction that attempts to "time" the market often prove
counterproductive. Investors are strongly urged to focus on the long term.
Consistent disciplined investing is the proven method of achieving attractive
returns and meeting your financial objectives. We continue to support this
philosophy and look foward to serving your investment needs in the future.
Sincerely,
[SIGNATURE GOES HERE]
Mark L. Lipson
President
January 30, 1999
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NORTHSTAR EQUITY TRUST
MID-CAP GROWTH FUND
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MARY LISANTI JEFF BERNSTEIN
THE MARKETS
o The markets experienced severe volatility during the year. While the
first half of the year was strong, in the second half of the year
investors experienced the most severe correction since 1990, as Russia's
default and the overleverage at hedge funds -- most notably Long Term
Capital -- led to a liquidity crunch in the Fall. The Federal Reserve
eased aggressively in the wake of the Long Term Capital bailout, and the
market responded by rallying strongly in the fourth quarter.
o The market continued to be dominated by large liquid issues. Although in
the wake of the correction, the market broadened out and smaller stocks
participated, they lagged badly for the year. For the year, the Dow Jones
Industrial average rose 18.1%, the S&P 500 rose 28.6%, and the NASDAQ
composite rose 39.7%, while the Russell 2000 returned (2.5%) for the year.
This marks the second year of severe underperformance for smaller
capitalization issues. At the end of the year, the valuation disparity
between large companies and small companies was the widest it had been in
over twenty years.
THE FUND
o The Northstar Mid-Cap Growth Fund was launched in the third quarter of
1998. We viewed the correction in that quarter as a buying opportunity, as
we saw no new structural negatives in the U.S. economy and believed the
Fed could and would provide some stabilization by supplying liquidity to
the financial system. Many great mid-sized growth companies had declined
to valuation levels last seen in 1990 and we took advantage of the
weakness to initiate positions in many companies at what we believed would
be bargain prices. The Fund participated strongly in the rally in the
fourth quarter due to the purchases made during the correction. Since
August 20, 1998 (the Fund's inception) through December 31, 1998, the Fund
has risen 29.6%, 29.7%, 29.6%, and 29.9% for Class A,B,C, and I,
respecitvely, versus an 18.5% return for its benchmark, the S&P Midcap
Index.
o The Fund focuses on companies with leading-edge positions in secular
growth industries and is structured around to secular themes. As a result,
it is underweight in more cyclical industries such as Energy, Financials,
and Consumer Cyclicals relative to its benchmark and overweight in more
secular growth areas such as Telecommunications, Technology, and
Healthcare. Among its more significant themes were The Ubiquitous
Semiconductor, The Life Sciences Revolution and Life on The Net.
CURRENT STRATEGY
o Since the Federal Reserve's first rate cut in the fall of 1998, we have
had 68 interest rate cuts worldwide as the central banks' focus has
shifted from containing inflation to fostering economic growth. The
broader market participation that we saw in the fourth quarter should
continue as we move through 1999, as a result of this shift in policy.
However, economic growth may be slow, particularly on a global scale, as
an overhang of debt may mute consumption in many parts of the world. In
such an environment, mid-cap companies may represent the "best of all
worlds" -- they are small and focused enough to provide strong earnings
growth, but offer a bit more stability and liquidity than small
capitalization stocks. We believe as investors focus on earnings growth,
they will increasingly look to mid-sized and smaller companies.
o We believe the Fund is well positioned in the current environment. The
Fund remains focused on high quality companies with solid business models
that will enable them to generate consistent earnings growth, even in a
challenging global economic environment, and that sell at reasonable
valuations to their growth prospects over the next several years. Many of
the mid-sized companies in which the Fund is invested are the class from
which the new global leaders will emerge and as such have opportunities
for further expansion as we move into 1999 and beyond.
- --------------------------------------------------------------------------------
FUND INFORMATION (ALL DATA ARE AS OF 12/31/98)TOTAL NET ASSETS $34,277,942
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP 10 HOLDINGS TOP 5 INDUSTRIES SEC AVERAGE ANNUAL RATES OF RETURN
NAME %FUND (by percentage of net assets) (at maximum applicable sales charge)
<S> <C> <C> <C> <C> <C> <C> <C>
o1 America Online, Inc. 3.6% Computer Software [12.8%] ---------------------------------------------
o2 VeriSign, Inc. 1.6% Inception 5 years 1 year
o3 Macromedia, Inc. 1.5% Consumer Cyclicals [12.3%] ---------------------------------------------
o4 MedImmune, Inc. 1.5% Class A 23.43% N/A N/A
o5 Teradyne, Inc. 1.5% Internet Services [8.6%] ---------------------------------------------
o6 VISX, Inc. 1.5% Class B 24.70% N/A N/A
o7 Micron Technology, Inc. 1.4% Semiconductor [7.6%] ---------------------------------------------
o8 Solectron Corp. 1.4% Class C 28.60% N/A N/A
o9 Williams-Sonoma, Inc. 1.4% Financial [7.5%] ---------------------------------------------
o10 Best Buy Co., Inc. 1.3%
---- CUMULATIVE TOTAL RETURN
16.7% (do not reflect sales charge)
===== ---------------------------------------------
Inception 5 years 1 year
---------------------------------------------
Class A 29.60% N/A N/A
---------------------------------------------
Class B 29.70% N/A N/A
---------------------------------------------
Class C 29.60% N/A N/A
---------------------------------------------
Class I 29.90% N/A N/A
---------------------------------------------
</TABLE>
3
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NORTHSTAR
MID-CAP GROWTH FUND
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE NORTHSTAR
MID-CAP GROWTH FUND AND COMPARATIVE INDICES FROM INCEPTION OF EACH
CLASS OF SHARES THROUGH THE FUND'S FISCAL YEAR END.
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data is supplied for the fiscal year ended December
31, 1998, with all distributions reinvested in shares. The average annualized
total return for Class A shares of 23.43% for the period since the classes'
inception on August 20, 1998 reflects payment of the maximum sales charge of
4.75%. Average annualized total returns of 24.70%, 28.60%, and 29.90% for Class
B, Class C, and Class I shares, respectively, and total returns since inception
on August 20, 1998, reflect applicable contingent deferred sales charges
(maximum contingent deferred sales charges for Class B shares of 5.00% declines
to 0% after 5 years; and maximum charge for Class C shares is 1.00% during the
first year of investment only). All performance data shown represents past
performance, and should not be considered indicative of future performance.
[CHARTS WITH PLOT POINTS GO HERE]
NORTHSTAR MID-CAP GROWTH FUND--CLASS A
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 23.43%
8/20/98 8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
-----------------------------------------------------------------------
CLASS A 9.52 8.64 9.18 9.69 10.54 12.34
-----------------------------------------------------------------------
S&P 400 10.00 8.45 9.24 10.07 10.57 11.85
-----------------------------------------------------------------------
NORTHSTAR MID-CAP GROWTH FUND--CLASS B
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 24.70%
8/20/98 8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
-----------------------------------------------------------------------
CLASS B 10.00 9.07 9.66 10.21 11.09 12.97
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S&P 400 10.00 8.45 9.24 10.07 10.57 11.85
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NORTHSTAR MID-CAP GROWTH FUND--CLASS C
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 28.60%
8/20/98 8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
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CLASS C 10.00 9.07 9.66 10.20 11.08 12.96
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S&P 400 10.00 8.45 9.24 10.07 10.57 11.85
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<PAGE>
NORTHSTAR MID-CAP GROWTH FUND--CLASS I
(IN THOUSANDS)
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 29.90%
8/20/98 8/31/98 9/30/98 10/31/98 11/30/98 12/31/98
-----------------------------------------------------------------------
CLASS I 10.00 9.07 9.66 10.20 11.09 12.99
-----------------------------------------------------------------------
S&P 400 10.00 8.45 9.24 10.07 10.57 11.85
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4
<PAGE>
NORTHSTAR MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Security Shares Value
- --------------------------------------------- ------------- ------------
<S> <C> <C>
COMMON STOCKS -- 97.36%
BIOTECHNOLOGY -- 6.20%
Agouron Pharmaceuticals, Inc. @ 6,000 $ 352,500
Biogen, Inc. @ 4,300 356,900
Chiron Corp. @ 11,500 301,156
Elan Corp. PLC @** 3,500 243,469
Gilead Sciences, Inc. @ 4,700 192,994
MedImmune, Inc. @ 5,000 497,187
PathoGenesis Corp. @ 3,100 179,800
----------
2,124,006
----------
CAPITAL GOODS -- 3.74%
Jabil Circuit, Inc. @ 5,600 417,900
Mettler-Toledo International, Inc. @ 8,600 241,338
Sealed Air Corp. @ 3,100 158,294
Solectron Corp. @ 5,000 464,687
----------
1,282,219
----------
COMMUNICATION SERVICE -- 1.33%
RSL Communications, Ltd.@ @@ 4,000 118,000
Sprint Corp. (PCS Group) @ 14,600 337,625
----------
455,625
----------
COMPUTER COMMUNICATIONS -- 1.34%
3Com Corp. @ 6,900 309,206
Ascend Communications, Inc. @ 2,300 151,225
----------
460,431
----------
COMPUTER SOFTWARE -- 12.76%
Aspect Development, Inc. @ 7,700 341,206
Check Point Software Technologies Ltd. @ @@ 6,300 288,619
Citrix Systems, Inc. @ 4,300 417,369
Compuware Corp. @ 5,300 414,062
Legato Systems, Inc. @ 5,500 362,656
Macromedia, Inc. @ 15,100 508,681
Mastech Corp. @ 12,200 349,225
Novell, Inc. @ 14,300 259,188
Oracle Corp. @ 4,100 176,813
Rational Software Corp. @ 14,800 392,200
Sapient Corp. @ 7,600 425,600
TSI International Software Ltd. @ 5,500 263,312
Wind River Systems, Inc. @ 3,700 173,900
----------
4,372,831
----------
</TABLE>
5
<PAGE>
NORTHSTAR MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares Value
- ----------------------------------------- ------------- ------------
<S> <C> <C>
CONSUMER CYCLICALS -- 12.29%
Abercrombie & Fitch Co. @ 5,200 $ 367,900
Amazon.com, Inc. @ 450 144,563
American Eagle Outfitters, Inc. @ 6,400 426,400
Dollar Tree Stores, Inc. @ 7,100 310,181
Family Dollar Stores, Inc. 7,100 156,200
Gemstar International Group Ltd.@ @@ 4,400 251,900
Linens 'n Things, Inc. @ 8,100 320,963
MIPS Technologies, Inc. @ 10,500 336,000
Office Depot, Inc. @ 9,200 339,825
Staples, Inc. @ 7,900 345,131
Sunrise Assisted Living, Inc. @ 8,300 430,562
The Men's Wearhouse, Inc. @ 9,300 295,275
Williams-Sonoma, Inc. @ 12,100 487,781
----------
4,212,681
----------
CONSUMER STAPLES -- 2.11%
Fox Entertainment Group, Inc. @ 2,900 73,044
Infinity Broadcasting Corp. @ 6,300 172,462
PSS World Medical, Inc. @ 13,900 319,700
Ticketmaster Online-CitySearch, Inc. @ 2,800 156,800
----------
722,006
----------
DIVERSIFIED COMMERICAL SERVICES -- 1.08%
Abacus Direct Corp. @ 5,900 268,450
Paychex, Inc. 2,000 102,875
----------
371,325
----------
DIVERSIFIED ELECTRONIC PRODUCTS -- 0.93%
Uniphase Corp. @ 4,600 319,125
----------
DRUG STORE CHAINS -- 0.65%
Express Scripts, Inc. @ 3,300 221,513
----------
EDP PERIPHERALS -- 2.44%
Electronics for Imaging, Inc. @ 9,600 385,800
Network Appliance, Inc. 3,800 171,000
Quantum Corp. @ 13,100 278,375
----------
835,175
----------
EDP SERVICES -- 7.08%
American Management Systems, Inc. @ 9,300 372,000
Concord Communications, Inc. @ 6,400 363,200
International Network Services @ 5,700 379,050
National Data Corp. 8,200 399,237
Policy Management Systems Corp. @ 2,600 131,300
The BISYS Group, Inc. 7,100 366,538
Whittman-Hart, Inc. @ 15,100 417,137
----------
2,428,462
----------
ELECTRONIC PRODUCTION/EQUIPMENT -- 4.28%
KLA-Tencor Corp. @ 8,300 360,013
Novellus Systems, Inc. @ 6,500 321,750
Synopsys, Inc. @ 5,000 271,250
Teradyne, Inc. @ 12,100 512,737
----------
1,465,750
----------
</TABLE>
6
<PAGE>
NORTHSTAR MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Security Shares Value
- -------------------------------------- ------------- ------------
<S> <C> <C>
FINANCIAL -- 7.49%
AFLAC, Inc. 9,800 $ 431,200
First Union Corp. 5,500 334,469
Firstar Corp. 1,748 163,001
Merrill Lynch & Co., Inc. 2,600 173,550
Morgan Stanley Dean Witter & Co. 1,900 134,900
Providian Financial Corp. 4,500 337,500
SunTrust Banks, Inc. 3,900 298,350
The Charles Schwab Corp. 7,800 438,262
Zions Bancorp. 4,100 255,738
----------
2,566,970
----------
GENERIC DRUGS -- 0.82%
Watson Pharmaceuticals, Inc. @ 4,500 282,938
----------
INTERNET SERVICES -- 8.64%
America Online, Inc. @ 7,800 1,248,000
Excite, Inc. @ 6,200 260,788
Infoseek Corp. @ 6,100 301,187
Inktomi Corp. @ 2,100 271,688
VeriSign, Inc. @ 9,500 561,687
Xoom.com, Inc. @ 1,800 59,400
Yahoo!, Inc. @ 1,100 260,631
----------
2,963,381
----------
MANAGED HEALTH CARE -- 2.34%
Humana, Inc. 13,400 238,688
Oxford Health Plans, Inc. @ 17,900 266,262
Wellpoint Health Networks, Inc. @ 3,400 295,800
----------
800,750
----------
MEDICAL/DENTAL DISTRIBUTORS -- 0.94%
Allegiance Corp. 6,900 321,713
----------
MEDICAL ELECTRONICS -- 1.53%
VISX, Inc. @ 6,000 524,625
----------
MEDICAL SPECIALTIES -- 1.80%
Becton, Dickinson & Co. 5,700 243,319
Biomet, Inc. 6,700 269,675
ResMed, Inc. @ 2,300 104,362
----------
617,356
----------
MEDICAL/NURSING SERVICES -- 1.17%
Pediatrix Medical Group, Inc. @ 6,700 401,581
----------
OFFICE EQUIPMENT/SUPPLIES -- 1.20%
Lexmark International Group, Inc. @ 4,100 412,050
----------
OFFICE/PLANT AUTOMATION -- 0.87%
Newbridge Networks Corp. @ @@ 9,800 297,675
----------
PHARMACEUTICALS -- 1.21%
Sepracor, Inc. @ 4,700 414,188
----------
RECREATIONAL PRODUCTS/TOYS -- 0.49%
Acclaim Entertainment, Inc. @ 13,700 167,825
----------
</TABLE>
7
<PAGE>
NORTHSTAR MID-CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Security Shares/Principal Amount Value
- --------------------------------------------------------------------------- ------------------------- --------------
<S> <C> <C>
SEMICONDUCTOR -- 7.56%
Altera Corp. @ 4,000 $ 243,500
Broadcom Corp. @ 1,400 169,050
C-Cube Microsystems, Inc. @ 5,900 160,038
Linear Technology Corp. 3,200 286,600
Maxim Integrated Products, Inc. @ 6,200 270,862
Microchip Technology, Inc. @ 12,500 462,500
Micron Technology, Inc. 9,600 485,400
Texas Instruments, Inc. 1,900 162,569
Xilinx, Inc. @ 5,400 351,675
------------
2,592,194
------------
TELECOMMUNICATIONS EQUIPMENT -- 4.15%
ADC Telecommunications, Inc. @ 9,700 337,075
Comverse Technology, Inc. @ 6,200 440,200
General Instrument Corp. @ 9,800 332,587
Motorola, Inc. 5,100 311,419
------------
1,421,281
------------
UTILITIES -- 0.92%
Montana Power Co. 5,600 316,750
------------
TOTAL COMMON STOCKS
(cost $24,002,961) 33,372,426
------------
TOTAL INVESTMENT SECURITIES -- 97.36%
(cost $24,002,961) 33,372,426
REPURCHASE AGREEMENT -- 5.31%
Agreement with State Street Bank and Trust bearing interest at 4.70% dated
12/31/98, to be repurchased 1/04/99 in the amount of $1,821,951 and
collateralized by $1,810,000 U.S. Treasury Notes, 5.75% due 11/15/00,
value $1,858,294
(cost $1,821,000) $1,821,000 1,821,000
LIABILITIES IN EXCESS OF OTHER ASSETS -- (2.67%) (915,484)
------------
NET ASSETS -- 100.00% $34,277,942
============
</TABLE>
@ Non-income producing security.
** American Depositary Receipt.
@@ Foreign security.
See accompanying notes to financial statements.
8
<PAGE>
NORTHSTAR EQUITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
Northstar
Mid-Cap
Growth Fund
--------------
<S> <C>
ASSETS:
Investments in securities, at value (cost $24,002,961) $33,372,426
Repurchase agreements 1,821,000
Cash 38,490
Receivable for investments sold 419,395
Dividends and interest receivable 2,540
Receivable for shares of beneficial interest sold 375
-----------
Total Assets 35,654,226
-----------
LIABILITIES:
Payable for investments purchased 1,296,458
Investment advisory fee payable 26,497
Audit fee payable 19,374
Custodian fee payable 14,761
Printing fee payable 7,986
Registration fee payable 4,316
Administrative service fees payable 2,650
Transfer agent fee payable 1,694
Distribution fee payable 304
Accrued expenses 2,244
-----------
Total Liabilities 1,376,284
-----------
NET ASSETS $34,277,942
===========
NET ASSETS ARE COMPOSED OF:
Capital paid in for shares of beneficial interest, $.01 par value outstanding
(unlimited shares authorized) 25,608,160
Accumulated net realized loss on investments (699,683)
Net unrealized appreciation of investments 9,369,465
-----------
Net Assets $34,277,942
===========
CLASS A:
Net Assets $ 609,626
-----------
Shares outstanding 47,045
-----------
Net asset value and redemption value per share (net assets/shares outstanding) $ 12.96
===========
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering $ 13.61
price) ===========
CLASS B:
Net Assets $ 140,643
-----------
Shares outstanding 10,841
-----------
Net asset value and offering price per share* (net assets/shares outstanding) $ 12.97
===========
CLASS C:
Net Assets $ 86,983
-----------
Shares outstanding 6,711
-----------
Net asset value and offering price per share* (net assets/shares outstanding) $ 12.96
===========
CLASS I:
Net Assets $33,440,690
-----------
Shares outstanding 2,574,798
-----------
Net asset value, offering and redemption price per share (net assets/shares outstanding) $ 12.99
===========
</TABLE>
* Redemption price per share varies with the length of time Class B and C
shares are held.
See accompanying notes to financial statements.
9
<PAGE>
NORTHSTAR EQUITY TRUST
STATEMENT OF OPERATIONS
FOR THE PERIOD AUGUST 20, 1998 (COMMENCEMENT OF OPERATIONS) THROUGH
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Northstar
Mid-Cap
Growth Fund
--------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 13,634
Interest 45,052
----------
Total investment income 58,686
----------
EXPENSES:
Investment advisory fees 73,797
Distribution fees:
Class A 403
Class B 141
Class C 115
Transfer agent fees and expenses:
Class A 144
Class B 56
Class C 33
Class I 1,736
Audit 24,124
Custodian and fund accounting 20,863
Printing and postage 8,050
Administrative service fees 7,380
Registration fees 7,208
Trustee 4,445
Miscellaneous 950
----------
149,445
Less expenses reimbursed by management company 37,687
----------
Total expenses 111,758
----------
Net investment loss (53,072)
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized loss on investments (699,683)
Net change in unrealized appreciation of investments 9,369,465
----------
Net realized and unrealized gain on investments 8,669,782
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,616,710
==========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
NORTHSTAR EQUITY TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
<TABLE>
<CAPTION>
Northstar
Mid-Cap
Growth Fund
---------------------
For the period
August 20, 1998(1)
to December 31, 1998
---------------------
<S> <C>
FROM OPERATIONS:
Net investment loss ...................................................... $ (53,072)
Net realized loss on investments ......................................... (699,683)
Net change in unrealized appreciation of investments ..................... 9,369,465
-----------
Increase in net assets resulting from operations ....................... 8,616,710
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares ......................................... 25,619,790
Cost of shares redeemed .................................................. (58,558)
-----------
Net increase in net assets derived from capital share transactions ....... 25,561,232
-----------
Net increase in net assets ............................................... 34,177,942
NET ASSETS:
Beginning of period ...................................................... 100,000
-----------
End of period ............................................................ $34,277,942
===========
</TABLE>
(1) Commencement of operations.
See accompanying notes to financial statements.
11
<PAGE>
NORTHSTAR EQUITY TRUST
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
THE PERIOD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
Net Asset Net realized Total Asset
Value, Net & unrealized from Value,
Period beginning investment gain on investment end of
Ended of period loss investments operations period
- ---------- ----------- ------------ -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Mid-Cap Growth Fund, Class A
8/20/98-
12/31/98 $ 10.00 $ (0.03) $ 2.99 $ 2.96 $ 12.96
Mid-Cap Growth Fund, Class B
8/20/98-
12/31/98 10.00 (0.03) 3.00 2.97 12.97
Mid-Cap Growth Fund, Class C
8/20/98-
12/31/98 10.00 (0.04) 3.00 2.96 12.96
Mid-Cap Growth Fund, Class I
8/20/98-
12/31/98 10.00 (0.02) 3.01 2.99 12.99
<CAPTION>
Net Ratio of Ratio of net
Assets, Ratio of expense investment
end of expenses reimbursement loss
Period Total period to average to average to average Portfolio
Ended return (000's) net assets (1) net assets (1) net assets (1) turnover
- ---------- ----------- ---------- ---------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
8/20/98- Mid-Cap Growth Fund, Class A
12/31/98 29.60% $ 610 1.80% 0.62% (1.10)% 61%
8/20/98- Mid-Cap Growth Fund, Class B
12/31/98 29.70 140 2.50 0.77 (2.05) 61
8/20/98- Mid-Cap Growth Fund, Class C
12/31/98 29.60 87 2.50 0.72 (2.04) 61
8/20/98- Mid-Cap Growth Fund, Class I
12/31/98 29.90 33,441 1.50 0.51 (0.70) 61
</TABLE>
(1) Annualized.
See accompanying notes to financial statements.
12
<PAGE>
NORTHSTAR EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization -- The Northstar Equity Trust (the "Trust"), a business
trust, was organized under the laws of the Commonwealth of Massachusetts on
June 12, 1998 and registered under the Investment Company Act of 1940 as a
diversified open-end management investment company. The name of the investment
series (the "Fund") which comprises the Trust and its respective investment
objectives are set forth below.
NORTHSTAR MID-CAP GROWTH FUND, ("Mid-Cap Growth Fund") is a diversified
portfolio with the investment objective of long term appreciation by investing
in equity securities. The Fund seeks to achieve its objective through
investments primarily in mid-sized companies the portfolio manager identifies
as an above average prospect for growth.
Security Valuation -- Equity securities are valued daily at the closing
sale prices reported on recognized securities exchanges 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 and asked
prices for such securities, or, if such prices are not available, at prices
provided by market makers, or at prices for securities of comparable maturity,
quality and type. Short-term debt instruments with remaining maturities of less
than 60 days are valued at amortized cost, unless the Trustees determine that
amortized cost does not reflect the fair value of such obligations. Securities
for which market quotations are not readily available are valued at fair value
determined in good faith by or under direction of the Trustees of the Trust.
The books and records of the Fund are maintained in U.S. dollars. Securities
quoted in foreign currencies are translated into U.S. dollars based on the
prevailing exchange rates on that day. The Adviser uses independent pricing
services to price the Fund's securities.
Security Transactions, Investment Income, Expenses -- Security
transactions are recorded on the trade date. Realized gains or losses on sales
of investments are calculated on the identified cost basis. Interest income is
recorded on the accrual basis except when collection is not expected; discounts
are accreted, and premiums amortized to par at maturity; dividend income is
recorded on the ex-dividend dates. Income, expenses (except class specific
expenses), and realized/unrealized gains/losses, are allocated proportionately
to the Fund's class of shares based upon the relative net asset value.
Distributions to Shareholders -- Dividends are paid annually by the
Mid-Cap Growth Fund. Distributions of net realized capital gains, if any, are
declared annually; however, to the extent that a net realized capital gain can
be reduced by a capital loss carryover, such gain will not be distributed.
The Fund may periodically make reclassifications among certain of their
capital accounts as a result of the timing and characterization of certain
income and capital gains distributions determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of net
operating losses. As of December 31, 1998, the following amounts have been
reclassified between undistributed net investment income, accumulated net
realized gain on investments and paid-in-capital:
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET REALIZED
NET INVESTMENT GAIN ON PAID-IN-
INCOME INVESTMENTS CAPITAL
---------------- ------------- ---------
<S> <C> <C> <C>
Mid-Cap Growth Fund -- $(53,072) $53,072
</TABLE>
These restatements did not affect net investment income, net realized
gain on investments, or net assets for the period ended December 31, 1998.
Foreign Currency -- The Fund isolates that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held.
Net realized gain (loss) on foreign currency transactions represents the
foreign exchange: (1) gains and losses from the sale of holdings of foreign
currencies, (2) gains and losses between trade date and settlement date on
investment securities transactions and forward exchange contracts, and (3)
gains and losses from the difference between amounts of interest and dividends
recorded and the amounts actually received. Net change in unrealized
appreciation (depreciation) of investments and foreign currency arise from
changes in the value of assets and liabilities including investments in
securities at fiscal year end, resulting from changes in the exchange rate.
Foreign Currency Forward Contracts -- The Fund may enter into foreign
currency forward contracts primarily to hedge against foreign currency exchange
rate risks on their non-U.S. dollar denominated investment securities. When
entering into a currency forward contract, the Fund agrees to receive or
deliver a fixed quantity of foreign currency for an agreed-upon price on an
agreed future date. These contracts are valued daily and the fund's net equity
therein, representing unrealized gain or loss on the contracts as measured by
the difference between the forward foreign exchange rates at the dates of entry
into the contracts and the forward rates at the reporting date, is included in
the statement of assets and liabilities. Realized and unrealized gains and
losses are included in the statement of operations. These instruments involve
market and/or credit risk in excess of the amount recognized in the statement
of assets and liabilities. Risks arise from the possible inability of
counterparties
13
<PAGE>
NORTHSTAR EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
to meet the terms of their contracts and from movement in currency and
securities values and interest rates.
Options -- The Fund may write (sell) and purchase put and call options.
The premium collected or paid by the Fund for the sale or purchase of a call or
put option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option. If an option which the Fund has
sold or purchased expires on the stipulated expiration date, the Fund realizes
a gain or loss in the amount of the premium received or paid for the option.
For written options, the Fund's obligation may be discharged in three
ways: (1) the option expires on the stipulated expiration date; (2) the option
holder excercises the right to call (buy) or put (sell) the security, or (3)
the Fund enters into a closing transaction. If the option is held until
expiration, the Fund recognizes a gain equal to the amount of premium received.
If the written call option is exercised by the counterparty, the premium is
added to the proceeds from the sale of the underlying security or currency in
determining whether the Fund has realized a gain or loss. If the written put
option is exercised by the counterparty, the premium reduces the cost basis of
the securities purchased by the Fund. If the Fund enters into a closing
transaction, a gain or loss is recognized equal to the difference between the
premium received by the Fund from the counterparty and the amount paid by the
Fund on effecting a closing purchase transaction, including brokerage
commissions. As the writer of options, the Fund bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Futures contracts -- The Fund may invest in futures contracts solely for
the purpose of hedging its existing portfolio securities, or securities that
the Fund intends to purchase, against fluctuations in fair value caused by
changes in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are
recognized as assets due from the broker (the Fund's agent in acquiring the
futures position). During the period the futures contract is open, changes in
the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the daily market value of the
contract.
Variation margin payments are received or made by the Fund each day,
depending upon the daily fluctuations in the fair value of the underlying
instrument. The Fund recognizes a gain or loss equal to the daily variation
margin. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
Should market conditions move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates, and the underlying
hedged assets.
Repurchase Agreements -- The Fund's Custodian takes possession of
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to assure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. If the seller defaults and the value of the collateral declines or
if bankruptcy proceedings are commenced with respect to the seller of the
security, realization of the collateral by the Fund may be delayed or limited.
Federal Income Taxes -- The Trust intends to comply with the special
provisions of the Internal Revenue Code available to investment companies and
to distribute all of the taxable net income to their respective shareholders.
Therefore, no Federal income tax provision or excise tax provision is required.
Management's Use of Estimates -- The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Northstar Holding, Inc. (and its wholly-owned operating subsidiaries,
Northstar Investment Management Corp., Northstar Distributors, Inc., and
Northstar Administrators Corp.) is an indirect wholly-owned subsidiary of
Reliastar Financial Corp. Northstar Investment Management Corp. (the "Adviser")
serves as the Fund's investment adviser. The Mid-Cap Growth Fund pays the
Adviser an investment advisory fee calculated at an annual rate of 1.00% of
average daily net assets. For the period ended December 31, 1998, the Adviser
earned $73,797 in investment advisory fees. The Adviser has voluntarily
undertaken to limit the expenses of the Mid-Cap Growth Fund to 1.80% (Class A),
2.50% (Class B&C), and 1.50% (Class I) of each respective class's average net
assets. The Adviser will reimburse the Fund for amounts in excess of such
limits, up to the total amount of fees received during the period. As of
December 31, 1998, the Adviser's reimbursements totaled $37,687 for the Mid-Cap
Growth Fund. Northstar Administrators Corp. (the "Administrator"), an affiliate
of the Adviser, serves as the Fund's administrator. The Fund pays the
Administrator a fee calculated at an annual rate of 0.10% of the Fund's average
daily net assets, and an annual shareholder account servicing fee of $5.00,
payable semi-annually, for each account of beneficial owners of shares. For the
period ended December 31, 1998, the
14
<PAGE>
NORTHSTAR EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
Administrator earned $7,380 in administrative and account servicing fees.
Northstar Distributors, Inc. (the "Distributor"), an affiliate of the Adviser
and the Administrator, is the distributor of the Fund's shares. Under separate
Distribution Plans pertaining to Class A, Class B, and Class C shares, the
Trust pays the Distributor monthly service fees at an annual rate of 0.25% of
the average daily net assets in the case of Class A, Class B, and Class C
shares, and monthly distribution fees at the annual rate of 0.05% of the
average daily net assets of Class A shares and 0.75% of the average daily net
assets of Class B and Class C shares. Class I does not pay distribution and
service fees. The Distributor also receives the proceeds of initial sales
charges paid by shareholders upon the purchase of Class A shares and contingent
deferred sales charges paid by shareholders upon certain redemptions of Class
A, B and C shares. For the period ended December 31, 1998, the Distributor
earned the following amounts in sales charges:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
--------- --------- --------
<S> <C> <C> <C>
Initial sales charges $0 N/A N/A
Contingent deferred sales charges $0 $0 $0
</TABLE>
NOTE 3. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the period ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
MID-CAP
GROWTH FUND
--------------
<S> <C>
Aggregate purchases $36,299,498
Aggregate sales $11,596,854
</TABLE>
NOTE 4. PORTFOLIO SECURITIES (TAX BASIS)
The cost of securities for federal income tax purposes and the aggregate
appreciation and depreciation of securities at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
MID-CAP
GROWTH FUND
--------------
<S> <C>
Cost (tax basis) $24,002,961
-----------
Appreciated securities 9,429,331
Depreciated securities 59,866
-----------
Net unrealized appreciation/depreciation $ 9,369,465
-----------
</TABLE>
<PAGE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of the Fund for the period ended December
31, 1998, were as follows:
<TABLE>
<CAPTION>
MID-CAP GROWTH FUND
-------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS I
----------------------- -------------------- ------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- -------- ----------- -------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 43,111 $ 429,944 10,841 $119,263 6,711 $70,583 2,574,798 $25,000,000
Reinvested dividends 0 0 0 0 0 0 0 0
Shares redeemed (6,066) (58,558) 0 0 0 0 0 0
------ --------- ------ -------- ----- ------- --------- -----------
Net increase 37,045 $ 371,386 10,841 $119,263 6,711 $70,583 2,574,798 $25,000,000
------ --------- ------ -------- ----- ------- --------- -----------
</TABLE>
15
<PAGE>
NORTHSTAR EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Investments in higher yield securities are accompanied by a greater
degree of credit risk and such lower rated securities tend to be more sensitive
to economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities, because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due
to unpaid interest income on defaulted bonds for the current reporting period.
NOTE 7. SECURITY LOANS
The Fund may lend its securities to brokers, dealers and other financial
institutions in amounts up to one third of the value of its total assets. The
loans are fully collateralized at all times by cash or liquid high grade
securities. As with other extensions of credit, the Fund may bear risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Fund receives compensation for lending its
securities in the form of fees or all or a portion of the income from
investments of the collateral. The Fund also continues to earn income on the
securities loaned. At December 31, 1998, the Fund did not have any securities
on loan.
NOTE 8. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1998, the Mid-Cap Growth Fund had capital loss
carryforwards expiring December 31, 2006 of $699,683.
NOTE 9. LETTER OF CREDIT
The Northstar Funds, Northstar Equity Trust, Northstar Galaxy Trust and
Northstar Trust (collectively the "Funds") have entered into an unsecured
committed revolving line of credit agreement (the "Credit Agreement") with
State Street Bank and Trust Company for an aggregate amount of $50,000,000. The
proceeds may be used only to (1) temporarily finance the purchase and sale of
securities; (2) finance the redemption of shares of an investor in the Funds;
and (3) enable the Funds to meet other emergency expenses as defined in the
Credit Agreement. The Funds pays a commitment fee equal to 0.08% per annum on
the daily unused portion of the committed line amount payable quarterly in
arrears. During the year ended December 31, 1998, the Fund did not have any
loans outstanding.
16
<PAGE>
NORTHSTAR EQUITY TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
[GRAPHIC GOES HERE]
To the Shareholders and Trustees
of Northstar Equity Trust:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statement of operations and of
changes in net assets and the financial highlights present fairly in all
material respects, the financial position of the Northstar Mid-Cap Growth Fund
of the Northstar Equity Trust (the "Trust"), at December 31, 1998, the results
of its operations, the changes in its net assets and the financial highlights
for the period August 20, 1998 (commencement of operations) through December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereinafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
securities at December 31, 1998 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
17
